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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations percent as compared to 10.3 percent for other insured institutions.90
Similarly, industrial banks reported a median return on average assets ROAA
ratio of between 0.6 percent and 2.5
percent at year-ends 2009 through 2011, versus a median ROAA ratio of between 0.4 percent and 0.7 percent for other insured institutions. The median ROAA
ratio for industrial banks and other insured institutions as of June 30, 2020, were 1.1 percent and 0.9 percent, respectively.91
The capital and earnings ratios for industrial banks is reflective of the higher degree of risk inherent in their business models. The specialty nature of most industrial bank business models, particularly when compared to traditional community banks which constitute a large proportion of all other insured institutions, have contributed to the maintenance of higher levels of capital and earnings, generally.
Additionally, since the mid-2000s, approved filings for industrial banks have largely included CALMAs that required higher capital requirements than other insured institutions.
Further, industrial banks have been assigned examination ratings for the capital and earnings components that, on average, were very similar to those of other insured institutions. This generally indicates that industrial banks have implemented and maintained appropriate risk management practices that, given financial condition and performance, have adequately compensated for the risks inherent in the business models.
When compared to other insured institutions, industrial banks typically maintain a lower volume of liquid assets and rely more heavy on non-core liabilities to fund longer-term earning assets. As a result, while still satisfactory, the liquidity posture for industrial banks was considered slightly lower both during and subsequent to the 200809 financial crisis. In the FDICs experience, asset quality has been comparable between industrial banks and other insured institutions, indicating both a manageable volume of past due loans or other problem assets, as well as satisfactory risk management practices. In addition, management practices for industrial banks also have been in line with that of other insured institutions, both during and after the financial crisis.
Despite the above, it is important to note that some industrial banks experienced stress during the 200809
financial crisis. The circumstances 90 FDIC

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experienced by industrial banks during the crisis were not dissimilar from the circumstances confronting other insured institutions and were not the result of factors related to the industrial bank charter. In general, the FDICs supervision helped to isolate the insured industrial bank from the stress of the parent organization, which helped in managing the potential risk to the industrial bank and the DIF.
Nevertheless, as discussed above, several commenters noted the participation of industrial banks or their parent organizations in various government programs established during the crisis. There were six industrial banks or their parent companies among the more than 110
companies that accessed the debt guarantee program component of the TLGP, including several owned by parent companies organized as thrift holding companies. However, it is important to note that establishment of the TLGP was prompted by the unexpected and precipitous market conditions brought on by the related housing, financial, and banking crises that occurred over the period of 2007
through 2011.92 These conditions impacted even the largest banking companies in the U.S. and abroad.93
Some comments noted the crisis-era conversions of industrial banks and their parent organizations to commercial banks and BHCs. Of the conversions noted by commenters, the majority involved industrial banks that were fundamentally sound, based on the most recent examinations prior to the conversions. The same held with respect to the respective parent companies, one of which converted from a thrift holding company to a bank holding company during the crisis. In each case, the FRB determined that 92 As has been noted in Crisis and Response, the housing bubble that developed during the early 2000s burst in 2007, bringing the financial system relatively quickly to the brink of collapse and resulted in the worst economic dislocation in decades. Large losses in economic output and large declines in economic indicators were evident, including with respect to steep declines in employment and household wealth, among other indicators. The related banking crisis was also severe, with almost 500 institutions failing during the period of 2008 through 2013. In addition, between March 2008 and December 2009, the number of problem banks rose from 90 to over 700, and ultimately peaked at almost 900 in early 2011.
This level constituted nearly 12 percent of all FDICinsured institutions. See note 49.
93 Some of the industrial banks that were owned by thrift holding companies had sister financial institutions that were also FDIC-insured.
Ownership of an industrial bank was not the driving force that caused or allowed these entities to issue guaranteed debt through the TLGP. Rather, the companies could have accessed the program simply by virtue of being a thrift holding company or owning an FDIC-insured institution.

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approval of the BHC applications was warranted, based on evaluation of the relevant statutory factors and regulatory requirements. Given these circumstances, the conversions and participation in crisis-related programs reflected responses to the broader conditions in all segments of the economy, including the financial sector.
Finally, industrial banks did not experience a disproportionate rate of failures when compared to other types of institutions, and there have not been any industrial bank failures since 2010.94
This experience with supervision in the industrial banking space informs the present rulemaking. The heightened source of strength requirements, along with other regulatory requirements included in the final rule, are examples of how the FDIC is applying lessons learned in this rulemaking process.
Some commenters also questioned why the proposed rule applies to industrial banks that would be owned by financial and commercial companies, when the FDICs 2007 rulemaking was limited to financial companies and the FDICs extended moratorium applied only to commercial companies. As the FDIC discussed in the proposed rule, commenters on the 2007 rulemaking observed that the FDIC lacked authority to draw a distinction between financial and nonfinancial industrial bank owners absent a change in law. The FDIC agrees that the CEBA exception does not distinguish between commercial and financial parent companies of industrial banks in excluding them from the definition of bank. As discussed above, the FDICs supervisory experience has shown that a distinction based on the activities of the parent company is not warranted in this final rule.
Most crucial, though, is the fact that the most recent of the moratoriums commenters reference expired in 2013.
In the ensuing years, Congress has declined to act with regard to industrial banks. The FDIC, as all agencies, is charged with enacting the laws as they exist today. Therefore, given that the rule is permissible under the statute, that it is sufficiently supported by the reasoning presented in the NPR and this Supplementary Information section, and that there is a clear connection between the facts at hand and the choice to proceed, the rule is a permissible change in policy.
The FDIC believes that the final rule, which is largely consistent with the 94 As noted above, Security Savings Bank, Henderson, Nevada, failed in February 2009, and Advanta Bank Corporation, Draper, Utah, failed in March 2010.

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