FDIC Places Six-Month Moratorium on ILC Applications and Notices
Source: Press Release
Federal Deposit Insurance Corporation
Washington, D.C.
www.fdic.gov
The board of directors of the Federal Deposit Insurance Corporation (FDIC) approved by notational vote a six-month moratorium on applications for deposit insurance by Industrial Loan Companies (ILCs), as well as on notices of change in bank control for existing ILCs. The FDIC will not make any final decisions or accept any future applications for deposit insurance or notices of change in control for ILCs during this period. The press release was dated July 28, 2006.
According to the press release, the recent growth of the ILC industry, the trend toward commercial company ownership of ILCs, and the nature of some ILC business models have raised questions about the risks of ILCs to the deposit insurance fund, and whether their commercial relationships pose any safety and soundness risks.
The FDIC put the moratorium in place to provide time to assess developments in the ILC industry, to determine if any emerging safety and soundness or policy issues exist involving ILCs, and to evaluate whether statutory, regulatory or policy changes need to be made in the oversight of these charters. The moratorium also allows the agency time to further evaluate the various issues, facts, and arguments raised in connection with the ILC industry, and to assess whether statutory or regulatory changes or revised standards and procedures for ILC applications and supervision are needed to protect the deposit insurance fund.
The moratorium provides a limited exception only in the unlikely circumstances in which there is a risk to an FDIC-insured institution or to the insurance fund, or if the mission of the FDIC is impaired. The moratorium expires on January 31, 2007.
Currently, 61 ILCs operate in seven states. There are nine ILC applications for deposit insurance and five notices of change in control for existing ILCs pending before the FDIC. All of those applications and notices are subject to the moratorium.
In response to the FDIC moratorium press release, the banking industry trade associations, ABA and ICBA, released news releases dated July 28, 2006; the following are excerpts.
Edward L. Yingling, president and CEO of the ABA, stated: “The ABA strongly supports the FDIC’s actions today announcing a six-month moratorium on applications for deposit insurance by industrial loan companies.
It is critical that the agency step back and take a broad look at the ramifications of approving pending applications by commercial firms. Clearly these are no ordinary applications; they are predecent-setting and would very likely completely open the door to commercial firms owning banks.
The moratorium should give Congress the opportunity to consider the important policy implications at stake. The ABA strongly believes Congress should enact legislation reconfirming the existing policy of this country against commercial firms owning banks. We hope Congress will enact legislation barring any future acquisition or charter of ILCs by commercial firms.”
Camden R. Fine, president and CEO of the ICBA, stated: “ICBA is extremely pleased with the FDIC’s announcement of a six-month moratorium on ILCs. We commend the FDIC for recognizing that these are not routine applications. They will have far reaching impact on the fundamental structure of our financial and economic system and on local communities and small business. That is why 150 members of Congress have publicly expressed their concerns to the FDIC, including more than 100 who called for an ILC moratorium. Congress has before it ILC reform legislation and we urge Congress to consider it expeditiously.”
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Editor’s comments: Banking industry representatives have been pressing the FDIC and Congress to block a bid by Wal-Mart Stores Inc. to open an ILC in UT. The FDIC held two unprecedented hearings on the Wal-Mart insurance application this spring. Recently, a coalition of 32 groups, including the ABA and ICBA, sent a letter to every member of Congress urging them to sign a bill that would bar new commercially-owned industrial banks as of June 1, 2006.
