10703 Rules and Regulations Federal Register Vol. 86, No. 34 Tuesday, February 23, 2021 This section of the FEDERAL REGISTER Review Examiner, (508) 698–0361, nonmember banks,1 including industrial contains regulatory documents having general Extension 8027, [email protected]; Don banks and industrial loan companies applicability and legal effect, most of which Hamm, Special Advisor, (202) 898– (together, ‘‘industrial banks’’).2 In are keyed to and codified in the Code of 3528, [email protected]; Patricia granting deposit insurance, issuing a Federal Regulations, which is published under Colohan, Associate Director, Risk non-objection to a change in control, or 50 titles pursuant to 44 U.S.C. 1510. Management Examinations Branch, approving a merger, the FDIC must 3 The Code of Federal Regulations is sold by (202) 898–7283, [email protected], consider the factors listed in sections 6, the Superintendent of Documents. Division of Risk Management 7(j),4 and 18(c),5 respectively, of the Supervision. Federal Deposit Insurance Act (FDI Act). Congress expressly made all industrial FEDERAL DEPOSIT INSURANCE SUPPLEMENTARY INFORMATION: banks eligible for Federal deposit CORPORATION 6 Table of Contents insurance in 1982. As deposit insurer and as the appropriate Federal banking 12 CFR Part 354 I. Policy Objectives agency for industrial banks, the FDIC RIN 3064–AF31 II. Background supervises industrial banks. A key part A. History of its supervision is evaluating and Parent Companies of Industrial Banks B. Industrial Bank Exclusion Under the mitigating the risks arising from the and Industrial Loan Companies BHCA activities of the control parties and C. Industry Profile owners of insured industrial banks to AGENCY: Federal Deposit Insurance D. Supervision ensure they do not threaten the safe and Corporation. E. GAO and OIG Reports sound operations of those industrial ACTION: Final rule. F. FDIC Moratorium and Other Agency Actions banks or pose undue risk to the Deposit SUMMARY: The Federal Deposit G. 2007 Notice of Proposed Rulemaking— Insurance Fund (DIF). Insurance Corporation is adopting a Part 354 Existing State and Federal laws allow final rule that requires certain H. Dodd-Frank Act and Industrial Banks both financial and commercial conditions and commitments for each III. The Proposed Rule companies to own and control deposit insurance application approval, IV. Discussion of General Comments and industrial banks. Congress expressly non-objection to a change in control Final Rule adopted an exception to permit such notice, and merger application approval A. General Comments companies to own and control that would result in an insured 1. Banking and Commerce industrial banks, without becoming a 2. Lack of Federal Consolidated industrial bank or industrial loan bank holding company (BHC) under the Supervision Bank Holding Company Act (BHCA), as company becoming, on or after the 3. Consumer Protection Risks effective date of the final rule, a part of the Competitive Equality 4. Justification for the Proposed Rule Banking Act of 1987 (CEBA).7 Industrial subsidiary of a company that is not B. Description of the Final Rule banks today are owned by financial and subject to consolidated supervision by 1. Section 354.1—Scope the Federal Reserve Board. The final 2. Section 354.2—Definitions nonfinancial commercial firms. The rule also requires that before any 3. Section 354.3—Written Agreement FDIC has in recent years received industrial bank or industrial loan 4. Section 354.4—Required Commitments applications from groups seeking to company may become a subsidiary of a and Provisions of Written Agreement establish new industrial banks that company that is not subject to 5. Section 354.5—Restrictions on Industrial would be owned by commercial parents. consolidated supervision by the Federal Bank Subsidiaries of Covered Companies Proposals regarding industrial banks Reserve Board, such company and the 6. Section 354.6—Reservation of Authority have presented unique risk profiles industrial bank or industrial loan 7. Responses to Additional Questions compared to traditional community company must enter into one or more V. Expected Effects written agreements with the Federal A. Overview of Industrial Banks 1 See 12 U.S.C. 1811, 1818, 1821, 1831o–1, B. Analysis of the Commitments Deposit Insurance Corporation. 1831p–1. C. Safety and Soundness of Affected Banks 2 Herein, the term ‘‘industrial bank’’ means any DATES: The rule is effective on April 1, D. Broad Effects on the Banking Industry insured State-chartered bank that is an industrial 2021. E. Expected Effects on Consumers bank, industrial loan company, or other similar FOR FURTHER INFORMATION CONTACT: F. Expected Effects on the Economy institution that is excluded from the definition of ‘‘bank’’ in the Bank Holding Company Act pursuant Amanda Ledig, Attorney, (202) 898– VI. Regulatory Analysis to 12 U.S.C. 1841(c)(2)(H). State laws refer to both 7261, [email protected]; Merritt Pardini, A. Regulatory Flexibility Act industrial loan companies and industrial banks. For Counsel, (202) 898–6680, mpardini@ B. Paperwork Reduction Act purposes of this rule, the FDIC is treating the two fdic.gov; Joyce Raidle, Counsel, (202) C. Plain Language types of institutions as the same. The rule does not apply to limited purpose trust companies and credit 898–6763, [email protected]; Gregory D. Riegle Community Development and Regulatory Improvement Act of 1994 card banks that also are exempt from the definition Feder, Counsel, (202) 898–8724, gfeder@ of ‘‘bank.’’ E. Congressional Review Act fdic.gov; Catherine Topping, Counsel, 3 12 U.S.C. 1816. (202) 898–3975, [email protected]; I. Policy Objectives 4 12 U.S.C. 1817(j). Mark Flanigan, Senior Counsel, (202) 5 12 U.S.C. 1828(c). 898–7426, [email protected]; Ashby The Federal Deposit Insurance 6 Garn-St. Germain Depository Institutions Act of Corporation (FDIC) monitors, evaluates, 1982, Public Law 97–320, 96 Stat. 1469 (Oct. 15, Hilsman, Assistant General Counsel, 1982). (202) 898–6636, [email protected], and takes necessary action to ensure the 7 Public Law 100–86, 101 Stat. 552 (Aug. 10, Legal Division; Scott Leifer, Senior safety and soundness of State 1987). VerDate Sep<11>2014 21:28 Feb 22, 2021 Jkt 253001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\23FER1.SGM 23FER1 10704 Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations bank proposals. These profiles have industrial banks and their parent of both a State authority and the FDIC.13 included potential owners that would companies.11 The chartering States gradually not be subject to Federal consolidated The FDIC is now issuing a final rule, expanded the powers of their industrial supervision,8 affiliations with which is largely consistent with the banks so that today industrial banks organizations whose activities are proposed rule. The final rule makes four generally have the same commercial and primarily commercial in nature, and substantive changes to the proposed consumer lending powers as non-community bank business models.9 rule. First, the final rule requires commercial banks. compliance from covered entities on or Under the FDI Act, industrial banks Given the continuing interest in the are ‘‘State banks’’ 14 and all of the industrial bank charter and the evolving after the effective date of the rule rather than simply after, as proposed. Second, existing FDIC-insured industrial banks business models, the FDIC proposed a 15 the final rule requires additional are ‘‘State nonmember banks.’’ As a rule in March 2020 to codify existing result, the FDIC is the appropriate practices utilized by the FDIC to reporting by Covered Companies regarding systems for protecting the Federal banking agency for industrial supervise industrial banks and their 16 security, confidentiality, and integrity of banks. Each industrial bank is also parent companies, to mitigate undue consumer and nonpublic personal regulated by its respective State risk to the DIF that may otherwise be information. Third, the threshold chartering authority. The FDIC generally presented in the absence of Federal regarding the limitation of a Covered exercises the same supervisory and consolidated supervision of an Company’s representation on the board regulatory authority over industrial industrial bank and its parent company, of a subsidiary industrial bank has been banks as it does over other State and to ensure that the parent company raised in the final rule from 25 percent, nonmember banks. that owns or controls an industrial bank as proposed, to less than 50 percent. B. Industrial Bank Exclusion Under the serves as a source of financial strength Lastly, the final rule modifies the BHCA for the industrial bank, consistent with restrictions on industrial bank section 38A of the FDI Act.10 The subsidiaries concerning the In 1987, Congress enacted the CEBA, proposed rule described certain appointment of directors and senior which exempted industrial banks from commitments that would be required as executive officers to apply to the the definition of ‘‘bank’’ in the BHCA. a condition of the FDIC’s approval of, or industrial bank only during the first As a result, parent companies that non-objection to, each deposit insurance three years after becoming a subsidiary control industrial banks are not BHCs under the BHCA and are not subject to application, change in control notice, or of a Covered Company. These changes the BHCA’s activities restrictions or FRB merger application resulting in an are discussed in sections IV.B.1., supervision and regulation. The industrial bank becoming a subsidiary IV.B.4., and IV.B.5. of this Supplementary Information section industrial bank exception in the BHCA of a company not subject to therefore allows for commercial firms to consolidated supervision by the Federal below. In addition to providing this comprehensive framework for own or control a bank. By contrast, Reserve Board (FRB; each such parent BHCs and savings and loan holding company a Covered Company).