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Rules and Regulations
Federal Register Vol. 86, No. 34
Tuesday, February 23, 2021

This section of the FEDERAL REGISTER
contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.

SUPPLEMENTARY INFORMATION:

FEDERAL DEPOSIT INSURANCE
CORPORATION

Table of Contents
12 CFR Part 354
RIN 3064AF31

Parent Companies of Industrial Banks and Industrial Loan Companies Federal Deposit Insurance Corporation.
ACTION: Final rule.
AGENCY:

The Federal Deposit Insurance Corporation is adopting a final rule that requires certain conditions and commitments for each deposit insurance application approval, non-objection to a change in control notice, and merger application approval that would result in an insured industrial bank or industrial loan company becoming, on or after the effective date of the final rule, a subsidiary of a company that is not subject to consolidated supervision by the Federal Reserve Board. The final rule also requires that before any industrial bank or industrial loan company may become a subsidiary of a company that is not subject to consolidated supervision by the Federal Reserve Board, such company and the industrial bank or industrial loan company must enter into one or more written agreements with the Federal Deposit Insurance Corporation.
DATES: The rule is effective on April 1, 2021.
FOR FURTHER INFORMATION CONTACT:
Amanda Ledig, Attorney, 202 898
7261, aledig@fdic.gov; Merritt Pardini, Counsel, 202 8986680, mpardini@
fdic.gov; Joyce Raidle, Counsel, 202
8986763, jraidle@fdic.gov; Gregory Feder, Counsel, 202 8988724, gfeder@
fdic.gov; Catherine Topping, Counsel, 202 8983975, ctopping@fdic.gov;
Mark Flanigan, Senior Counsel, 202
8987426, mflanigan@fdic.gov; Ashby Hilsman, Assistant General Counsel, 202 8986636, ahilsman@fdic.gov, Legal Division; Scott Leifer, Senior SUMMARY:

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Review Examiner, 508 6980361, Extension 8027, sleifer@fdic.gov; Don Hamm, Special Advisor, 202 898
3528, dhamm@fdic.gov; Patricia Colohan, Associate Director, Risk Management Examinations Branch, 202 8987283, pcolohan@fdic.gov, Division of Risk Management Supervision.

I. Policy Objectives II. Background A. History B. Industrial Bank Exclusion Under the BHCA
C. Industry Profile D. Supervision E. GAO and OIG Reports F. FDIC Moratorium and Other Agency Actions G. 2007 Notice of Proposed Rulemaking Part 354
H. Dodd-Frank Act and Industrial Banks III. The Proposed Rule IV. Discussion of General Comments and Final Rule A. General Comments 1. Banking and Commerce 2. Lack of Federal Consolidated Supervision 3. Consumer Protection Risks 4. Justification for the Proposed Rule B. Description of the Final Rule 1. Section 354.1Scope 2. Section 354.2Definitions 3. Section 354.3Written Agreement 4. Section 354.4Required Commitments and Provisions of Written Agreement 5. Section 354.5Restrictions on Industrial Bank Subsidiaries of Covered Companies 6. Section 354.6Reservation of Authority 7. Responses to Additional Questions V. Expected Effects A. Overview of Industrial Banks B. Analysis of the Commitments C. Safety and Soundness of Affected Banks D. Broad Effects on the Banking Industry E. Expected Effects on Consumers F. Expected Effects on the Economy VI. Regulatory Analysis A. Regulatory Flexibility Act B. Paperwork Reduction Act C. Plain Language D. Riegle Community Development and Regulatory Improvement Act of 1994
E. Congressional Review Act
I. Policy Objectives The Federal Deposit Insurance Corporation FDIC monitors, evaluates, and takes necessary action to ensure the safety and soundness of State
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nonmember banks,1 including industrial banks and industrial loan companies together, industrial banks.2 In granting deposit insurance, issuing a non-objection to a change in control, or approving a merger, the FDIC must consider the factors listed in sections 6,3
7j,4 and 18c,5 respectively, of the Federal Deposit Insurance Act FDI Act.
Congress expressly made all industrial banks eligible for Federal deposit insurance in 1982.6 As deposit insurer and as the appropriate Federal banking agency for industrial banks, the FDIC
supervises industrial banks. A key part of its supervision is evaluating and mitigating the risks arising from the activities of the control parties and owners of insured industrial banks to ensure they do not threaten the safe and sound operations of those industrial banks or pose undue risk to the Deposit Insurance Fund DIF.
Existing State and Federal laws allow both financial and commercial companies to own and control industrial banks. Congress expressly adopted an exception to permit such companies to own and control industrial banks, without becoming a bank holding company BHC under the Bank Holding Company Act BHCA, as part of the Competitive Equality Banking Act of 1987 CEBA.7 Industrial banks today are owned by financial and nonfinancial commercial firms. The FDIC has in recent years received applications from groups seeking to establish new industrial banks that would be owned by commercial parents.
Proposals regarding industrial banks have presented unique risk profiles compared to traditional community 1 See 12 U.S.C. 1811, 1818, 1821, 1831o1, 1831p1.
2 Herein, the term industrial bank means any insured State-chartered bank that is an industrial bank, industrial loan company, or other similar institution that is excluded from the definition of bank in the Bank Holding Company Act pursuant to 12 U.S.C. 1841c2H. State laws refer to both industrial loan companies and industrial banks. For purposes of this rule, the FDIC is treating the two types of institutions as the same. The rule does not apply to limited purpose trust companies and credit card banks that also are exempt from the definition of bank.
3 12 U.S.C. 1816.
4 12 U.S.C. 1817j.
5 12 U.S.C. 1828c.
6 Garn-St. Germain Depository Institutions Act of 1982, Public Law 97320, 96 Stat. 1469 Oct. 15, 1982.
7 Public Law 10086, 101 Stat. 552 Aug. 10, 1987.

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