Personal Finance

Industrial Bank

Industrial banks are state-chartered financial institutions, usually owned by commercial companies, and not regulated by federal banking agencies. Societe Generale accepts deposits from customers and makes loans to consumers and small businesses.

Industrial Bank is also known as Industrial Loan Corporation (ILC).Industrial Banks are chartered in only a few states; Utah provides the majority of US Industrial Bank franchises

key takeaways

  • Industrial Banks – also known as Industrial Lending Corporations (ILCs) – are state-chartered financial institutions, usually owned by commercial companies, and not regulated by federal banking agencies.
  • Industrial Banks are chartered in only a few states; Utah provides the majority of US Industrial Bank franchises
  • Industrial banks are controversial because they allow non-financial companies to provide banking services without the oversight of the Federal Reserve.

Learn about Industrial Bank

The Industrial Bank was originally established in the early 1900s to provide access to capital for low- and middle-income industrial workers who were unable to qualify for credit at traditional lenders.

Industrial Bank is regulated by state regulators and the Federal Deposit Insurance Corporation (FDIC). Due to its unique corporate structure, Societe Generale can be owned by a company. They are not subject to certain regulations governing traditional institutions, nor are they subject to the Bank Holding Company Act. In addition, Industrial Bank is not regulated by the Federal Reserve. Due to the lack of regulatory restrictions, many fintech companies and investment firms began to apply for Industrial Bank licenses.

Although industrial banks have limited banking powers across the country, they generally maintain the same powers and privileges as traditional commercial banks. Industrial banks are controversial among those who support a firmer division between banks and commercial firms. Criticisms of industrial banks claim that they give companies the privilege of a bank charter but no regulation.

Criticism of Industrial Banks

In 2005, Walmart applied to create a new industrial bank to reduce credit and debit card transaction fees. This sparked widespread opposition and protests from commercial banks and financial regulators. The FDIC finally suspended the Industrial Bank’s application in 2006. At the same time, state-level legislation passed legislation prohibiting any intentional industrial bank from opening branches in different jurisdictions.

Walmart Inc. withdrew its application in 2007 before the FDIC could make any determination on the status of its application. Opponents of Walmart’s filing claim that the company’s banking business poses a threat to the banking system and the FDIC’s deposit insurance fund.

In early 2019, lobbyists for the Independent Community Bankers of America (ICBA) distributed a policy paper calling for a moratorium on federal deposit insurance for industrial banks. Their move is being driven by a new wave of fintech companies, including payment processor Square Inc., that have filed applications for national bank charters. The bank’s charter would allow Square Inc. to provide loans and other financial services directly to its merchants. However, ICBA claims that the Industrial Bank Charter is a loophole that Congress needs to address. Not only are fintech companies with banking licenses exempt from Fed regulation, they are also not required to disclose any business activities that are not related to banking.

In November 2019, Louisiana Senator John F. Kennedy introduced a bill, known as the Elimination of Corporate Shadow Banking Act of 2019, which would effectively end the ability of non-financial companies to form industrial banks.This ICBA expresses support For Senator Kennedy’s bill, claims it would fill loopholes in industrial banking, create a safer financial system, and help maintain the separation of banking and commerce.

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