FDIC Finalizes Requirements for ILCs Seeking Deposit Insurance

The FDIC today finalized a rule requiring certain conditions and commitments for deposit insurance applications from an industrial loan company whose parent company is not subject to Federal Reserve supervision. Under the final rule—which takes effect on April 1, 2021, and is substantially similar to the proposal—the parent company must enter into written agreements with the FDIC and its ILC subsidiary 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 final rule also codifies 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 said the rule “provides transparency by codifying FDIC’s long-standing practice, while ensuring that all industrial bank applicants for deposit insurance and their parent companies understand regulatory expectations before they commence the application process.”

The FDIC’s action comes amid renewed interest in the ILC charter. The agency approved two ILC applications for deposit insurance in March—the first since 2008. While the American Bankers Association has long been a strong advocate for charter choice, the association raised concerns earlier this year about a series of ILC applications from Rakuten, a major Japanese e-commerce company, based on the belief that Rakuten’s application raises significant risks to the Deposit Insurance Fund due to the affiliation, integration and assimilation of banking and non-financial businesses, as well as consumer protection concerns raised by the handling of customer information.