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WASHINGTON, DC- Congressmen Paul Gillmor (R-OH) and Financial Services Committee Chairman Barney Frank (D-MA) today introduced bipartisan legislation to close one of the remaining exceptions in banking law that allow retailers and other commercial firms to engage in banking. The legislation is an outgrowth of Gillmor/Frank amendments which passed the House of Representatives in the 108th and 109th Congresses to prohibit newly formed commercially-owned ILCs from gaining additional powers, including opening branches nationwide.
The Industrial Bank Holding Company Act of 2007, H.R. 698, will restore the historic separation between banking and commerce, prevent branch banking by some commercially-owned ILCs, and bolster the examination and enforcement authorities of the FDIC as a holding company regulator. Industrial banks are found in just a handful of states, but due to an exception in bank law, they are the last remaining charter option for commercial parent companies wishing to own a bank.
Congressman Gillmor said, "My concern regarding commercial companies owning banks has grown exponentially as more and more companies have discovered this loophole. What had once been a minor exception is threatening foster an unequal parallel banking system with hundreds of billions of dollars in taxpayer-insured deposits. A large, bipartisan group of Members of Congress have expressed a sincere interest in addressing this policy crisis and I reiterate my recommendation to the FDIC to postpone action until this legislation is signed into law."
"Many people have argued that we are attempting to interfere or change what existing ILCs do well, but we are not advocating any changes to the way current ILCs are operated. We are seeking to prevent the expansion of a historically small special niche into a full fledge alternative banking system, which dissolves the line between banking and commerce," said Congressman Frank (D-MA), Chairman of the House Committee on Financial Services.
Congressional Action to Date:
- In both the 108th and 109th Congresses, the U.S. House of Representatives overwhelmingly passed legislation to address the ILC issue in the Regulatory Relief bill, and other legislation.
- On June 8, 2006, 98 Members of Congress wrote to the FDIC asking for a moratorium on approval orders for commercially-owned ILCs until Congress considers the matter.
- On July 28, 2006, the FDIC announced a 6-month moratorium on the chartering or acquisition of ILCs.
- In a December 7, 2006 letter, Gillmor and Frank led 107 Members in a request for at least an additional 6-month moratorium on ILC applications for deposit insurance by commercial firms.
Currently five states have passed legislation that would effectively prohibit commercially-owned ILCs from branching while several other states have legislation pending that would address this issue.
Summary of major provisions in the Industrial Bank Holding Company Act of 2007:
- Maintain the necessary historic separation between banking and commerce, most recently re-affirmed in Gramm-Leach-Bliley, by prohibiting new commercially-owned ILCs effective January 29, 2007. This provision would prohibit Wal-Mart, Home Depot and several other commercial firms from chartering or acquiring an industrial bank.
- Address the concerns of the Government Accountability Office (GAO), which in September of 2005 advised Congress to consider bolstering the authorities of the FDIC at the consolidated holding company level.
- For some commercially-owned ILCs, the bill would restrict expanded business plans and branching across state lines.
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