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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
component of the FDICs mission is to ensure that financial institutions treat consumers and depositors fairly, and operate in compliance with Federal consumer protection, antidiscrimination, and community reinvestment laws. The FDIC addresses the problem of predatory lending by taking supervisory action, by encouraging and assisting banks to serve all sectors of their community, and by providing consumers with information to help make informed financial decisions.
4. Justification for the Proposed Rule Several commenters raised concerns that the FDIC offered insufficient justification for the proposed rule. In particular, commenters argued that the proposed rule did not set out a sufficient factual, legal, or policy basis for proposed rule, and that there was insufficient discussion of the risks, public policy concerns, and statutory public interest factors concerning industrial banks.
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
The proposed rule set out a clear description of the basis for the proposed rule. The NPR discussed the history of industrial banks in the U.S., both generally and in the context of controversies over the past two decades.
The NPR acknowledged the arguments raised by critics, reviewing the potential risks inherent in approving and supervising industrial banks. These include concerns over the mixing of banking and commerce as well as the risk to the DIF posed by the lack of Federal consolidated supervision of parent companies. The NPR also set out the justification for the proposed rule, including the need to codify and clarify supervisory expectations for industrial banks and the importance of imposing commitments on parent companies to ensure the parent company can serve as a source of strength for its subsidiary industrial bank. The NPR provided sufficient discussion of the factual, even if that rate exceeds the rate permitted by the law of the borrowers State. Federal court precedents reviewing this authority have upheld this practice for decades. Section 27 also permits States to opt out of its coverage by adopting a law, or certifying that the voters of the State have voted in favor of a provision which states explicitly that the State does not want section 27 to apply with respect to loans made in such State.
83 5 U.S.C. 551 et seq.
84 5 U.S.C. 553b; see, e.g., National Lifeline Association v. F.C.C., 921 F.3d 1105, 1115 D.C. Cir.
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legal, and policy considerations for the proposed rule, such that interested parties were able toand didsubmit a variety of comments on a number of issues raised in and by the proposed rule.
A few commenters argued that the NPR did not adequately discuss the FDICs decision to allow industrial bank applications in the wake of both the temporary moratorium the FDIC put into place from 2006 to 2008 and the subsequent 2010 to 2013 moratorium Congress enacted through the DoddFrank Act. To reverse the industrial bank moratorium without additional details, these commenters suggest, is arbitrary and capricious and violates the APA.
As the Supreme Court has noted, Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change. 85 The explanation need not prove that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates. 86 Specifically, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made. 87
The NPR provided a reasoned discussion of the decision to move forward with the proposed rule, as discussed above. Furthermore, the NPR
also explained why it was proceeding now when it chose not to do so with the 2007 rulemaking. The NPR noted that the FDICs decision not to go forward with the 2007 proposal was rooted in a number of factors. More specifically, while the FDIC considered the comments received on the 2007
rulemaking, industry conditions and other factors had the effect of reducing organizer interest in establishing new industrial banks. Most notably, interest in organizing new institutions of all charter types, including industrial banks, diminished given the deteriorating economic and market conditions identified as early as mid2007. In part, this diminished interest reflected the market uncertainty, restricted liquidity, reduced availability of capital, and difficult interest rate environment experienced by all 85 Encino Motorcars, LLC v. Navarro, 136 S.Ct.
2117, 2126 2016.
86 F.C.C. v. Fox Television Stations, Inc., 556 U.S.
502, 515 2009.
87 Motor Vehicle Mfrs. Assn v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 1983.

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institutions across the banking industry.
In addition, interest in industrial bank charters was affected by changes in certain State laws that limited the ability to form or acquire industrial banks, and was reflected in the number of industrial banks seeking conversions to commercial bank charters. The factors, collectively, argued against moving forward with a final rule, as did the opportunity to closely monitor the performance of industrial banks during a period of significant stress.88
Overall, the performance and condition of industrial banks during the most recent banking crises was generally consistent with other FDICinsured institutions based on assigned supervisory ratings, which consider each institutions unique business model, complexity, and risk profile.
From the beginning of 2009 through 2011, on average, industrial banks were assigned composite and component ratings similar to other charter types with regard to safety and soundness, consumer protection, and the CRA.
Further, the portfolio of industrial banks reflected similar proportions of institutions that were composite rated 3, 4, or 5 89 during the crisis, as well as a similar rate of failure as the portfolio of traditional community banks.
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 June 30, 2020, the median T1LC ratio for industrial banks was 14.6
88 As noted above in section II.H of this Supplementary Information section, after 2013, the moratorium imposed by Congress in the DoddFrank Act expired by its terms and was not renewed.
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 institutions 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 institutions size and sophistication, the nature and complexity of its activities, and its risk profile.

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