Washington, D.C (Aug. 1, 2018)—The Independent Community Bankers of America® (ICBA) today called on the Federal Deposit Insurance Corp. to deny Nelnet Bank’s deposit insurance application for its proposed industrial loan corporation and impose a two-year moratorium on future ILC applications. Like the since-withdrawn applications of SoFi Bank and Square, Nelnet’s is designed to avoid the legal restrictions of the Bank Holding Company Act, ICBA wrote in a letter to the agency.
“The ILC loophole allows commercial interests to own full-service banks while avoiding the legal restrictions and regulatory supervision that apply to other bank holding companies—threatening the financial system and creating an uneven regulatory playing field,” ICBA President and CEO Rebeca Romero Rainey said. “To support a safe and sound financial system and to maintain the separation of banking and commerce, the FDIC should impose a two-year application moratorium and Congress should close the ILC loophole for good. Our deposit-insurance system was created to protect depositors—not commercial firms.”
Regulation under the Bank Holding Company Act entails consolidated supervision of the holding company by the Federal Reserve and restricts the activities of the holding company and its affiliates to those that are closely related to banking. Because of a loophole in the law, companies that own ILCs are not subject to BHCA supervision even though the ILC charter is a full-service banking charter. As a result, companies that own FDIC-insured ILCs are not subject to consolidated supervision and can engage in non-banking commercial activities.
Citing several previous moratoriums on ILC applications, ICBA’s letter notes that Nelnet Bank is applying as an ILC—not a commercial bank—so its parent company can retain its commercial activities. These include investing in start-ups, and maintaining telecommunications, investment and sports-software businesses. Nelnet Inc. should be subject to the same restrictions and supervision as any other bank holding company, ICBA wrote.
ICBA looks forward to continuing to work with the FDIC and Congress to address the ILC loophole and maintain the separation of banking and commerce.
The Independent Community Bankers of America®, the nation’s voice for nearly 5,700 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit ICBA’s website at www.icba.org.