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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations The FDIC received 29 comments from industry group/trade associations, insured depository institutions, consumer and public interest groups, State banking regulators, law firms, a member of Congress, academics, and other interested parties.64 In addition, the FDIC received three letters related to the subject matter considered in the proposed rule prior to the formal comment period. The FDIC is now finalizing the proposed rule, with changes based on public comments, as described in detail below.
IV. Discussion of General Comments and Final Rule A. General Comments Many commenters were supportive of the FDICs overall effort to provide certainty, clarity, and transparency to the supervisory framework for the parent companies and affiliates of industrial banks. A number of commenters were generally supportive of the industrial bank charter citing the benefits of charter choice, increased competition, and the provision of financial services. These commenters asserted the charter poses no increased risk to the DIF. In their view, the parent companies serve as an important source of strength and governance for the subsidiary industrial bank. They asserted that in times of stress, a diversified parent may be in a better position to provide capital support to a bank subsidiary than a BHC whose assets consist almost entirely of the bank subsidiary. These commenters also argued that an industrial bank benefits from its business relationship with the parent, for example, through marketing support and fewer start-up costs. State regulators stated that the joint supervisory approach to supervising industrial banks with the FDIC has been effective, and industrial banks with commercial parents do not present an outsized safety and soundness risk.
Comments submitted by bank trade associations, consumer groups, and academics were generally critical of the 2020, that it would extend the comment period from June 1, 2020, to July 1, 2020, to allow interested parties additional time to analyze the proposal and prepare comments.
64 On March 15, 2020, bank trade groups, and consumer and civil rights groups sent a letter to the FDIC urging the agency not to approve deposit insurance applications submitted by industrial banks until the NPR is finalized. See https
bpi.com/consumer-civil-rights-groups-industryurge-fdic-halt-approval-of-industrial-bankapplications-close-ilc-loopholes-first/. On July 29, 2020, some of the same groups sent a letter to Congress requesting a three-year moratorium on industrial bank licensing applications. See https
bpi.com/banking-and-consumer-groups-call-oncongress-to-close-ilc-loophole/.

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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.
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 BHCAs restrictions on commercial affiliations.66
The CEBA exception does not limit eligible parent companies to those engaged in financial activities. The FDICs responsibility is to implement the law as it exists today. Whether commercial firms should continue to be able to own industrial banks is a policy decision for Congress to make.
Some commenters requested that the FDIC impose a new moratorium on deposit insurance applications involving industrial banks to allow for legislative action. Certain commenters argued that a moratorium, or a delay in the rulemaking more generally, was important in light of the current economic stress and uncertainty caused by the COVID19 pandemic. The purpose of this final rule is to ensure adequate oversight of industrial banks owned by financial and commercial companies. Additional moratoria or delays in processing and considering applications are outside the scope of this rulemaking and would be inconsistent with the express 65 See Federal Reserve Bank of San Francisco, Economic Letter 199821, The Separation of Banking and Commerce July 3, 1998, available at https www.frbsf.org/economic-research/
publications/economic-letter/1998/july/separationbanking-commerce/.
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 Senate version of the Act, the House version omitted it. The Conference report does not shed much light:
INDUSTRIAL LOAN COMPANY EXEMPTION
SECTION 2C 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. The House recedes to the Senate.
Conference Report to accompany H.R. 27
Competitive Equality Banking Act of 1987 July 31, 1987, at 121.

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Congressional exception of industrial banks from the BHCAs restrictions on commercial affiliations and the FDICs statutory obligations to receive and process applications related to industrial banks.
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 Congress.
Industrial banks are restricted from making favorable loans to their affiliates by sections 23A and 23B of the Federal Reserve Act, which quantitatively and qualitatively limit transactions between an industrial bank and its affiliates.67
Furthermore, section 23B of the Federal Reserve Act requires that any transaction between a bank and its affiliates must be on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the bank or its subsidiary as those prevailing at the time for comparable transactions with unaffiliated companies.68 All covered transactions between an industrial bank and its affiliates must be on terms and conditions that are consistent with safe and sound banking practices.69
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 FDIC will not adequately consider the anti-trust implications of commercial and financial conglomerates. The FDIC
recognizes that there is a possibility that large and complex companies may seek to acquire an industrial bank as emerging technologies and other trends are leading to changes in the provision of banking services. The FDIC has discretion to evaluate the competitive effects of such proposals when considering a deposit insurance application, specifically the statutory factors of the risk to the DIF and the convenience and needs of the community to be served, in order to ensure the market for the provision of 67 12 U.S.C. 371ca1, 371c1a1; see also 12
U.S.C. 1828j.
68 12 U.S.C. 371c1b.
69 12 U.S.C. 371ca4.

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