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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations over 12,600 comment letters in response to the notice.45 The substantive comments related to the risk profile of the industrial bank industry, concerns over the mixing of banking and commerce, the FDICs practices when making determinations in industrial bank applications and notices, whether commercial ownership of industrial banks should be allowed, and perceived needs for supervisory change.
The moratorium was effective through January 31, 2007, at which time the FDIC extended the moratorium one additional year for deposit insurance applications and change in control notices for industrial banks that would be owned by commercial companies.46
The moratorium was not applicable to industrial banks to be owned by financial companies.
G. 2007 Notice of Proposed Rulemaking NPRPart 354
In addition to extending the moratorium for one year with respect to commercial parent companies, the FDIC
published for comment a proposed rule designed to strengthen the FDICs consideration of applications and notices for industrial banks to be controlled by financial companies not subject to Federal consolidated bank supervision, identified as part 354 2007
NPR.47 The 2007 NPR would have imposed requirements on applications for deposit insurance, merger applications, and notices for change in control that would result in an industrial bank becoming a subsidiary of a company engaged solely in financial activities that is not subject to Federal consolidated bank supervision by either the FRB or the then-existing Office of Thrift Supervision OTS. The rule would have established safeguards profile of the industrial bank industry, safety and soundness issues uniquely associated with ownership of such institutions, the FDICs practice with respect to evaluating and making determinations on industrial bank applications and notices, whether a distinction should be made when the industrial bank is owned by an entity that is commercial in nature, and the adequacy of the FDICs supervisory approach with respect to industrial banks.
45 Approximately 12,485 comments on the notice were generated either supporting or opposing the proposed industrial bank to be owned by Wal-Mart or the proposed acquisition of Enerbank, also an industrial bank, by The Home Depot. The remaining comment letters were sent by individuals, law firms, community banks, financial services trade associations, existing and proposed industrial banks or their parent companies, the Conference of State Bank Supervisors, and two members of Congress.
46 See Moratorium on Certain Industrial Bank Applications and Notices, 72 FR 5290 Feb. 5, 2007.
47 See Industrial Bank Subsidiaries of Financial Companies 72 FR 5217 Feb. 5, 2007; see also https www.fdic.gov/news/news/press/2007/
pr07007.html.

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to assess the parent companys continuing ability to serve as a source of strength for the insured industrial bank, and to identify and respond to problems or risks that may develop in the company or its subsidiaries.
Similar to this final rule, the 2007
NPR would have required a parent company to enter into a written agreement with the FDIC containing required commitments related to the examination of, and reporting and recordkeeping by, the industrial bank, the parent company, and its affiliates.
The majority of commenters did not oppose these requirements, noting the FDIC already has authority to collect such information under section 10b4
of the FDI Act.48 Many commenters, however, objected to limiting parent company representation on the industrial bank subsidiarys board of directors to 25 percent, and argued instead for requiring that a majority of directors be independent. The majority of commenters stated that the FDIC
should not impose capital requirement commitments as contemplated in the 2007 NPR on commercial parents of industrial banks because a one-size-fits all regulatory approach to capital requirements would not be appropriate due to the idiosyncratic business models and operations of such parent companies.
Though the 2007 NPR did not affect industrial banks that would be controlled by companies engaged in commercial activities, several commenters addressed the distinction between industrial banks owned by financial and nonfinancial companies.
Two commenters contended that the FDIC lacked authority to draw a distinction between financial and nonfinancial industrial bank owners absent a change in law. Several commenters argued that drawing such a distinction would essentially repeal the exception of industrial banks from the definition of bank in the BHCA. There was little consensus among commenters as to whether commercially owned industrial banks pose unique safety and soundness issues.
The FDIC did not finalize the 2007
NPR. Although multiple factors contributed to the FDICs decision to not advance a final rule, the most significant factor was the onset of two interconnected and overlapping crises:
the financial crisis of 200809, and the banking crisis from 2008 to 2013.49 With 48 See
12 U.S.C. 1820b4.
Crisis and Response, An FDIC History, 20082013, available at https www.fdic.gov/bank/
historical/crisis/. The financial crisis in 2008 and 2009 threatened large financial institutions of all 49 See
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the advent of the crises, applications to form de novo insured institutions, or to acquire existing institutions, declined significantly, including with respect to industrial banks.
H. Dodd-Frank Act and Industrial Banks As discussed above and in reaction to the 200809 financial crisis, the DoddFrank 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
Through the Dodd-Frank Act, Congress also imposed a three-year moratorium on the FDICs approval of deposit insurance applications for industrial banks that were owned or controlled by a commercial firm.52 The Dodd-Frank Act moratorium also applied to the FDICs non-objection to any change in control of an industrial bank that would place the institution under the control of a commercial firm.53 The moratorium expired in July 2013, without any further action by Congress.
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 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.
50 See 12 U.S.C. 1831o1.
51 12 U.S.C. 1831o1b. 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. 1831o1a.
52 Public Law 111203, title VI, section 603a, 124 Stat. 1597 2010. Section 603a also imposed a moratorium on FDIC action on deposit insurance applications by credit card banks and trust banks owned or controlled by a commercial firm. The Dodd-Frank Act defined a commercial firm for this purpose as a company that derives less than 15
percent of its annual gross revenues from activities that are financial in nature, as defined in section 4k of the BHCA 12 U.S.C. 1843k, or from ownership or control of depository institutions.
53 Id.
54 See U.S. Government Accountability Office, GAO12160, Characteristics and Regulation of Exempt Institutions and the Implications of Removing the Exemptions Jan. 2012, available at https www.gao.gov/products/GAO-12-160.

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