FDIC Proposes New Requirements for ILCs Seeking Deposit Insurance

The FDIC today issued a proposed rule to require certain conditions and commitments for each deposit insurance application approval by an industrial loan company whose parent company is not subject to Federal Reserve supervision. The proposed rule would apply to deposit insurance, change in bank control and merger filings that involve industrial banks. Comments will be due 60 days after publication of the Federal Register.

Under the proposed rule, the parent company would be required to enter into written agreements with the FDIC and ILC to address the company’s relationship with the ILC, require capital and liquidity support from the parent to the ILC, and establish appropriate recordkeeping and reporting requirements. The proposal would also codify the FDIC’s current supervisory processes and policies with respect to ILCs, including explicitly requiring examinations of nonbank parents and affiliates.

FDIC Chairman Jelena McWilliams emphasized that “nothing in the proposal today limits the ability of the FDIC to require commitments that go beyond the provisions in the rule, and to the extent the FDIC considers ILC applications that present novel issues, I expect such additional commitments will be prudent.”  She added that ILCs also remain subject to Sections 23A and 23B of the Federal Reserve Act, which impose restrictions on transactions between banks and affiliates.

The FDIC’s move comes as the agency considers an application by Rakuten, a major Japanese e-commerce company for deposit insurance. While ABA has long been a strong advocate for charter choice, the association previously raised concerns that the approval of Rakuten’s application would undermine both the well-established separation of banking and non-financial commerce and the value of consolidated supervision of banking organizations.