US Aims to Ease Process for Automakers, Retailers to Form Banks

A federal banking regulator is developing a policy to clearly lay out what would be required for nonfinancial companies such as automakers and retailers to establish their own banks.

The Federal Deposit Insurance Corp. on Tuesday voted unanimously to release a request for information on its process for approving “industrial loan companies.” The inquiry, which will have a 60-day comment deadline once it hits the Federal Register, poses a raft of questions about the relationships between nonbank industrial companies and banks they would open.

The information request comes as the FDIC considers ILC applications it received this year from automakers General Motors Co., Stellantis, and Nissan Motor Co.

“I believe our ultimate objective should be a policy statement or similar issuance that provides clarity on how the FDIC interprets the applicable statutory factors in the context of ILC filings,” FDIC acting Chairman Travis Hill said in a statement.

The latest move from the regulator adds to a long-running fight between nonbanks and traditional lenders over who gets to access the federal insurance backstop.

Banks Versus ILCs

ILCs have to comply with most of the same capital and other regulatory requirements that traditional banks face, but their parent companies aren’t subject to Federal Reserve supervision under the Federal Deposit Insurance Act. Bank holding companies are typically supervised by the Fed.

The FDIC during the first Trump administration eased the path for ILC insurance application approvals. But the Biden-era FDIC proposed increasing regulatory scrutiny of companies seeking ILC charters, including by requiring that proposed banks be able to stand on their own without support from the parent companies.

The FDIC on Tuesday voted to rescind the Biden administration’s proposal, which had drawn support from traditional lenders raising concerns that giant retailers such as Amazon.com Inc. and tech powerhouses including Google parent Alphabet Inc. could apply to form their own banks.

Walmart Inc. and Home Depot Inc. filed applications for federal deposit insurance coverage for their own banking subsidiaries in 2005 and 2006, respectively, generating significant opposition from banks.

GM was forced to sell off its ILC, General Motors Acceptance Corp., during the 2008 financial crisis, which contributed to the unit’s near-collapse and federal bailout.

Independent Community Bankers of America, a community bank trade group, sent letters opposing the applications from automakers this year, arguing that granting them deposit insurance risked a repeat of GMAC’s failure.

Monoline auto lenders such as the former GMAC—now Ally Bank, a unit of Ally Financial Inc.—are risky because they only make auto loans and lack the independence to reject risky applications, the ICBA letters said.

Congress imposed a three-year moratorium on ILC applications following the financial crisis. After the temporary ban expired, the FDIC approved ILC applications from financial technology company Square, now Block Inc., and student loan servicer Nelnet Inc.

Five states—California, Hawaii, Minnesota, Nevada, and Utah—have issued 24 industrial loan charters currently in effect, according to an FDIC memorandum accompanying the information request.

Appeals, Audit Changes

Also Tuesday, the FDIC proposed bringing back its Office of Supervisory Appeals, replacing the existing Supervision Appeals Review Committee, to hear banks’ challenges to concerns raised by examiners.

The FDIC had created the appeals office during President Donald Trump’s first term, relying on part-time workers with bank supervisory experience from outside the agency to review appeals. The Biden-era FDIC had turned back to the review committee, made up of FDIC directors and top officials.

The latest proposal would also allow the FDIC to hire former bankers who don’t necessarily have supervisory experience, although the three-member panels that hear appeals would have to include at least one member with such experience.

In a separate proposal, the agency asked for comment on adjusting audit requirements for FDIC-supervised banks so that the asset thresholds are tied to inflation rather than fixed numbers.

The FDIC also proposed rescinding a 2023 update to the Community Reinvestment Act, which measures banks’ lending to low- to moderate-income communities. The FDIC, Fed, and the Office of the Comptroller of the Currency had announced their plans to do so in March.