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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
proposed rule, is an appropriate response to safety and soundness issues surrounding financial and commercial ownership of industrial banks under existing law. Specific suggestions from commenters on the regulation itself are described below in the appropriate sections of this preamble on the specific sections of the rule.
B. Description of the Final Rule 1. Section 354.1Scope This section of the proposed rule described the industrial banks and parent companies that would be subject to the rule. The proposed rule applied to industrial banks that, after the effective date, become subsidiaries of companies that are Covered Companies, as such term is defined in 354.2.
Industrial bank subsidiaries of companies that are subject to Federal consolidated supervision by the FRB
would not have been covered by the proposed rule. An industrial bank that, on or before the effective date, is a subsidiary of a company that is not subject to Federal consolidated supervision by the FRB a grandfathered industrial bank generally would not have been covered by the proposed rule.95 A grandfathered industrial bank could become subject to the proposed rule following a grant of deposit insurance, change in control, or merger occurring on or after the effective date in which the resulting institution is an industrial bank that is a subsidiary of a Covered Company. Thus, a grandfathered industrial bank would have been subject to the proposed rule, as would its parent company that is not subject to Federal consolidated supervision, if such a parent company acquired control of the grandfathered industrial bank pursuant to a grant of deposit insurance after the effective date, a change in bank control transaction that closes after the effective date, or if the grandfathered industrial bank is the surviving institution in a merger transaction that closes after the effective date. Industrial banks that are not subsidiaries of a company, for example, those wholly owned by one or more individuals, would not have been subject to the proposed rule.
The FDIC specifically sought comment on whether to apply the rule prospectively or to all industrial banks 95 Although generally not subject to the rule, grandfathered industrial banks and their parent companies that are not subject to Federal consolidated supervision by the FRB will remain subject to FDIC supervision, including but not limited to examinations and capital requirements.
See also the discussion of the reservation of authority in section IV.B.6. of this Supplementary Information.

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that, as of the effective date, are a subsidiary of a parent company that is not subject to Federal consolidated supervision by the FRB. A number of commenters expressed the view that the rule, if adopted, should apply only prospectively; that is, to industrial banks that become a subsidiary of a parent company that is a Covered Company as of the effective date of the rule, noting that existing industrial banks and their parents are subject to most of the standards of the proposed rule. Three commenters requested that the rule apply to a parent company and its subsidiary industrial bank if the parent company became a Covered Company after either the date of FDICs notice announcing the FDIC board meeting at which the proposed rule was considered or the date of the FDIC board meeting, rather than the effective date.
Some commenters supported the retroactive application of the proposed rule to all industrial banks that, as of the effective date, are a subsidiary of a parent that is not subject to Federal consolidated supervision. These commenters asserted that otherwise existing industrial banks would enjoy a regulatory advantage over new industrial banks. They also argued that retroactive application would enhance the FDICs ability to perform its supervisory responsibilities. However, other commenters expressed concerns that applying the rule retroactively would violate the APA as parent companies of existing industrial banks had no opportunity to consider these requirements in their decision to establish or acquire an industrial bank.
These commenters also argued that existing industrial banks have a record of sound operations under the existing supervisory framework.
In addition, one commenter recommended that the final rule apply to grandfathered industrial banks that undergo certain other changes, such as when the industrial bank parent company acquires a subsidiary engaged in nonfinancial activities, or the industrial bank parent company engages in new nonfinancial activities. The final rule operates prospectively on the basis of a filing that would result in an industrial bank becoming a subsidiary of a company not subject to consolidated Federal supervision. In contrast, the suggested triggers, as described, would be applied to existing industrial banks and their parent companies, would not be related to a filing, and would not necessarily result in any impact to the industrial bank.
Should such an impact be identified, the FDIC would rely on its supervisory or enforcement authority as the
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appropriate means to ensure the safe and sound operation of the industrial bank. Further, the commenters suggestion would be difficult to administer because the recommended triggers for applicability of the rule engaging in nonfinancial activities historically has proven difficult to define and measure. Accordingly, the final rule does not adopt the commenters recommendation.
However, the FDIC will continue to apply all appropriate supervisory and enforcement authorities to existing industrial banks and their parent organizations, as appropriate, to ensure the continued safety and soundness of the industrial bank.
The FDIC also sought comment on whether the rule should apply to industrial banks that do not have a parent company or to industrial banks that are controlled by an individual rather than a company. Several commenters asserted that it was not necessary to apply the requirements of the proposed rule to industrial banks without parent companies or that are controlled by an individual rather than a company, in part because industrial banks themselves are subject to the same regulatory treatment as State nonmember banks. By contrast, several commenters asserted the requirements should be applied to such industrial banks and/or also to an individual that controls an industrial bank. The FDIC
believes that industrial banks that are owned by individuals or do not have a parent company generally do not present the same potential risks as industrial banks owned by companies.
Industrial banks that are controlled by a parent company, whether engaged in commercial or financial activities, that are not subject to Federal consolidated supervision present the risks that are addressed by the safeguards in this final rule. In addition, applying the rule to industrial banks that have a parent company and requiring that the parent company provide capital support is consistent with the statutory requirements of section 38A of the FDI
Act.
After considering these comments regarding the scope of the proposed rule, the final rule will apply only prospectively as of the effective date of the rule, to industrial banks that become subsidiaries of companies that are Covered Companies.96 The FDIC must 96 The proposed rule divided the rule into two temporal states, on or before the effective date on the one hand, and after the effective date on the other hand. The final rule amends the dividing line so that the relevant timeframes would be before the effective date and on or after the effective date. This change was made because the effective date is
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