On July 30, the FDIC released an NPRM to regulate parent companies of industrial banks and industrial loan companies (the industrial entities). The proposed rule would revise the definition of “Covered Company” to include conversions involving a proposed industrial bank or loan company under Section 5 of the Home Owners’ Loan Act, ensure that a parent company of an industrial entity would be subject to change of control under part 354, and give regulatory authority to the FDIC to apply part 354 to other situations where an industrial bank would become a subsidiary of a company not subject to Fed supervision. Part 354 took effect in April 2021 to govern parent companies of industrial banks and requires specific conditions for industrial banks to become a company’s subsidiary.
Under the Bank Holding Company Act (BHCA), industrial banks are currently exempted from the definition of “bank.” Due to this, the parent companies that oversee industrial banks were not subject to the Fed’s supervision and regulation. This led to concerns about an increased risk to the DIF where industrial banks may be overly dependent on their parent company or affiliates, leading to risk or financial distress. Comments on the NPRM must be received within 60 days of publication in the Federal Register.
