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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations apply to parent companies of industrial banks that are not subject to Federal consolidated supervision should proceed even in the absence of a unified interagency rule on CRA.
The FDIC also sought comment on the FDICs approach to foreign ownership of industrial banks. Some commenters argued that foreign ownership of industrial banks should not be permitted, or if permitted, should be heavily regulated. A commenter argued that the FDIC would not be well positioned to foresee the risks that a might arise for a foreign Covered Company in its home market. Another commenter asserted that the proposed supervisory approach fell short of the FRBs consolidated supervision framework, leaving the FDIC with limited examination authority and therefore unable to adequately monitor foreign companies whose risks might be spread across multiple entities. Another commenter opposed foreign ownership of industrial banks, but suggested that if such arrangements were permitted, further commitments such as a high net stable funding ratio and a prefunded orderly liquidation fund should be required of foreign Covered Companies.
On the other hand, a number of commenters indicated that there was no need to build in additional restrictions specific to foreign Covered Companies.
These commenters noted that the FDIC
already has robust supervisory authority to address unsafe and unsound conditions impacting insured depository institutions, and that the FDICs practice of securing additional commitments from foreign parent companies of industrial banks has been effective. Other commenters also argued for flexibility, indicating that determining what additional commitments would be necessary in such instances is a fact-specific inquiry and should be based on the parent companys ability to be a source of strength for the industrial bank.
The final rule does not contain any specific requirements for foreign Covered Companies beyond those to which U.S.-based Covered Companies are subject. The FDICs supervisory experience with foreign parent companies of industrial banks has shown that retaining the flexibility to secure additional commitments from such entities as needed is an effective approach. Such commitments would be in addition to the substantial requirements a Covered Company is subject to in the written agreements with the FDIC required by the final rule, including examination and reporting requirements, capital maintenance of the industrial bank, and contingency
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planning. These commitments allow the FDIC to ensure that a Covered Company can and will serve as a source of strength for its industrial bank, and along with the added flexibility to require additional commitments as needed, they are sufficient to address both domestic and foreign Covered Companies.129
V. Expected Effects As previously discussed, the final rule requires or imposes certain conditions, commitments, and restrictions for each deposit insurance application approval, non-objection to a change in control notice, and merger application approval that would result in an industrial bank becoming, pursuant to the rule, a subsidiary of a Covered Company. The final rule requires such Covered Company to enter into one or more written agreements with the FDIC and the industrial bank subsidiary.
A. Overview of Industrial Banks As of June 30, 2020, the FDIC
supervised 3,270 insured depository institutions, with combined assets of $3.84 trillion. Of these, 23 institutions were industrial banks, comprising 0.7
percent of all FDIC-supervised institutions. The industrial banks hold combined assets of $169 billion, comprising 4.54 percent of the combined assets of FDIC-supervised institutions.130 The majority of industrial banks are headquartered in Utah and Nevada, and hold nearly all of the combined assets of industrial banks.
As of June 30, 2020, 14 industrial banks were headquartered in Utah, four in Nevada, three in California, one in Hawaii, and one in Minnesota.
The final rule applies prospectively to deposit insurance, change in control, and merger transactions resulting in an industrial bank that is controlled by a Covered Company. It is difficult to estimate the number of potential Covered Companies that will seek to establish or acquire an industrial bank, as such an estimate depends on considerations that affect Covered Companies decisions. These considerations, and how they affect decision making, are difficult for the FDIC to forecast, estimate, or model, as the considerations include external parties evaluations of potential business strategies for the industrial bank as well as future financial conditions, rates of return on capital, and innovations in the provision of 129 The FDIC may require, in the case of a Covered Company located outside the United States, United States-based capital and liquidity support of the subsidiary industrial bank.
130 FDIC Call Report Data, June 30, 2020.

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financial services, among others.
However, during the period of 2017
through 2019, the FDIC received nine industrial bank deposit insurance applications and one change in control application.131 Consistent with the Paperwork Reduction Act PRA 132
estimates presented elsewhere in this rule, for this analysis the FDIC is estimating the final rule applies to four filings per year seeking to establish or acquire an industrial bank.
The final rule could indirectly affect subsidiaries of Covered Companies.
Such Covered Companies operate through a variety of structures that include a range of subsidiaries and affiliates. Further, the final rule includes the FDICs reservation of authority to require any industrial bank and its parent company, if not otherwise subject to part 354, to enter into written agreements, provide commitments, or abide by restrictions, as appropriate.
Therefore, it is difficult to estimate the number of subsidiaries and affiliates of prospective Covered Companies, based on information currently available to the FDIC. However, based on the FDICs experience as the primary Federal regulator of industrial banks,133 the FDIC believes that the number of subsidiaries of the prospective Covered Companies affected by the final rule is likely to be small.
B. Analysis of the Commitments Under the final rule, prospective Covered Companies are required to agree to the eight commitments, and may be required to agree to additional commitments under certain circumstances, which in summary include commitments by the Covered Company to:
Furnish an initial listing, with annual updates, of the Covered Companys subsidiaries.
Consent to the examination of the Covered Company and its subsidiaries.
Submit an annual report on the Covered Company and its subsidiaries, and such other reports as requested.
Maintain such records as deemed necessary.
Cause an independent annual audit of each industrial bank.
Limit the Covered Companys representation on the industrial banks board of directors or managers board, 131 During the same period, the FDIC did not receive any merger applications involving industrial banks.
132 44 U.S.C. 3501 et seq.
133 Historically, industrial banks have elected not to become members of the Federal Reserve System.
The FDIC is the primary Federal regulator for State nonmember banks and the insurer for all insured depository institutions.

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