WASHINGTON–Sens. Elizabeth Warren (D-MA), ranking member of the Senate Banking, Housing, and Urban Affairs Committee, and Andy Kim (D-NJ) have sent a letter to Acting FDIC Chairman Travis Hill calling on the agency to re-impose a moratorium on new deposit insurance applications submitted by commercially owned industrial loan companies (ILCs).
The senators noted 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.
‘Longstanding Crack in Wall’
“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.”
Lack of Oversight
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,” the letter reads. “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 two 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 senators said. “The FDIC would likely have to liquidate it, which is far more costly to the Deposit Insurance Fund.
Moratorium Urged
“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,” the letter continued. “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.”
