Warren, Kim Call for Moratorium on Deposit Insurance Approvals for Commercially-Owned Banks Until Congress Closes Oversight Loophole
“A moratorium would provide Congress with an opportunity to address a longstanding crack in the wall separating banking and commerce before it becomes a chasm.”
Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, and Andy Kim (D-NJ) sent a letter to Acting Federal Deposit Insurance Corporation (FDIC) Chairman Travis Hill calling on the FDIC to re-impose a moratorium on new deposit insurance applications submitted by commercially owned industrial loan companies (ILCs). The FDIC and Congress previously imposed a moratorium on commercially owned ILC applications from 2006-2019 after ILC proposals from retail giants Walmart and Home Depot raised concerns about the concentration of corporate power.
“A moratorium would provide Congress with an opportunity to address a longstanding crack in the wall separating banking and commerce before it becomes a chasm,” the Senators wrote. “Big Tech companies, automobile manufacturers, and large retailers have either filed, or have expressed interest in filing, applications with the FDIC. The separation of banking and commerce promotes competition across the economy, enhances financial stability, and protects our economic and political systems from concentrating too much power in the hands of a few corporate giants.”
The Senators raised concerns on the lack of regulatory oversight over ILCs: “First, since ILCs are exempt from the definition of ‘bank’ under the Bank Holding Company Act, they are not supervised by any regulator on a consolidated basis. That means the activities of the parent company and all of the nonbank affiliates are generally out of the sight of regulators, even though those entities can pose serious risks to the bank and, in turn, the Deposit Insurance Fund.”
The Senators used General Motors' proposed ILC as an example of the limited value and risks commercial ILCs pose to taxpayers: “Its value would stem from its relationship with GM’s auto business. If GM or the bank failed, no one would want to purchase the bank. The FDIC would likely have to liquidate it, which is far more costly to the Deposit Insurance Fund.”
“The FDIC should impose a moratorium on reviewing new commercially owned ILC applications for federal deposit insurance. Congress should then use that pause to pass legislation closing the ILC loophole. If the FDIC does not impose a moratorium, and continues reviewing applications, it must rigorously adhere to the statute. Many ILC applications do not pass muster and must be denied under the law,” the Senators concluded.
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