Final rule.
CFR Part: “12 CFR Part 354”
RIN Number: “RIN 3064-AF31”
Citation: “86 FR 10703”
Page Number: “10703”
“Rules and Regulations”
Agency: “
SUMMARY: The
DATES: The rule is effective on
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Policy Objectives
II. Background
A. History
B. Industrial Bank Exclusion Under the BHCA
C. Industry Profile
D. Supervision
F. FDIC Moratorium and Other Agency Actions
G. 2007 Notice of Proposed Rulemaking–Part 354
H. Dodd-Frank Act and Industrial Banks
III. The Proposed Rule
IV. Discussion of General Comments and Final Rule
A. General Comments
1. Banking and Commerce
2. Lack of Federal Consolidated Supervision
3. Consumer Protection Risks
4. Justification for the Proposed Rule
B. Description of the Final Rule
1. Section 354.1–Scope
2. Section 354.2–Definitions
3. Section 354.3–Written Agreement
4. Section 354.4–Required Commitments and Provisions of Written Agreement
5. Section 354.5–Restrictions on Industrial Bank Subsidiaries of Covered Companies
6. Section 354.6–Reservation of Authority
7. Responses to Additional Questions
V. Expected Effects
A. Overview of Industrial Banks
B. Analysis of the Commitments
C. Safety and Soundness of Affected Banks
D. Broad Effects on the Banking Industry
E. Expected Effects on Consumers
F. Expected Effects on the Economy
VI. Regulatory Analysis
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Plain Language
D.
E. Congressional Review Act
I. Policy Objectives The
FOOTNOTE 1 See 12 U.S.C. 1811, 1818, 1821, 1831o-1, 1831p-1. END FOOTNOTE
FOOTNOTE 2 Herein, the term “industrial bank” means any insured State-chartered bank that is an industrial bank, industrial loan company, or other similar institution that is excluded from the definition of “bank” in the Bank Holding Company Act pursuant to 12 U.S.C. 1841(c)(2)(H). State laws refer to both industrial loan companies and industrial banks. For purposes of this rule, the
FOOTNOTE 3 12 U.S.C. 1816. END FOOTNOTE
FOOTNOTE 4 12 U.S.C. 1817(j). END FOOTNOTE
FOOTNOTE 5 12 U.S.C. 1828(c). END FOOTNOTE
FOOTNOTE 6 Garn-St. Germain Depository Institutions Act of 1982, Public Law 97-320, 96 Stat. 1469 (
Existing State and Federal laws allow both financial and commercial companies to own and control industrial banks.
FOOTNOTE 7 Public Law 100-86, 101 Stat. 552 (
FOOTNOTE 8 In the context of the proposed rule, “Federal consolidated supervision” referred to the supervision of a parent company and its subsidiaries by the
FOOTNOTE 9 See FDIC Deposit Insurance Applications, Procedures Manual Supplement, Applications from
Given the continuing interest in the industrial bank charter and the evolving business models, the
FOOTNOTE 10 Parent Companies of Industrial Banks and Industrial Loan Companies, 85 FR 17771, 17772-73 (
FOOTNOTE 11 In March of 2020, the
The
II. Background
A. History
Industrial banks began as small State-chartered loan companies in the early 1900s to provide small loans to industrial workers. Initially, many industrial banks did not accept any deposits and funded themselves instead by issuing investment certificates. However, the Garn-St. Germain Depository Institutions Act of 1982, /12/ among other effects, made all industrial banks eligible for Federal deposit insurance. This expanded eligibility for Federal deposit insurance brought industrial banks under the supervision of both a State authority and the
FOOTNOTE 12 96 Stat. 1469. END FOOTNOTE
FOOTNOTE 13 Prior to 1982, the
Under the FDI Act, industrial banks are “State banks” /14/ and all of the existing
FOOTNOTE 14 12 U.S.C. 1813(a)(2). END FOOTNOTE
FOOTNOTE 15 12 U.S.C. 1813(e)(2). END FOOTNOTE
FOOTNOTE 16 12 U.S.C. 1813(q)(2). END FOOTNOTE
B. Industrial Bank Exclusion Under the BHCA
In 1987,
FOOTNOTE 17 Section 4 of the BHCA generally prohibits a BHC from acquiring ownership or control of any company which is not a bank or engaging in any activity other than those of banking or of managing or controlling banks and other subsidiaries authorized under the BHCA. See 12 U.S.C. 1843(a)(1) and (2). The Home Owners' Loan Act (HOLA) governs the activities of SLHCs, as amended by the Dodd-Frank Act, which generally subjects these companies to the permissible financial holding company activities under section 4(k) of the BHCA (12 U.S.C. 1843(k), activities that are financial in nature or incidental to a financial activity). See 12 U.S.C. 1467a(c)(2)(H). END FOOTNOTE
More specifically, the CEBA redefined the term “bank” in the BHCA to include: (1) Any FDIC-insured institution, and (2) any other institution that accepts demand or checkable deposit accounts and is engaged in the business of making commercial loans. /18/ This change effectively closed the so-called “nonbank bank” exception implicit in the prior BHCA definition of “bank.” The CEBA created explicit exceptions from this definition for certain categories of federally insured institutions, including industrial banks, credit card banks, and limited purpose trust companies. The exclusions from the definition of the term “bank” created in 1987 by the CEBA remain in effect today. To be eligible for the CEBA exception from the BHCA definition of “bank,” an industrial bank must have received a charter from one of the limited number of States eligible to issue industrial bank charters, and the law of the chartering State must have required Federal deposit insurance as of
FOOTNOTE 18 12 U.S.C. 1841(c)(1). END FOOTNOTE
FOOTNOTE 19 Regulation D, 12 CFR part 204, implements the reserve requirements of section 19 of the Federal Reserve Act and defines a demand deposit as a deposit that is payable on demand, or issued with an original maturity or required notice period of less than seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days' written notice of an intended withdrawal. Demand deposits may be in the form of (i) checking accounts; (ii) certified, cashier's, teller's, and officer's checks; and (iii) traveler's checks and money orders that are primary obligations of the issuing institution. Other forms of accounts may also meet the definition of “demand deposit.” See 12 CFR 204.2(b)(1). END FOOTNOTE
FOOTNOTE 20 12 U.S.C. 1841(c)(2)(H). END FOOTNOTE
Industrial banks are currently chartered in
FOOTNOTE 21 Colorado was also grandfathered but it has no active industrial banks and has since repealed its industrial bank statute. END FOOTNOTE
FOOTNOTE 22 A NOW account is an interest-earning bank account whereby the owner may write drafts against the money held on deposit. NOW accounts were developed when certain financial institutions were prohibited from paying interest on demand deposits. The prohibition on paying interest on demand deposits was lifted when the FRB repealed its Regulation Q, effective
FOOTNOTE 23 12 U.S.C. 1832(a). Only certain types of customers may maintain deposits in a NOW account. 12 U.S.C. 1832(a)(2). END FOOTNOTE
C. Industry Profile
The industrial bank industry has evolved since the enactment of the CEBA. The industry experienced significant asset growth between 1987 and 2006 when total assets held by industrial banks grew from
FOOTNOTE 24 Most of the growth during this period is attributable to financial services firms that controlled industrial banks offering sweep deposit programs to provide Federal deposit insurance for customers' free cash balances and to
FOOTNOTE 25 During this time period, the
FOOTNOTE 26 Of the 58 industrial banks existing at this time, 45 were chartered in
Since 2007, the industrial bank industry has experienced contraction both in terms of the number of institutions and aggregate total assets. As of
FOOTNOTE 27 Of the 23 industrial banks existing as of
The reduction in the number of industrial banks from 2007 to 2020 was due to a variety of factors, including mergers, conversions, voluntary liquidations, and the failure of two small institutions. /28/ For business, marketplace, or strategic reasons, several industrial banks converted to commercial banks and thus became “banks” under the BHCA. Four industrial banks were approved in 2007 and 2008; however, none of those institutions exist today. /29/ Moratoria imposed by the
FOOTNOTE 28
FOOTNOTE 29 In each case, the institution pursued a voluntary transaction that led to termination of the respective institution's industrial bank charter. One institution converted to a commercial bank charter and continues to operate, one merged and the resultant bank continues to operate, and two terminated deposit insurance following voluntary liquidations. Such transactions generally result from proprietary strategic determinations by the institutions and their parent companies or investors. END FOOTNOTE
Since the beginning of 2017, the
FOOTNOTE 30 In March of 2020, the
FOOTNOTE 31 Decisions to withdraw an application are made at the discretion of the organizers and can be attributed to a variety of reasons. In some cases, an application is withdrawn and then refiled after changes are incorporated into the proposal. In such cases, the new application is reviewed by the
D. Supervision
Because industrial banks are insured State nonmember banks, they are subject to the
FOOTNOTE 32 See 12 U.S.C. 1828(j)(1)(A). END FOOTNOTE
FOOTNOTE 33 For purposes of section 106 of the BHCA, an industrial bank is treated as a “bank” and is subject to the anti-tying restrictions therein. See 12 U.S.C. 1843(f)(1). END FOOTNOTE
FOOTNOTE 34 12 U.S.C. 1820(b)(4). END FOOTNOTE
In addition, under section 38A of the FDI Act, as amended by the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), /35/ the
FOOTNOTE 35 Public Law 111-203, 124 Stat. 1376 (
FOOTNOTE 36 12 U.S.C. 1831o-1(b). END FOOTNOTE
FOOTNOTE 37 See 12 U.S.C. 1831o-1(d). END FOOTNOTE
Consistent with section 38A and other authorities under the FDI Act, the
FOOTNOTE 38 When the
FOOTNOTE 39 See 12 U.S.C. 1818 and 1831aa. END FOOTNOTE
Beginning in 2004, the
FOOTNOTE 40 See OIG Evaluation 04-048,
FOOTNOTE 41 GAO-05-621. END FOOTNOTE
These reports acknowledged the
F. FDIC Moratorium and Other Agency Actions
In 2005,
To evaluate the concerns and issues raised with respect to the
FOOTNOTE 42 See Moratorium on Certain Industrial Loan Company Applications and Notices, 71 FR 43482 (
FOOTNOTE 43 Id. at 43483. END FOOTNOTE
In connection with this moratorium, on
FOOTNOTE 44 See Industrial Loan Companies and Industrial Banks, 71 FR 49456 (
FOOTNOTE 45 Approximately 12,485 comments on the notice were generated either supporting or opposing the proposed industrial bank to be owned by
The moratorium was effective through
FOOTNOTE 46 See Moratorium on Certain Industrial Bank Applications and Notices, 72 FR 5290 (
G. 2007 Notice of Proposed Rulemaking (NPR)–Part 354
In addition to extending the moratorium for one year with respect to commercial parent companies, the
FOOTNOTE 47 See Industrial Bank Subsidiaries of Financial Companies 72 FR 5217 (
Similar to this final rule, the 2007
FOOTNOTE 48 See 12 U.S.C. 1820(b)(4). END FOOTNOTE
Though the 2007
The
FOOTNOTE 49 See Crisis and Response, An FDIC History, 2008-2013, available at https://www.fdic.gov/bank/historical/crisis/. The financial crisis in 2008 and 2009 threatened large financial institutions of all kinds, both inside and outside the traditional banking system, and thus endangered the financial system itself. Second, a banking crisis, accompanied by a swiftly increasing number of both troubled and failed insured depository institutions, began in 2008 and continued until 2013. END FOOTNOTE
H. Dodd-Frank Act and Industrial Banks
As discussed above and in reaction to the 2008-09 financial crisis, the Dodd-Frank Act amended the FDI Act by adding section 38A. /50/ Under section 38A, for any insured depository institution that is not a subsidiary of a BHC or SLHC, the appropriate Federal banking agency for the insured depository institution must require any company that directly or indirectly controls such institution to serve as a source of financial strength for the institution. /51/
FOOTNOTE 50 See 12 U.S.C. 1831o-1. END FOOTNOTE
FOOTNOTE 51 12 U.S.C. 1831o-1(b). This amendment also requires the appropriate Federal banking agency for a BHC or SLHC to require the BHC or SLHC to serve as a source of financial strength for any subsidiary of the BHC or SLHC that is a depository institution. 12 U.S.C. 1831o-1(a). END FOOTNOTE
Through the Dodd-Frank Act,
FOOTNOTE 52 Public Law 111-203, title VI, section 603(a), 124 Stat. 1597 (2010). Section 603(a) also imposed a moratorium on
FOOTNOTE 53 Id. END FOOTNOTE
In addition, the Dodd-Frank Act directed the GAO to conduct a study of the implications of removing all exceptions from the definition of “bank” under the BHCA. The GAO report was published in January of 2012. /54/ This report examined the number and general characteristics of exempt institutions, the Federal regulatory system for such institutions, and potential implications of subjecting the holding companies of such institutions to BHCA requirements. The GAO report noted that the industrial bank industry experienced significant asset growth in the 2000s and, during this time, the profile of industrial banks changed: Rather than representing a class of small, limited-purpose institutions, industrial banks became a diverse group of insured institutions with a variety of business lines. /55/ Ultimately, the GAO found that Federal regulation of the exempt institutions' parent companies varied, noting that
FOOTNOTE 54 See
FOOTNOTE 55 Id. at 13. END FOOTNOTE
FOOTNOTE 56 The GAO did not recommend repeal of the exemption. END FOOTNOTE
III. The Proposed Rule
On
FOOTNOTE 57 85 FR 17771 (
* Furnishing an initial listing, with annual updates, of the
* Consenting to
* Submitting an annual report on the
* Maintaining such records as the
* Causing an independent annual audit of each industrial bank.
* Limiting the
* Maintaining the industrial bank's capital and liquidity at such levels as deemed appropriate and take other action necessary to provide the industrial bank with a resource for additional capital or liquidity.
* Entering into a tax allocation agreement. /58/
FOOTNOTE 58 See proposed
The proposal also set forth the
Recently, a number of companies have considered options for providing financial products and services by establishing an industrial bank subsidiary. Many companies have publicly noted the benefits of deposit insurance and establishing a deposit-taking institution. Although many interested parties operate business models focused on traditional community bank products and services, others operate unique business models, some of which are focused on innovative technologies and strategies, including newer business models employed by fintech firms that utilize novel or unproven products or processes.
Some of the companies recently exploring an industrial bank charter engage in commercial activities or have diversified business operations and activities that would not otherwise be permissible for BHCs under the BHCA and applicable regulations. Given the continuing interest in the establishment of industrial banks, particularly with regard to proposed institutions that plan to implement specialty or limited purpose business models, including those focused on innovative technologies, the
The
FOOTNOTE 59 “[T]he Corporation . . . shall have power . . . [t]o prescribe by its Board of Directors such rules and regulations as it may deem necessary to carry out the provisions of this chapter or of any other law which it has the responsibility of administering or enforcing (except to the extent that authority to issue such rules and regulations has been expressly and exclusively granted to any other regulatory agency).” 12 U.S.C. 1819(a)(Tenth). END FOOTNOTE
FOOTNOTE 60 See 12 U.S.C. 1815, 1818(a). END FOOTNOTE
FOOTNOTE 61 Such factors are the financial history and condition of the depository institution, the adequacy of the depository institution's capital structure, the future earnings prospects of the depository institution, the general character and fitness of the management of the depository institution, the risk presented by such depository institution to the DIF, the convenience and needs of the community to be served by such depository institution, and whether the depository institution's corporate powers are consistent with the purposes of the FDI Act. See 12 U.S.C. 1816. END FOOTNOTE
FOOTNOTE 62 See 12 U.S.C. 1817(j), 1828(c), and 1828(d). END FOOTNOTE
The
The
FOOTNOTE 63 Given the disruptions caused by the COVID-19 global pandemic, the
FOOTNOTE 64 On
IV. Discussion of General Comments and Final Rule
A. General Comments
Many commenters were supportive of the
Comments submitted by bank trade associations, consumer groups, and academics were generally critical of the proposed rule and expressed a range of concerns, which are discussed below.
1. Banking and Commerce
Commenters' criticism of the industrial bank charter, and by extension the proposed rule, is focused, in part, on the mixing of banking and commerce through the commercial ownership of an industrial bank. The main argument is that commercial ownership of an industrial bank disregards the policy of separation of banking and commerce embodied in the BHCA /65/ and raises risk to the DIF as a result of a lack of Federal consolidated supervision over the commercial parent company.
FOOTNOTE 65
Although Federal banking regulation has historically advanced a policy of separating banking and commerce, there is an express Congressional exception of industrial banks from the BHCA's restrictions on commercial affiliations. /66/ The CEBA exception does not limit eligible parent companies to those engaged in financial activities. The
FOOTNOTE 66 The legislative history of the CEBA offers no explanation of why this exception was adopted. While the industrial bank exception was included in the
INDUSTRIAL LOAN COMPANY EXEMPTION SECTION 2(C) (2) (H) OF THE BANK HOLDING COMPANY ACT
The Senate amendment exempts from the definition of “bank” certain industrial banks; industrial loan companies, or other similar institutions.
Conference Report to accompany H.R. 27–Competitive Equality Banking Act of 1987 (
Some commenters requested that the
These commenters also argued that allowing commercial firms and industrial banks to combine could potentially lead to conflicts of interest in the lending process and undue concentrations of economic power–concerns they contend underlie the general prohibition against the mixing of commerce and banking in the BHCA. As noted above, the decision to allow commercial firms to own industrial banks was a decision made by
FOOTNOTE 67 12 U.S.C. 371c(a)(1), 371c-1(a)(1); see also 12 U.S.C. 1828(j). END FOOTNOTE
FOOTNOTE 68 12 U.S.C. 371c-1(b). END FOOTNOTE
FOOTNOTE 69 12 U.S.C. 371c(a)(4). END FOOTNOTE
Commenters' competition concerns were based on the possibility that large commercial or technology firms will acquire industrial banks and lead to commercial and financial conglomerates with concentrated and excessive economic power. These commenters were concerned that the
FOOTNOTE 70 As part of its considerations, the
FOOTNOTE 71 See 12 U.S.C. 1817(j)(7)(A), (B); 1828(c)(5). END FOOTNOTE
2. Lack of Federal Consolidated Supervision
Many commenters that were critical of the proposed rule also argued that the potential future expansion of banks operating under the CEBA exception threatens the Federal safety net because the
FOOTNOTE 72 Financial Services Modernization Act of 1999, Public Law 106-102, 113 Stat. 1338 (1999). END FOOTNOTE
As discussed in the proposed rule, the
FOOTNOTE 73 12 U.S.C. 1831o-1(b). END FOOTNOTE
FOOTNOTE 74 See 12 U.S.C. 1831o-1(d). END FOOTNOTE
In addition, an important focus of the
FOOTNOTE 75 See Report to the
The rule also strengthens the
Finally, the
FOOTNOTE 76 See 12 U.S.C. 1820(b) and 1820(b)(4)(A). END FOOTNOTE
The
Certain commenters also observed that several large corporate owners of industrial banks experienced stress during the 2008-09 financial crisis. In some cases, the parent organizations ultimately filed bankruptcy, while others pursued strategies to resolve the stress, including through access to government programs intended to alleviate the effects of the crisis within the financial services sector. These programs included the
However, it is important to note that each institution or company described in the comments was engaged in activities permissible for all Federal and State banks, BHCs, or financial holding companies, as evidenced by the ability to gain approval for the conversions to commercial banks and BHCs. Further, the types and degree of stress were also experienced by many other insured depository institutions and banking companies, some of which also sought participation in TLGP and/or TARP, failed, or pursued transactions to restructure the organization, merge, or raise capital to alleviate stress or avert failure. As such, the circumstances involving the companies highlighted in the comments were not dissimilar to those facing other banking companies, including companies subject to Federal consolidated supervision.
3. Consumer Protection Risks
Commenters opposed to the proposed rule also argued that the growth in industrial banks poses broader consumer protection risks. They asserted that the parent companies of industrial banks are not subject to Federal financial privacy and information security requirements and the absence of these requirements creates risk for customers of the industrial banks, whether or not they also obtain products and services from the parent companies or nonfinancial affiliates. BHCs and SLHCs are limited in their use of consumer financial data for commercial purposes. These commenters asserted that industrial bank parent companies should be subject to the same restrictions.
While there is no general Federal regime covering how nonpublic personal information held in the
FOOTNOTE 77 Subtitle A of Title V of the GLBA, captioned “Disclosure of Nonpublic Personal Information,” limits the instances in which a financial institution may disclose nonpublic personal information about a consumer to nonaffiliated third parties, and requires a financial institution to disclose certain information sharing practices. “Nonpublic personal information” is defined to mean any personally identifiable financial information that is provided by the consumer to the financial institution; results from any transaction with the consumer or service performed for the consumer; or is otherwise obtained by the financial institution, but which is not “publicly available information.” See 15 U.S.C. 6801-09. END FOOTNOTE
FOOTNOTE 78 See, e.g., 12 CFR part 332, Privacy of Consumer Financial Information. END FOOTNOTE
FOOTNOTE 79 The
FOOTNOTE 80 The
FOOTNOTE 81 For example, the California Consumer Privacy Act of 2018 serves as an omnibus law governing privacy rights. It was recently amended and expanded by the California Privacy Rights Act. 2020 Cal. Legis. Serv. Prop. 24 (2020). The Massachusetts Data Security Regulation includes State-level general data protection security requirements. 201 Mass. Code Regs. 17.00 et seq. The Act to Protect the Privacy of Online Consumer Information enacted by the
In the absence of a single, comprehensive Federal law regulating privacy and the collection use, processing, disclosure, security, and disposal of personal information, the
The
Certain commenters expressed concerns about industrial bank and nonbank partnerships that the commenters believe have led to increased predatory lending. /82/ A major component of the
FOOTNOTE 82 The concern appears to arise from perceived abuses of longstanding statutory authority rather than the proposed rule.
4. Justification for the Proposed Rule
Several commenters raised concerns that the
The Administrative Procedure Act (APA) /83/ requires a notice of proposed rulemaking to provide sufficient factual detail and rationale for the rule to permit interested parties to comment meaningfully. /84/
FOOTNOTE 83 5 U.S.C.
FOOTNOTE 84 5 U.S.C. 553(b); see, e.g.,
The proposed rule set out a clear description of the basis for the proposed rule. The
A few commenters argued that the
As the
FOOTNOTE 85
FOOTNOTE 86 F.C.C. v.
FOOTNOTE 87 Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co.,
The
FOOTNOTE 88 As noted above in section II.H of this Supplementary Information section, after 2013, the moratorium imposed by
Overall, the performance and condition of industrial banks during the most recent banking crises was generally consistent with other
FOOTNOTE 89 Each financial institution is assigned composite and component ratings for safety and soundness under the Uniform Financial Institutions Rating System (UFIRS). Under the UFIRS, composite ratings are based on an evaluation and rating of six essential components of an institution's financial condition and operations: Adequacy of capital, the quality of assets, the capability of management, the quality and level of earnings, the adequacy of liquidity, and the sensitivity to market risk. Evaluations of the components take into consideration the institution's size and sophistication, the nature and complexity of its activities, and its risk profile. END FOOTNOTE
Looking more specifically at financial performance, and notwithstanding their general focus on nontraditional business models, industrial banks have experienced, by most key measures of performance and condition, comparable results to other insured institutions. Industrial banks tend to maintain higher levels of capital and generate higher earnings. At year-ends 2009 through 2011, industrial banks maintained a median tier 1 leverage capital (T1LC) ratio between 13.1 percent and 15.4 percent, whereas, other insured institutions maintained a median T1LC ratio between 9.3 percent and 9.7 percent. As of
FOOTNOTE 90 FDIC Call Report Data,
Similarly, industrial banks reported a median return on average assets (ROAA) ratio of between 0.6 percent and 2.5 percent at year-ends 2009 through 2011, versus a median ROAA ratio of between 0.4 percent and 0.7 percent for other insured institutions. The median ROAA ratio for industrial banks and other insured institutions as of
FOOTNOTE 91 Id. END FOOTNOTE
The capital and earnings ratios for industrial banks is reflective of the higher degree of risk inherent in their business models. The specialty nature of most industrial bank business models, particularly when compared to traditional community banks (which constitute a large proportion of all other insured institutions), have contributed to the maintenance of higher levels of capital and earnings, generally. Additionally, since the mid-2000s, approved filings for industrial banks have largely included CALMAs that required higher capital requirements than other insured institutions.
Further, industrial banks have been assigned examination ratings for the capital and earnings components that, on average, were very similar to those of other insured institutions. This generally indicates that industrial banks have implemented and maintained appropriate risk management practices that, given financial condition and performance, have adequately compensated for the risks inherent in the business models.
When compared to other insured institutions, industrial banks typically maintain a lower volume of liquid assets and rely more heavy on non-core liabilities to fund longer-term earning assets. As a result, while still satisfactory, the liquidity posture for industrial banks was considered slightly lower both during and subsequent to the 2008-09 financial crisis. In the
Despite the above, it is important to note that some industrial banks experienced stress during the 2008-09 financial crisis. The circumstances experienced by industrial banks during the crisis were not dissimilar from the circumstances confronting other insured institutions and were not the result of factors related to the industrial bank charter. In general, the
Nevertheless, as discussed above, several commenters noted the participation of industrial banks or their parent organizations in various government programs established during the crisis. There were six industrial banks (or their parent companies) among the more than 110 companies that accessed the debt guarantee program component of the TLGP, including several owned by parent companies organized as thrift holding companies. However, it is important to note that establishment of the TLGP was prompted by the unexpected and precipitous market conditions brought on by the related housing, financial, and banking crises that occurred over the period of 2007 through 2011. /92/ These conditions impacted even the largest banking companies in the
FOOTNOTE 92 As has been noted in Crisis and Response, the housing bubble that developed during the early 2000s burst in 2007, bringing the financial system “relatively quickly to the brink of collapse” and resulted in the worst economic dislocation in decades. Large losses in economic output and large declines in economic indicators were evident, including with respect to steep declines in employment and household wealth, among other indicators. The related banking crisis was also severe, with almost 500 institutions failing during the period of 2008 through 2013. In addition, between
FOOTNOTE 93 Some of the industrial banks that were owned by thrift holding companies had sister financial institutions that were also
Some comments noted the crisis-era conversions of industrial banks and their parent organizations to commercial banks and BHCs. Of the conversions noted by commenters, the majority involved industrial banks that were fundamentally sound, based on the most recent examinations prior to the conversions. The same held with respect to the respective parent companies, one of which converted from a thrift holding company to a bank holding company during the crisis. In each case, the FRB determined that approval of the BHC applications was warranted, based on evaluation of the relevant statutory factors and regulatory requirements. Given these circumstances, the conversions and participation in crisis-related programs reflected responses to the broader conditions in all segments of the economy, including the financial sector.
Finally, industrial banks did not experience a disproportionate rate of failures when compared to other types of institutions, and there have not been any industrial bank failures since 2010. /94/
FOOTNOTE 94 As noted above,
This experience with supervision in the industrial banking space informs the present rulemaking. The heightened source of strength requirements, along with other regulatory requirements included in the final rule, are examples of how the
Some commenters also questioned why the proposed rule applies to industrial banks that would be owned by financial and commercial companies, when the
Most crucial, though, is the fact that the most recent of the moratoriums commenters reference expired in 2013. In the ensuing years,
The
B. Description of the Final Rule
1. Section 354.1–Scope
This section of the proposed rule described the industrial banks and parent companies that would be subject to the rule. The proposed rule applied to industrial banks that, after the effective date, become subsidiaries of companies that are Covered Companies, as such term is defined in
FOOTNOTE 95 Although generally not subject to the rule, grandfathered industrial banks and their parent companies that are not subject to Federal consolidated supervision by the FRB will remain subject to
The
Some commenters supported the retroactive application of the proposed rule to all industrial banks that, as of the effective date, are a subsidiary of a parent that is not subject to Federal consolidated supervision. These commenters asserted that otherwise existing industrial banks would enjoy a regulatory advantage over new industrial banks. They also argued that retroactive application would enhance the
In addition, one commenter recommended that the final rule apply to grandfathered industrial banks that undergo certain other changes, such as when the industrial bank parent company acquires a subsidiary engaged in nonfinancial activities, or the industrial bank parent company engages in new nonfinancial activities. The final rule operates prospectively on the basis of a filing that would result in an industrial bank becoming a subsidiary of a company not subject to consolidated Federal supervision. In contrast, the suggested triggers, as described, would be applied to existing industrial banks and their parent companies, would not be related to a filing, and would not necessarily result in any impact to the industrial bank. Should such an impact be identified, the
The
After considering these comments regarding the scope of the proposed rule, the final rule will apply only prospectively as of the effective date of the rule, to industrial banks that become subsidiaries of companies that are Covered Companies. /96/ The
FOOTNOTE 96 The proposed rule divided the rule into two temporal states, on or before the effective date on the one hand, and after the effective date on the other hand. The final rule amends the dividing line so that the relevant timeframes would be before the effective date and on or after the effective date. This change was made because the effective date is commonly understood to be the date upon which a rule is effective, not the day before a rule would take effect. END FOOTNOTE
FOOTNOTE 97 During the period before the effective date of the final rule, the
The
Several commenters criticized the controlling shareholder requirement. Some commenters argued that an individual who controls or owns a parent company should not be held personally liable for maintaining the industrial bank's capital or liquidity. These commenters expressed concern that such a requirement would make it more difficult to attract shareholders and capital. As noted above, in cases where the
Other commenters noted that the parent company already commits in the CALMA to provide support and were concerned that requiring the parent company's shareholders to also provide a guarantee of support will drive away investors. These commenters, however, were not opposed to a requirement for the controlling shareholder to commit to vote his or her shares to comply with the CALMA. One commenter noted that the
Several commenters supported the approach of imposing certain conditions at the level of the
The
2. Section 354.2–Definitions
This section of the proposed rule listed the definitions that applied to part 354. Terms that were not defined in the proposed rule that are defined in section 3 of the FDI Act had the meanings given in section 3 of the FDI Act. /98/
FOOTNOTE 98 12 U.S.C. 1813. END FOOTNOTE
The term “control” was defined to mean the power, directly or indirectly, to direct the management or policies of a company or to vote 25 percent or more of any class of voting securities of a company and specifically would have included the rebuttable presumption of control at 12 CFR 303.82(b)(1) and the presumptions of acting in concert at 12 CFR 303.82(b)(2) /99/ in the same manner and to the same extent as if they applied to an acquisition of securities of a company instead of a “covered institution.” These definitions are nearly the same as the definitions of “control” in the CBCA /100/ and the
FOOTNOTE 99 The proposed rule erroneously referred to the presumptions set forth at 12 CFR 303.83(b)(1) and (2). The final rule corrects that technical error to correctly refer to
FOOTNOTE 100 12 U.S.C. 1817(j)(8)(B). END FOOTNOTE
FOOTNOTE 101 12 CFR 303.80 through 303.88. END FOOTNOTE
Two commenters suggested that the rule should incorporate the definition of control used in the BHCA and its implementing regulations. One trade group commenter argued that such an approach would lead to consistency in the treatment of parent companies of insured depository institutions. An industrial bank commenter suggested that aligning the proposed rule's definition of control with the BHCA and the FRB's regulatory framework /102/ would create a more uniform system that would make it easier for investors to balance their investment decisions with the regulatory implications of certain levels of investment.
FOOTNOTE 102 85 FR 12398 (
The
FOOTNOTE 103 80 FR 65889 (
Second, the
FOOTNOTE 104 80 FR 65889, 65893. END FOOTNOTE
The term “
FOOTNOTE 105 12 U.S.C. 1817(j). END FOOTNOTE
FOOTNOTE 106 12 U.S.C. 1828(c). END FOOTNOTE
FOOTNOTE 107 12 U.S.C. 1816. END FOOTNOTE
Under these provisions, a company would control an industrial bank if the company would have the power, directly or indirectly, (i) to vote 25 percent or more of any class of voting shares of any industrial bank or any company that controls the industrial bank (i.e., a parent company), or (ii) to direct the management or policies of any industrial bank or any parent company. In addition, the
One commenter observed that the Supplementary Information for the proposed rule characterized BHCs and SLHCs as generally prohibited from engaging in commercial activities. /108/ This commenter noted that grandfathered unitary SLHCs are permitted to engage in certain “grandfathered” activities, which may include commercial activities and requested that the
FOOTNOTE 108 See 85 FR at 17772-73. END FOOTNOTE
In response to question 5 in the
One commenter suggested that there would be limited benefit to requiring a
Another commenter argued that complex diversified Covered Companies that conduct nonfinancial activities must be required to structure their financial activities under an intermediate holding company so that the intermediate holding company may be subjected to enhanced supervision.
The final rule will not require a
FOOTNOTE 109 The
The final rule includes the definition of
FOOTNOTE 110 See also supra note 96. END FOOTNOTE
The
In the
The
Commenters also suggested additional terms for which definitions would be useful. The
3. Section 354.3–Written Agreement
This section of the proposed rule prohibited any industrial bank from becoming a subsidiary of a
As discussed above, proposed
In addition to the written agreements, commitments, and restrictions of the final rule, the
FOOTNOTE 111 See 12 CFR 303.11(a) (“The
FOOTNOTE 112 12 U.S.C. 1818(b); 1831aa(a). END FOOTNOTE
4. Section 354.4–Required Commitments and Provisions of Written Agreement
The
Section 354.4 of the proposed rule required each party to a written agreement to comply with paragraphs (a)(1) through (8). These required commitments are intended to provide the safeguards and protections that the
In order to provide the
In the
FOOTNOTE 113 See 12 U.S.C. 1831o-1(d). END FOOTNOTE
FOOTNOTE 114 See 12 U.S.C. 1820(b) and 1820(b)(4)(A). END FOOTNOTE
In response to the concerns expressed by commenters that a
The
Most commenters supported the reporting /115/ and examination requirements that enable the
FOOTNOTE 115 If the
FOOTNOTE 116 For example, in a situation where a parent company issues securities, the
The
Other commenters argued that the final rule should require a
The
FOOTNOTE 117 12 U.S.C. 1820(b)(4). END FOOTNOTE
FOOTNOTE 118 12 U.S.C. 1813(u) and 1818. END FOOTNOTE
FOOTNOTE 119 See 12 U.S.C. 1831o-1(d). END FOOTNOTE
In supervising industrial banks, the
In order to limit the extent of each
The
One commenter asserted that there may be conflicts between the rule limitation and unspecified State law, while another noted the lack of comparable limitations on other legal structures, creating a distinct difference between Covered Companies and other operating entities. A number of commenters also suggested that relying on the simple majority of independent directors, as has been applied in other instances, has not led to issues or concerns regarding the subsidiary industrial bank.
To address the concerns regarding the limitation, commenters suggested either raising the threshold from 25 percent to one-third, or requiring that a simple majority be independent. While acknowledging the need for some degree of director independence to limit the potential influence from Covered Companies, these commenters noted that the higher threshold may enhance coordination between the industrial bank and Covered Companies. By extension, the increased coordination would enable the Covered Companies to have a better understanding of the industrial bank's obligations. One comment also noted that the
The
As to the specific threshold, the
Finally, one comment requested clarification as to whether officers of the industrial bank would be included within the limitation. In short, if an officer in question is associated with a
In order to ensure that a subsidiary industrial bank has available to it the resources necessary to maintain sufficient capital and liquidity, the proposed rule required each party to a written agreement to commit to maintain each subsidiary industrial bank's capital and liquidity at such levels as the
Lastly, the proposed rule required that each
One commenter questioned the
FOOTNOTE 120 “[T]he Corporation . . . shall have power . . . [t]o prescribe by its Board of Directors such rules and regulations as it may deem necessary to carry out the provisions of this chapter or of any other law which it has the responsibility of administering or enforcing (except to the extent that authority to issue such rules and regulations has been expressly and exclusively granted to any other regulatory agency).” 12 U.S.C. 1819(a)(Tenth). END FOOTNOTE
FOOTNOTE 121 See Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure, 63 FR 64757 (
In addition to the eight commitments discussed above,
The
As discussed in the
While the contingency plan is one type of commitment that the
Several commenters specifically addressed
FOOTNOTE 122 These commenters raised the same or similar concerns with respect to
A second commenter raised concerns that
In response to commenters' concerns about the application of this section, the
The
By contrast, several commenters argued that applying a capital standard on the parent company itself is not encompassed within the
The
5. Section 354.5–Restrictions on Industrial Bank Subsidiaries of Covered Companies
Section 354.5 of the proposed rule required the
In order to ensure that the industrial bank does not immediately after becoming a subsidiary of a
The
By contrast, other commenters argued that these restrictions should be perpetual in duration and viewed them as important safeguards on the actions of a
The
However, having considered commenters' suggestions regarding the restrictions on the appointment of directors (paragraph (a)(2)) and senior executive officers (paragraph (a)(3)), the
In light of the changes to paragraphs (a)(2) and (3) above, the
As discussed above, proposed
Several commenters requested that the
* Increases in financial statement categories or subcategories (such as types of loans, funding, revenue, or capital) of 25 percent or more;
* Introduction of distinctly new or different business strategies or objectives, including products or services, target markets, delivery channels, or business development strategies;
* Changes to the institution's financial strategies, or the acquisition of assets, an operating entity, or the assumption of deposits or other liabilities; or
* Changes in organizational relationships such that the manner in which the institution implements or carries out its business strategies or objectives is impacted.
6. Section 354.6–Reservation of Authority
The
The
FOOTNOTE 123 See supra notes 59-62 and accompanying text. END FOOTNOTE
The
7. Responses to Additional Questions
In addition to the questions discussed above, the
In January of 2020, the
FOOTNOTE 124 85 FR 1204. END FOOTNOTE
FOOTNOTE 125 85 FR 34734. END FOOTNOTE
FOOTNOTE 126 State savings associations will be examined by the
FOOTNOTE 127 85 FR 66410. END FOOTNOTE
However, the statutory factor addressing convenience and needs of the community to be served is broader than the CRA. In assessing the statutory factor convenience and needs of the community to be served, the essential considerations are the deposit and credit needs of the community to be served, the nature and extent of the opportunity available to the applicant in that location, and the willingness and ability of the applicant to serve those financial needs. /128/ The markets to be served and the economic and competitive conditions within the markets are important to these considerations. The applicant's CRA Plan is an important part of the
FOOTNOTE 128 See Statement of Policy on Applications for
The
On the other hand, a number of commenters indicated that there was no need to build in additional restrictions specific to foreign Covered Companies. These commenters noted that the
The final rule does not contain any specific requirements for foreign Covered Companies beyond those to which
FOOTNOTE 129 The
V. Expected Effects
As previously discussed, the final rule requires or imposes certain conditions, commitments, and restrictions for each deposit insurance application approval, non-objection to a change in control notice, and merger application approval that would result in an industrial bank becoming, pursuant to the rule, a subsidiary of a
A. Overview of Industrial Banks
As of
FOOTNOTE 130 FDIC Call Report Data,
The final rule applies prospectively to deposit insurance, change in control, and merger transactions resulting in an industrial bank that is controlled by a
FOOTNOTE 131 During the same period, the
FOOTNOTE 132 44 U.S.C. 3501 et seq. END FOOTNOTE
The final rule could indirectly affect subsidiaries of Covered Companies. Such Covered Companies operate through a variety of structures that include a range of subsidiaries and affiliates. Further, the final rule includes the
FOOTNOTE 133 Historically, industrial banks have elected not to become members of the
B. Analysis of the Commitments
Under the final rule, prospective Covered Companies are required to agree to the eight commitments, and may be required to agree to additional commitments under certain circumstances, which in summary include commitments by the
* Furnish an initial listing, with annual updates, of the
* Consent to the examination of the
* Submit an annual report on the
* Maintain such records as deemed necessary.
* Cause an independent annual audit of each industrial bank.
* Limit the
* Maintain the industrial bank's capital and liquidity at such levels as deemed appropriate and take such other action to provide the industrial bank with a resource for additional capital or liquidity.
* Enter into a tax allocation agreement.
* Depending on the facts and circumstances, provide, adopt, and implement a contingency plan that sets forth strategies for recovery actions and the orderly disposition of the industrial bank without the need for a receiver or conservator.
The
FOOTNOTE 134 See FDIC Deposit Insurance Application Procedures Manual Supplement, Applications from
The table below presents the
FOOTNOTE 135 Subject matter experts in the
Proposed commitment Estimated annual Estimated annual compliance hours compliance costs Lists of Subsidiaries 4$ 376.60 Consent to the FDIC Examination 100 9,415.00 Annual and Such Other Reports as the FDIC may Request 10 941.50 Maintain Such Records as the FDIC Deems Necessary 10 941.50 Independent Audit fn1 100 9,415.00 Limit Membership on Board fn2 0 0.00 Maintain Capital and Liquidity 12 1,129.80 Tax Allocation Agreement fn3 0 0.00 Total 236 22,219.40 fn1 The disclosure requirement and time to fulfill it are due to satisfying regulatory inquiries about the audit, and do not include the cost of the audit itself because Covered Companies already conduct audits for other purposes. fn2 Determinations regarding board membership are considered in the normal course of business. fn3 Tax allocation agreements are normal and customary among affiliated corporate entities.
The final rule also authorizes the
It is difficult to estimate the recordkeeping, reporting, and disclosure costs associated with the contingency plan aspect of the final rule because such an estimate would depend on the organizational structure and activities of potential future Covered Companies. The
Based in part on the
FOOTNOTE 136 FDIC Call Report Data,
The final rule incorporates an additional element as part of the reporting commitment to address Covered Companies' systems for protecting the security, confidentiality, and integrity of consumer and nonpublic personal information. However, the rule is constructed to enable affected parties to comply with the various commitments by relying on established and ongoing reports and records, to the extent possible. As such, while recognizing the difficulty in estimating the costs associated with this additional element due to the unique circumstances of each affected party, the
As illustrated by the preceding analysis, the final rule could pose as much as
FOOTNOTE 137
FOOTNOTE 138 FDIC Call Report Data,
The
It is difficult to estimate whether the final rule would serve as an incentive or disincentive for affected parties. Decisions to establish or acquire an industrial bank depend on many considerations that the
The
C. Safety and Soundness of Affected Banks
The
D. Broad Effects on the Banking Industry
To the extent that the final rule results in higher numbers of industrial banks, the increase could lead to increased competition for depositors and borrowers. The increased competition could result in one or more of: Higher yields on deposit products, lower interest rates on loan products, reduced fees, less restrictive underwriting standards, greater account opening bonuses for new customers, and other benefits. To the extent that the final rule does not result in a higher number of industrial banks, this would not be expected to lead to increased competition for depositors and borrowers.
E. Expected Effects on Consumers
To the degree the final rule results in an increase in the number of industrial banks, consumers could benefit from increased competition within the banking industry. These benefits could take the form of higher rates on deposit accounts, improved access to credit with better terms or lower rates, and lower fees for banking services. To the extent that the proposed rule does not result in a higher number of industrial banks, this would not be expected to lead to potential benefits from increased competition within the banking industry. Finally, in response to comments the final rule includes a commitment for a
F. Expected Effects on the Economy
The final rule's effects on the economy are likely to be modest, in line with its potential effects on the banking industry and consumers. If the final rule results in a modest increase in the number of industrial banks or improvement in the provision of banking products and services, the effects on the economy are likely to be modest.
VI. Regulatory Analysis
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency, in connection with a final rule, to prepare and make available for public comment a final regulatory flexibility analysis that describes the impact of a final rule on small entities. /139/ However, a final regulatory flexibility analysis is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. /140/
FOOTNOTE 139 5 U.S.C.
FOOTNOTE 140 5 U.S.C. 605(b). END FOOTNOTE
FOOTNOTE 141 The SBA defines a small banking organization as having
Generally, the
As of
FOOTNOTE 142 FDIC Call Report Data,
As previously discussed, a currently chartered industrial bank would be subject to the final rule, as would its parent company that is not subject to Federal consolidated supervision, if such a parent company acquired control of the grandfathered industrial bank pursuant to a change in bank control transaction that closes after the effective date of the final rule, or if the grandfathered industrial bank is the surviving institution in a merger transaction that closes after the effective date of the final rule.
Of the 23 existing industrial banks, eight reported total assets less than
FOOTNOTE 143 12 CFR 121.103. END FOOTNOTE
FOOTNOTE 144 For example, if a particular industrial bank's parent company was a motorcycle manufacturer, then the size standards applicable to motorcycle manufacturers were used. END FOOTNOTE
Additionally, the
Therefore, given that no more than five of the 23 existing industrial banks are small entities for the purposes of the RFA, and that no more than one change in control notice received by the
As previously discussed, the final rule applies to industrial banks that, as of the effective date, become subsidiaries of companies that are Covered Companies, as such term is defined in
Therefore, based on the preceding information, the
B. Paperwork Reduction Act
In accordance with the requirements of the PRA, /145/ the
FOOTNOTE 145 44 U.S.C. 3501 et seq. END FOOTNOTE
As discussed above, the final rule imposes PRA reporting and recordkeeping requirements for each industrial bank subject to the rule and its
FOOTNOTE 146 The final rule requires additional reporting by Covered Companies regarding systems for protecting the security, confidentiality, and integrity of consumer and nonpublic personal information as part of the annual report. END FOOTNOTE
The
Information Collection
Title: Industrial Banks and Industrial Loan Companies.
OMB Number: 3064-0213.
Affected Public: Prospective parent companies of industrial banks and industrial loan companies.
Summary of Annual Burden and Internal Cost Type of burden Obligation to respond Estimated Estimated Estimated time per Frequency of Total annual number of frequency of response response estimated respondents responses burden (hours) Initial listing of all Reporting Mandatory 4 1.00 4 One Time 16 of theCovered Company's subsidiaries Annual update of listing Reporting Mandatory 4 1.00 4 Annual 16 of all of the Covered Company's subsidiaries Annual report on the Reporting Mandatory 4 1.00 10 Annual 40Covered Company and its subsidiaries, and such other reports as theFDIC may request Maintain records to Recordkeeping Mandatory 4 1.00 10 Annual 40 assess the risks to the industrial bank and to the DIF Contingency Plan Reporting Mandatory 1 1.00 345 On Occasion 345 Total Hourly Burden 457
C. Plain Language
Section 722 of the GLBA /147/ requires each Federal banking agency to use plain language in all of its proposed and final rules published after
FOOTNOTE 147 12 U.S.C. 4809. END FOOTNOTE
D.
Pursuant to section 302(a) of the RCDRIA, /148/ in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, each Federal banking agency must consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on affected depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. /149/ The
FOOTNOTE 148 12 U.S.C. 4802(a). END FOOTNOTE
FOOTNOTE 149 12 U.S.C. 4802(b). END FOOTNOTE
E. Congressional Review Act
For purposes of the Congressional Review Act, OMB makes a determination as to whether a final rule constitutes a “major” rule. /150/ If a rule is deemed a “major rule” by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. /151/
FOOTNOTE 150 5 U.S.C.
FOOTNOTE 151 5 U.S.C. 801(a)(3). END FOOTNOTE
The Congressional Review Act defines a “major rule” as any rule that the Administrator of the
FOOTNOTE 152 5 U.S.C. 804(2). END FOOTNOTE
The
List of Subjects in 12 CFR Part 354 Bank deposit insurance, Banks, banking, Finance, Holding companies, Industrial banks, Industrial loan company, Insurance, Parent company, Reporting and recordkeeping requirements, Savings associations.
12 CFR Chapter III
Authority and Issuance For the reasons stated in the preamble, the
PART 354–INDUSTRIAL BANKS
Sec.
354.1Scope.
354.2Definitions.
354.3Written agreement.
354.4Required commitments and provisions of written agreement.
354.5Restrictions on industrial bank subsidiaries of Covered Companies.
354.6Reservation of authority.
Authority: 12 U.S.C. 1811, 1815, 1816, 1817, 1818, 1819(a) (Seventh) and (Tenth), 1820(g), 1831o-1, 3108, 3207.
(a) In addition to the applicable filing procedures of part 303 of this chapter, this part establishes certain requirements for filings involving an industrial bank or a
(b) The requirements of this part do not apply to an industrial bank that is organized as a subsidiary of a company that is not subject to Federal consolidated supervision by the
(1) Any industrial bank that is or becomes controlled by a company that is subject to Federal consolidated supervision by the FRB; and
(2) Any industrial bank that is not or will not become a subsidiary of a company.
Unless defined in this section, terms shall have the meaning given to them in section 3 of the FDI Act.
Control means the power, directly or indirectly, to direct the management or policies of a company or to vote 25 percent or more of any class of voting securities of a company, and includes the rebuttable presumptions of control at
(1) As a result of a change in bank control pursuant to section 7(j) of the FDI Act;
(2) As a result of a merger transaction pursuant to section 18(c) of the FDI Act; or
(3) That is granted deposit insurance by the
FDI Act means the Federal Deposit Insurance Act, 12 U.S.C.
Filing has the meaning given to it in
FRB means the
Industrial bank means any insured State bank that is an industrial bank, industrial loan company, or other similar institution that is excluded from the definition of the term “bank” in section 2(c)(2)(H) of the Bank Holding Company Act, 12 U.S.C. 1841(c)(2)(H).
Senior executive officer has the meaning given it in
(a) No industrial bank may become a subsidiary of a
(b) The
(a) The commitments required to be made in the written agreements referenced in
(1) Submit to the
(2) Consent to the examination by the
(3) Submit to the
(i) Financial condition;
(ii) Systems for identifying, measuring, monitoring, and controlling financial and operational risks;
(iii) Transactions with depository institution subsidiaries of the
(iv) Systems for protecting the security, confidentiality, and integrity of consumer and nonpublic personal information; and
(v) Compliance with applicable provisions of the FDI Act and any other law or regulation;
(4) Maintain such records as the
(5) Cause an independent audit of each subsidiary industrial bank to be performed annually;
(6) Limit the
(7) Maintain the capital and liquidity of the subsidiary industrial bank at such levels as the
(8) Execute a tax allocation agreement with its subsidiary industrial bank that expressly states that an agency relationship exists between the
(b) The
Without the
(a) Make a material change in its business plan after becoming a subsidiary of such
(b) Add or replace a member of the board of directors, board of managers, or a managing member, as the case may be, of the subsidiary industrial bank during the first three years after becoming a subsidiary of such
(c) Add or replace a senior executive officer during the first three years after becoming a subsidiary of such
(d) Employ a senior executive officer who is, or during the past three years has been, associated in any manner (e.g.,as a director, officer, employee, agent, owner, partner, or consultant) with an affiliate of the industrial bank; or
(e) Enter into any contract for services material to the operations of the industrial bank (for example, loan servicing function) with such
Nothing in this part limits the authority of the
By order of the Board of Directors.
Dated at
Assistant Executive Secretary.
[FR Doc. 2020-28473 Filed 2-22-21;
BILLING CODE 6714-01-P
AP Top Business News at 11:44 a.m. EST
Latin American Headlines at 11:46 a.m. EST
More Articles