Federal Register / Vol. 85, No. 62 / Tuesday, March 31, 2020 / Proposed Rules 17771

• NRC’s Agencywide Documents The NRC issues RISs to communicate company must enter into one or more Access and Management System with stakeholders on a broad range of written agreements with the Federal (ADAMS): You may obtain publicly- matters. This may include Deposit Insurance Corporation. available documents online in the communication and clarification of NRC DATES: Comments will be accepted until ADAMS Public Documents collection at technical or policy positions on June 1, 2020. https://www.nrc.gov/reading-rm/ regulatory matters that have not been ADDRESSES: You may submit comments adams.html. To begin the search, select communicated to or are not broadly on the notice of proposed rulemaking ‘‘Begin Web-based ADAMS Search.’’ For understood by the nuclear industry. using any of the following methods: problems with ADAMS, please contact As noted in 83 FR 20858 (May 8, • Agency Website: https:// the NRC’s Public Document Room (PDR) 2018), this document is being published www.fdic.gov/regulations/laws/federal. reference staff at 1–800–397–4209, 301– in the Proposed Rules section of the Follow the instructions for submitting 415–4737, or by email to pdr.resource@ Federal Register to comply with comments on the agency website. nrc.gov. The Regulatory Issue Summary publication requirements under 1 CFR • Email: [email protected]. Include 2020–XX, Clarification of Personnel chapter I. RIN 3064–AF31 on the subject line of Access Authorization Requirements for Proposed Action the message. Non-Immigrant Foreign Nationals • Mail: Robert E. Feldman, Executive Working at Nuclear Power Plants is The NRC is requesting public Secretary, Attention: Comments, Federal available in ADAMS under Accession comments on the draft RIS. The NRC Deposit Insurance Corporation, 550 17th No. ML20008D562. staff will make a final determination • regarding issuance of the RIS after it Street NW, Washington, DC 20429. NRC’s PDR: You may examine and • Hand Delivery: Comments may be purchase copies of public documents at considers any public comments received in response to this request. hand delivered to the guard station at the NRC’s PDR, Room O1–F21, One the rear of the 550 17th Street Building White Flint North, 11555 Rockville Dated at Rockville, Maryland, this 24th day (located on F Street) on business days Pike, Rockville, Maryland 20852. of March 2020. between 7 a.m. and 5 p.m. B. Submitting Comments For the Nuclear Regulatory Commission. • Public Inspection: All comments Lisa M. Regner, received, including any personal Please include Docket ID NRC–2020– Branch Chief, Operating Experience Branch, information provided, will be posted 0073 in your comment submission. Division of Reactor Oversight, Office of generally without change to https:// The NRC cautions you not to include Nuclear Reactor Regulation. www.fdic.gov/regulations/laws/federal. identifying or contact information that [FR Doc. 2020–06473 Filed 3–30–20; 8:45 am] FOR FURTHER INFORMATION CONTACT: you do not want to be publicly BILLING CODE 7590–01–P Mark Flanigan, Senior Counsel, (202) disclosed in your comment submission. 898–7426, [email protected]; The NRC will post all comment Catherine Topping, Counsel, (202) 898– submissions at https:// FEDERAL DEPOSIT INSURANCE 3975, [email protected]; Gregory Feder, www.regulations.gov as well as enter the CORPORATION Counsel, (202) 898–8724, gfeder@ comment submissions into ADAMS. fdic.gov; Joyce Raidle, Counsel, (202) The NRC does not routinely edit 12 CFR Part 354 898–6763, [email protected]; Merritt comment submissions to remove Pardini, Counsel, (202) 898–6680, identifying or contact information. RIN 3064–AF31 [email protected]; Kayce Seifert, If you are requesting or aggregating Parent Companies of Industrial Banks Senior Attorney, (202) 898–3625, comments from other persons for and Industrial Loan Companies [email protected], Legal Division; Don submission to the NRC, then you should Hamm, Special Advisor, (202) 898– inform those persons not to include AGENCY : Federal Deposit Insurance 3528, [email protected]; Scott Leifer, identifying or contact information that Corporation. Senior Review Examiner, (508) 698– they do not want to be publicly ACTION: Notice of proposed rulemaking 0361, Extension 8027, [email protected], disclosed in their comment submission. with request for public comment. Division of Risk Management Your request should state that the NRC Supervision. does not routinely edit comment SUMMARY: The Federal Deposit submissions to remove such information Insurance Corporation is seeking SUPPLEMENTARY INFORMATION: before making the comment comment on a proposed rule that would I. Policy Objectives submissions available to the public or require certain conditions and entering the comment into ADAMS. commitments for each deposit insurance The Federal Deposit Insurance application approval, non-objection to a Corporation (FDIC) monitors, evaluates, II. Background change in control notice, and merger and takes necessary action to ensure the The NRC, in collaboration with the application approval that would result safety and soundness of State Department of Homeland Security, has in an insured industrial bank or nonmember banks,1 including industrial identified several instances where a industrial loan company becoming, after banks and industrial loan companies licensee has failed to appropriately the effective date of any final rule, a (together, industrial banks).2 In granting verify, in the case of foreign nationals subsidiary of a company that is not seeking UA and/or UAA, that the subject to consolidated supervision by 1 See 12 U.S.C. 1811, 1818, 1821, 1831o–1, claimed non-immigration status that the the Federal Reserve Board. The 1831p–1. 2 Herein, the term ‘‘industrial bank’’ means any individual has provided is correct. proposed rule also would require that insured State-chartered bank that is an industrial Consequently, foreign nationals have before any industrial bank or industrial bank, industrial loan company, or other similar been granted UA and UAA at United loan company may become a subsidiary institution that is excluded from the definition of States nuclear power plants for the of a company that is not subject to ‘‘bank’’ in the Bank Holding Company Act pursuant to 12 U.S.C. 1841(c)(2)(H). State laws refer to both purpose of work using visa categories consolidated supervision by the Federal industrial loan companies and industrial banks. For that do not permit foreign nationals to Reserve Board, such company and the purposes of this proposed rule, the FDIC is treating work in the United States. industrial bank or industrial loan the two types of institutions as the same.

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deposit insurance, issuing a non- not be subject to Federal consolidated providers of consumer credit to this objection to a change in control, or supervision, affiliations with underserved market through the 1920s approving a merger, the FDIC must organizations whose activities are and 1930s. Over time, commercial banks consider the factors listed in sections 6,3 primarily commercial in nature, and expanded their consumer lending 7(j),4 and 18(c),5 respectively, of the non-community bank business models.9 business and by the post-World War II Federal Deposit Insurance Act (FDI Act). Some public comments regarding these period, industrial banks represented As deposit insurer and as the proposals have argued that the current only a small segment of the consumer appropriate Federal banking agency for use of the charter inappropriately mixes lending market. industrial banks, the FDIC supervises banking and commerce and raises risk Initially, many industrial banks did industrial banks. A key part of its to the DIF as a result of a lack of Federal not accept any deposits and funded supervision is evaluating and mitigating consolidated supervision over the themselves instead by issuing the risks arising from the activities of parent company. Some commenters investment certificates. However, the the control parties and owners of have requested that the FDIC impose a Garn-St. Germain Depository insured industrial banks to ensure they new moratorium on deposit insurance Institutions Act of 1982,11 among other do not threaten the safe and sound applications involving industrial effects, made all industrial banks operations of those industrial banks or banks.10 Other commenters have eligible for Federal deposit insurance. pose undue risk to the Deposit supported the industrial bank charter This expanded eligibility for Federal Insurance Fund (DIF). citing the benefits of increased deposit insurance brought industrial Existing State and Federal laws allows competition and the provision of banks under the supervision of both a both financial and commercial financial services to underserved State authority and the FDIC.12 The companies to own and control markets. These commenters further chartering States gradually expanded industrial banks. Congress expressly argue the charter poses no increased risk the powers of their industrial banks so adopted an exception to permit such to the DIF. that today industrial banks generally companies to own and control Given the continuing evolution in the have the same commercial and industrial banks, without becoming a use of the industrial bank charter, the consumer lending powers as bank holding company (BHC) under the unique nature of applications seeking to commercial banks. Bank Holding Company Act (BHCA), as establish de novo industrial banks, and Under the FDI Act, industrial banks part of the Competitive Equality the legitimate considerations raised by are ‘‘State banks’’ 13 and all of the Banking Act of 1987 (CEBA).6 The interested parties—both in support of existing FDIC-insured industrial banks purpose of the proposed rule is to codify and opposed to the industrial bank are ‘‘State nonmember banks’’.14 As a existing practices utilized by the FDIC charter—the FDIC believes a rule result, their primary Federal regulator is to supervise industrial banks and their formalizing and strengthening the the FDIC.15 Each industrial bank is also parent companies, to mitigate undue FDIC’s existing supervisory processes regulated by its respective State risk to the DIF that may otherwise be and policies that apply to parent chartering authority. The FDIC generally presented in the absence of Federal companies of industrial banks that are exercises the same supervisory and consolidated supervision 7 of an not subject to Federal consolidated regulatory authority over industrial industrial bank and its parent company, supervision is timely and appropriate. banks as it does over other State and to ensure that the parent company The proposed rule would also provide nonmember banks. that owns or controls an industrial bank interested parties with transparency B. Industrial Bank Exclusion Under the serves as a source of financial strength regarding the FDIC’s practices when BHCA for the industrial bank, consistent with making determinations on filings section 38A of the FDI Act.8 involving industrial banks. In 1987, Congress enacted CEBA, In recent years, there has been which exempted industrial banks from renewed interest in establishing de novo II. Background: Regulatory Approach the definition of ‘‘bank’’ in the BHCA. institutions, including industrial banks. and Market Environment As a result, parent companies that Proposals regarding industrial banks A. History control industrial banks are not BHCs have presented unique risk profiles under the BHCA and are not subject to compared to traditional community Industrial banks began as small State- the BHCA’s activities restrictions or FRB bank proposals. These profiles have chartered loan companies in the early supervision and regulation. The included potential owners that would 1900s to provide small loans to industrial bank exemption in the BHCA industrial workers. The industrial bank therefore provides an avenue for 3 12 U.S.C. 1816. charter developed as an alternative to a commercial firms to own or control a 4 12 U.S.C. 1817(j). traditional commercial bank charter bank. By contrast, BHCs and savings 5 12 U.S.C. 1828(c). because commercial banks generally and loan holding companies are subject 6 Public Law 100–86, 101 Stat. 552 (Aug. 10, were unwilling to offer uncollateralized to Federal consolidated supervision by 1987). loans to factory workers and other wage 7 In the context of the proposed rule, ‘‘Federal earners with moderate incomes. 11 consolidated supervision’’ refers to the supervision Public Law 97–320, 96 Stat. 1469 (Oct. 15, of a parent company and its subsidiaries by the Industrial banks became the leading 1982). Federal Reserve Board (FRB). Consolidated 12 Prior to 1982, the FDIC had allowed some supervision of a bank holding company by the FRB 9 See FDIC Deposit Insurance Applications, industrial banks to become Federally insured, but encompasses the parent company and its Procedures Manual Supplement, Applications from FDIC insurance was typically limited to those subsidiaries, and allows the FRB to understand ‘‘the Non-Bank and Non-Community Bank Applicants, industrial banks chartered by States where the organization’s structure, activities, resources, and FIL–8–2020 (Feb. 10, 2020). relevant State’s law allowed them to receive risks, as well as to address financial, managerial, 10 In 2010, the Dodd Frank Wall Street Reform ‘‘deposits’’ or to use ‘‘bank’’ in their name. For operational, or other deficiencies before they pose and Consumer Protection Act (Dodd-Frank Act) additional historical context regarding industrial a danger to the BHC’s subsidiary depository imposed a three-year moratorium on new industrial bank supervision, see The FDIC’s Supervision of institutions.’’ See SR Letter 08–9, ‘‘Consolidated bank charters that were owned or controlled by a Industrial Loan Companies: A Historical Supervision of Bank Holding Companies and the commercial firm. This moratorium expired in July Perspective, Supervisory Insights (2004). Combined U.S. Operations of Foreign Banking 2013. Historical information regarding moratoria on 13 12 U.S.C. 1813(a)(2). Organizations’’ (Oct. 16, 2008). industrial bank filings is discussed later in this 14 12 U.S.C. 1813(e)(2). 8 12 U.S.C. 1831o–1(b). preamble in section II. 15 12 U.S.C. 1813(q)(2).

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the FRB and are generally prohibited banks.20 Generally, industrial banks customers’ cash management account from engaging in commercial offer limited deposit products, a full balances. The cash balances their activities.16 range of commercial and consumer customers maintain with the securities More specifically, CEBA redefined the loans, and other banking services. Most affiliate are swept into insured, interest- industrial banks do not offer demand term ‘‘bank’’ in the BHCA to include: (1) bearing accounts at the industrial bank deposits. Negotiable order of subsidiary, thereby providing the Any FDIC-insured institution, and (2) withdrawal (NOW) accounts 21 may be brokerage customers with FDIC-insured any other institution that accepts offered by industrial banks.22 Industrial deposits. demand or checkable deposit accounts banks have branching rights, subject to Since 2007, the industrial bank and is engaged in the business of certain State law constraints. industry has experienced contraction making commercial loans.17 This C. Industry Profile both in terms of the number of change effectively closed the so-called institutions and aggregate total assets. ‘‘non-bank bank’’ exception implicit in The industrial bank industry has As of December 31, 2019, there were 23 the prior BHCA definition of ‘‘bank’’. evolved since the enactment of CEBA. industrial banks 26 with $141 billion in The CEBA created explicit exemptions The industry experienced significant aggregate total assets. Four industrial from this definition for certain asset growth between 1987 and 2006 banks reported total assets of $10 billion categories of Federally insured when total assets held by industrial or more; eight industrial banks reported institutions, including industrial banks, banks grew from $4.2 billion to $213 total assets of $1 billion or more but less 23 credit card banks, and limited purpose billion. From 2000 to 2006, 24 than $10 billion. The industrial bank 24 trust companies. The exclusions from industrial banks became insured. As industry today includes a diverse group the definition of the term ‘‘bank’’ remain of January 30, 2007, there were 58 of insured financial institutions in effect today. To be eligible for the insured industrial banks with $177 operating a variety of business models. 25 CEBA exemption from the BHCA billion in aggregate total assets. The A significant number of the 23 existing definition of ‘‘bank,’’ an industrial bank ownership structure and business industrial banks support the commercial must have received a charter from one models of industrial banks evolved as or specialty finance operations of their industrial banks were acquired or of the limited number of States eligible parent company and are funded through formed by a variety of commercial firms, to issue industrial bank charters, and non-core sources. including, among others, BMW, Target, The reduction in the number of the law of the chartering State must Pitney Bowes, and Harley Davidson. For have required Federal deposit insurance industrial banks from 2007 to 2019 was instance, certain companies established due to a variety of factors, including as of March 5, 1987. In addition, an industrial banks, in part, to support the industrial bank must meet one of the mergers, conversions, voluntary sale of the manufactured products (e.g. liquidations, and the failure of two following criteria: (i) Not accept demand automobiles) or other services, whereas 18 small institutions.27 For business, deposits; (ii) have total assets of less certain retailers established industrial marketplace, or strategic reasons, than $100 million; or (iii) have been banks to issue general purpose credit several existing industrial banks acquired prior to August 10, 1987.19 cards. In addition, certain financial converted to commercial banks and thus companies also formed or acquired Industrial banks are currently became ‘‘banks’’ under the BHCA. Four industrial banks to provide access to chartered in California, Hawaii, industrial banks were approved in 2007 Federal deposit insurance for brokerage Minnesota, Nevada, and Utah. Under and 2008; however, none of those CEBA, these States were permitted to institutions exist today.28 No other grandfather existing industrial banks 20 Colorado was also grandfathered but it has no active industrial banks and has since repealed its industrial banks have been established and continue to charter new industrial industrial bank statute. since 2008, largely due to moratoria 21 A NOW account is an interest-earning bank imposed by the FDIC and Congress (as 16 Section 4 of the BHCA generally prohibits a account whereby the owner may write drafts against discussed below). BHC from acquiring ownership or control of any the money held on deposit. NOW accounts were Since the beginning of 2017, the FDIC company which is not a bank or engaging in any developed when certain financial institutions were activity other than those of banking or of managing prohibited from paying interest on demand has received nine Federal deposit or controlling banks and other subsidiaries deposits. The prohibition on paying interest on insurance applications related to authorized under the Act. See 12 U.S.C. 1843(a)(1) demand deposits was lifted when the FRB repealed proposed industrial banks. Of those, and (2). The Home Owners’ Loan Act (HOLA) its Regulation Q, effective July 21, 2011. See 76 FR 42015 (July 18, 2011). Many provisions of the four have been withdrawn and five are governs the activities of savings and loan holding 29 companies, as amended by the Dodd-Frank Act, repealed Regulation Q were transferred to the FRB’s pending. None of the potential parent which generally subjects these companies to the Regulation D. See 12 CFR part 204. permissible financial holding company activities 22 12 U.S.C. 1832(a). Only certain types of 26 Of the 23 industrial banks, 14 were chartered under 4(k) of the BHCA (12 U.S.C. 1843(k), customers may maintain deposits in a NOW in Utah, four in Nevada, three in California, one in activities that are financial in nature or incidental account. 12 U.S.C. 1832(a)(2). Hawaii, and one in Minnesota. to a financial activity). See 12 U.S.C. 1467a(c)(2)(H). 23 Most of the growth during this period is 27 Security Savings Bank, Henderson, Nevada 17 12 U.S.C. 1841(c)(1). attributable to financial services firms that failed in February 2009 and Advanta Bank 18 Regulation D implements the reserve controlled industrial banks offering sweep deposit Corporation, Draper, Utah failed in March 2010. requirements of section 19 of the Federal Reserve programs to provide Federal deposit insurance for 28 In each case, the institution pursued a Act and defines a demand deposit as a deposit that customers’ free cash balances and to American voluntary transaction that led to termination of the is payable on demand, or issued with an original Express moving its credit card operations from its respective institution’s industrial bank charter. One maturity or required notice period of less than Delaware-chartered credit card bank to its Utah- institution converted to a commercial bank charter seven days, or a deposit representing funds for chartered industrial bank. and continues to operate, one merged and the which the depository institution does not reserve 24 During this time period, the FDIC received 57 resultant bank continues to operate, and two the right to require at least seven days’ written applications for Federal deposit insurance for terminated deposit insurance following voluntary notice of an intended withdrawal. Demand deposits industrial banks, 53 of which were acted on. Also liquidations. Such transactions generally result may be in the form of (i) checking accounts; (ii) during this time period, 21 industrial banks ceased from proprietary strategic determinations by the certified, cashier’s, teller’s, and officer’s checks; and to operate due to mergers, conversions, voluntary institutions and their parent companies or (iii) traveler’s checks and money orders that are liquidations, and one failure. investors. primary obligations of the issuing institution. Other 25 Of the 58 industrial banks existing at this time, 29 Decisions to withdraw an application are made forms of accounts may also meet the definition of 45 were chartered in Utah and California. The at the discretion of the organizers and can be ‘‘demand deposit’’. See 12 CFR 204.2(b)(1). remaining industrial banks were chartered in attributed to a variety of reasons. In some cases, an 19 12 U.S.C. 1841(c)(2)(H). Colorado, Hawaii, Minnesota, and Nevada. Continued

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companies of the pending industrial when granting deposit insurance to an FDIC’s authority to conduct bank applicants would be subject to industrial bank or issuing a examinations, impose conditions on and Federal consolidated supervision. The nonobjection to a change in control enter into agreements with an industrial FDIC anticipates potential continued notice involving an industrial bank. bank parent company, terminate an interest in the establishment of Such written agreements provide industrial bank’s deposit insurance, industrial banks, particularly with required commitments for the parent enter into agreements during the regard to proposed institutions that plan company to provide financial resources acquisition of an insured depository to pursue a specialty or limited purpose and a means for the FDIC to pursue institution, and pursue enforcement business model. formal enforcement action under actions. sections 8 and 50 of the FDI Act 35 D. Supervision should a party fail to comply with the F. FDIC Moratorium and Other Agency Because industrial banks are insured agreements. Actions State nonmember banks, they are In 2005, Wal-Mart Bank’s application E. GAO and OIG Reports subject to the FDIC’s Rules and for Federal deposit insurance generated Regulations, as well as other provisions Beginning in 2004, the FDIC Office of considerable debate. The FDIC received of law, including restrictions under the Inspector General (OIG) conducted two more than 13,800 comment letters Federal Reserve Act governing evaluations and the Government regarding Wal-Mart’s proposal. Most of transactions with affiliates,30 anti-tying Accountability Office (GAO) conducted the commenters were opposed to the provisions of the BHCA,31 insider a statutorily mandated study regarding application. Commenters also raised lending regulations, consumer the FDIC’s supervision of industrial broader concerns about industrial protection laws and regulations, and the banks, including its use of prudential banks, including the risk posed to the Community Reinvestment Act. conditions.36 An OIG evaluation DIF by industrial banks owned by Industrial banks are also subject to published in 2004 focused on whether holding companies that are not subject regular examination, including industrial banks posed greater risk to to Federal consolidated supervision. examinations focused on safety and the DIF than other financial institutions, Similar concerns were expressed by soundness, Bank Secrecy Act and Anti- and reviewed the FDIC’s supervisory witnesses during three days of public Money Laundering compliance, approach in identifying and mitigating hearings held by the FDIC in the spring consumer protection, information material risks posed to those institutions of 2006 concerning the Wal-Mart technology (IT), and trust services, as by their parent companies. A July 2006 application. Also in 2006, The Home appropriate. Pursuant to section 10(b)(4) OIG evaluation reviewed the FDIC’s Depot filed a change in control notice in of the FDI Act, the FDIC has the process for reviewing and approving connection with its proposed authority to examine the affairs of any industrial bank applications for deposit acquisition of EnerBank, a Utah- industrial bank affiliate, including the insurance and monitoring conditions chartered industrial bank. The FDIC parent company, as may be necessary to imposed with respect to industrial bank received approximately 830 comment determine the relationship between the business plans. A September 2005 GAO letters regarding this notice, almost all institution and the affiliate, and the study cited several risks posed to banks of which expressed opposition to the effect of such relationship on the operating in a holding company proposed acquisition. Ultimately, the depository institution.32 structure, including adverse Wal-Mart application and The Home As part of the Dodd-Frank Act,33 intercompany transactions, operations Depot’s notice were withdrawn. Congress adopted section 38A of the FDI risk, and reputation risk. The GAO To evaluate the concerns and issues Act, which imposes a ‘‘source of study also discussed concerns about the raised with respect to the Wal-Mart and financial strength’’ requirement on any FDIC’s ability to protect an industrial The Home Depot filings and industrial company that directly or indirectly bank from those risks as effectively as banks generally, on July 28, 2006, the controls an insured depository the Federal consolidated supervisory 37 FDIC imposed a six-month moratorium institution and is otherwise exempt approach under the BHCA. on FDIC action with respect to deposit These reports acknowledged the from the BHCA or the HOLA.34 insurance applications and change in FDIC’s supervisory actions to ensure the Consistent with section 38A and other control notices involving industrial independence and safety and soundness authorities under the FDI Act, the FDIC banks.38 The FDIC suspended agency of commercially owned industrial has historically required capital and action in order to further evaluate (i) banks. The reports further liquidity maintenance agreements and industry developments; (ii) the various acknowledged the FDIC’s authorities to other written agreements between the issues, facts, and arguments raised with protect an industrial bank from the risks FDIC and controlling parties of respect to the industrial bank industry; posed by its parent company and industrial banks as well as the (iii) whether there were emerging safety affiliates. These authorities include the imposition of prudential conditions and soundness issues or policy issues 35 See 12 U.S.C. 1818 and 1831aa. involving industrial banks or other risks application is withdrawn and then refiled after 36 See OIG Evaluation 04–048, The Division of to the DIF; and (iv) whether statutory, changes are incorporated into the proposal. In such Supervision and Consumer Protection’s Approach regulatory, or policy changes should be cases, the new application is reviewed by the FDIC for Supervising Limited-Charter Depository without prejudice. In other cases, the applicant made in the FDIC’s oversight of Institutions (2004), https://www.fdicig.gov/ may, for strategic reasons, determine that pursuing industrial banks in order to protect the reports04/04-048.pdf; OIG Evaluation 06–014, The an insured industrial bank charter is not in the FDIC’s Industrial Loan Company Deposit Insurance DIF or important Congressional organizers’ best interests. Application Process (2006), https://www.fdicig.gov/ objectives.39 30 See 12 U.S.C. 1828(j)(1)(A). reports06/06-014.pdf; U.S. Gov’t Accountability In connection with this moratorium, 31 For purposes of section 106 of the BHCA, an Office, GAO–05–621, Industrial Loan Corporations: on August 23, 2006, the FDIC published industrial bank is treated as a ‘‘bank’’ and is subject Recent Asset Growth and Commercial Interest to the anti-tying restrictions therein. See 12 U.S.C. Highlight Differences in Regulatory Authority (Sept. a Notice and Request for Comment on 1843(f)(1). 2005). 32 12 U.S.C. 1820(b)(4). 37 U.S. Gov’t Accountability Office, GAO–05–621, 38 See Moratorium on Certain Industrial Loan 33 Public Law 111–203, 124 Stat. 1376 (July 21, Industrial Loan Corporations: Recent Asset Growth Company Applications and Notices, 71 FR 43482 2010). and Commercial Interest Highlight Differences in (Aug. 1, 2006). 34 12 U.S.C. 1831o–1(b). Regulatory Authority (Sept. 2005). 39 Id. at 43483.

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a wide range of issues concerning financial activities that is not subject to of the FDI Act.44 The majority of industrial banks.40 The FDIC received Federal consolidated bank supervision commenters stated that the FDIC should over 12,600 comment letters in response by either the FRB or the then-existing not impose capital requirement to this Notice.41 The substantive Office of Thrift Supervision (OTS). The commitments as contemplated in the comments related to the risk profile of rule would have established safeguards 2007 NPR on commercial parents of the industrial bank industry, concerns to assess the parent company’s industrial banks because of the over the mixing of banking and continuing ability to serve as a source of idiosyncratic business models and commerce, the FDIC’s practices when strength for the insured industrial bank, operations of such companies. making determinations in industrial and identify and respond to problems or bank applications and notices, whether risks that may develop in the company H. Dodd-Frank Act and Industrial Banks commercial ownership of industrial or its subsidiaries. As discussed above, the Dodd-Frank banks should be allowed, and perceived In response to the 2007 NPR, the FDIC Act amended the FDI Act by adding needs for supervisory change. received 18 comment letters. The section 38A.45 Under section 38A, for The moratorium was effective through majority of commenters argued that the any insured depository institution that January 31, 2007, at which time the 2007 NPR should have also excluded is not a subsidiary of a BHC or savings FDIC extended the moratorium one parent companies supervised by other and loan holding company, the additional year for deposit insurance Federal regulators that provide similar appropriate Federal banking agency for applications and change in control oversight as the FRB and OTS, such as the insured depository institution must notices for industrial banks that would the Securities and Exchange require any company that directly or be owned by commercial companies.42 Commission, to reduce the amount of indirectly controls such institution to This moratorium was not applicable to duplicative regulation over these parent serve as a source of financial strength industrial banks to be owned by companies. Similarly, the commenters for the institution.46 As a result, the financial companies. uniformly suggested that, to reduce the FDIC is required to impose a regulatory burden, the FDIC should G. 2007 Notice of Proposed requirement on companies that directly defer to a parent company’s primary Rulemaking—Part 354 or indirectly own or control an regulator, which the commenters argued industrial bank to serve as a source of In addition to extending the would be better suited to regulate the financial strength for that institution. In moratorium for one year with respect to entity and better positioned to obtain addition, subsection (d) of section 38A commercial parent companies, the FDIC relevant information. The majority of published for comment a proposed rule commenters also voiced opposition to of the FDI Act provides explicit designed to strengthen the FDIC’s limiting parent company representation statutory authority for the appropriate consideration of applications and on the industrial bank subsidiary’s Federal banking agency to require notices for industrial banks to be board of directors to 25 percent, and reports from a controlling company to controlled by financial companies not instead advocated for codifying the assess the ability of the company to subject to Federal consolidated bank FDIC’s informal standard of requiring a comply with the source of strength supervision, identified as Part 354 (2007 majority of directors to be independent. requirement, and to enforce compliance 47 NPR).43 The 2007 NPR would have Though the 2007 NPR did not affect by such company. imposed requirements on applications industrial banks that would be Through the Dodd-Frank Act, for deposit insurance, merger controlled by companies engaged in Congress also imposed a three-year applications, and notices for change in commercial activities, several moratorium on the FDIC’s approval of control that would result in an commenters addressed the distinction deposit insurance applications for industrial bank becoming a subsidiary between industrial banks owned by industrial banks that were owned or of a company engaged solely in financial and nonfinancial companies. controlled by a commercial firm.48 The Two commenters contended that the Dodd-Frank Act moratorium also 40 See Industrial Loan Companies and Industrial FDIC lacked authority to draw a applied to the FDIC’s approval of any Banks, 71 FR 49456 (Aug. 23, 2006). The Notice included questions concerning the current risk distinction between financial and change in control of an industrial bank profile of the industrial bank industry, safety and nonfinancial industrial bank owners that would place the institution under soundness issues uniquely associated with absent a change in law. Several the control of a commercial firm.49 The ownership of such institutions, the FDIC’s practice commenters argued that drawing such a with respect to evaluating and making determinations on industrial bank applications and distinction would essentially repeal the 44 See 12 U.S.C. 1820(b)(4). notices, whether a distinction should be made exemption of industrial banks from the 45 See 12 U.S.C. 1831o–1. when the industrial bank is owned by an entity that definition of ‘‘bank’’ in the BHCA. There 46 12 U.S.C. 1831o–1(b). This amendment also is commercial in nature, and the adequacy of the was little consensus among commenters requires the appropriate Federal banking agency for FDIC’s supervisory approach with respect to a BHC or savings and loan holding company to industrial banks. as to whether commercially owned require the BHC or savings and loan holding 41 Approximately 12,485 comments were industrial banks pose unique safety and company to serve as a source of financial strength generated either supporting or opposing the soundness issues. for any subsidiary of the BHC or savings and loan proposed industrial bank to be owned by Wal-Mart Similar to this proposed rule, the holding company that is a depository institution. 12 or the proposed acquisition of Enerbank, also an U.S.C. 1831o–1(a). industrial bank, by The Home Depot. The remaining 2007 NPR would have required a parent 47 See 12 U.S.C. 1831o–1(d). comment letters were sent by individuals, law company to enter into a written 48 Public Law 111–203, title VI § 603(a), 124 Stat. firms, community banks, financial services trade agreement with the FDIC containing 1597 (2010). Section 603(a) also imposed a associations, existing and proposed industrial banks required commitments related to the moratorium on FDIC action on deposit insurance or their parent companies, the Conference of State examination of, and reporting and applications by credit card banks and trust banks Bank Supervisors, and two members of Congress. owned or controlled by a commercial firm. The 42 See Moratorium on Certain Industrial Bank recordkeeping by, the industrial bank, Dodd-Frank Act defined a ‘‘commercial firm’’ for Applications and Notices, 72 FR 5290 (Feb. 5, the parent company, and its affiliates. this purpose as a company that derives less than 15 2007). The majority of commenters did not percent of its annual gross revenues from activities 43 See Industrial Bank Subsidiaries of Financial oppose these requirements, noting the that are financial in nature, as defined in section Companies 72 FR 5217 (Feb. 5, 2007); see also 4(k) of the BHCA (12 U.S.C. 1843(k)), or from https://www.fdic.gov/news/news/press/2007/ FDIC already has authority to collect ownership or control of depository institutions. pr07007.html. such information under section 10(b)(4) 49 Id.

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moratorium expired in July 2013, As such, embodying the provisions in a safety and soundness of industrial banks without any action by Congress. final rule would have been premature and to protect the DIF. Moreover, as the In addition, the Dodd-Frank Act without knowledge of the consequences only agency with the power to grant or directed the GAO to conduct a study of of the rule’s requirements and terminate deposit insurance, the FDIC the implications of removing all restrictions. has a unique responsibility for the safety exemptions from the definition of The crisis demonstrated that the and soundness of all insured ‘‘bank’’ under the BHCA. The GAO FDIC’s supervisory approach with institutions.53 In granting deposit report was published in January of respect to industrial banks was effective. insurance, the FDIC must consider the 2012.50 This report examined the Only two industrial banks failed during factors in section 6 of the FDI Act; 54 number and general characteristics of the crisis, and both failures were of these factors generally focus on the exempt institutions, the Federal small industrial banks that did not safety and soundness of the proposed regulatory system for such institutions, present circumstances raising concern institution and any risk it may pose to and potential implications of subjecting with respect to industrial banks the DIF. The FDIC is also authorized to the holding companies of such proposed prior to the crisis. Several permit or deny various transactions by institutions to BHCA requirements. The industrial banks and their parent State nonmember banks, including GAO report noted that the industrial companies pursued conversions to merger and change in bank control bank industry experienced significant commercial banks and BHC structures transactions, based to a large extent on asset growth in the 2000s and, during for financial and strategic reasons. safety and soundness considerations this time, the profile of industrial banks Recently, a number of companies and on its assessment of the risk to the changed: Rather than representing a have considered options for providing DIF.55 class of small, limited-purpose financial products and services through The FDIC has the responsibility to institutions, industrial banks became a establishing an industrial bank consider filings based on statutory diverse group of insured institutions subsidiary. Many companies have criteria and make decisions. The with a variety of business lines.51 publicly noted the benefits of deposit proposed rule generally would codify Ultimately, the GAO found that Federal insurance and establishing a deposit- the FDIC’s current supervisory regulation of the exempt institutions’ taking institution. Although many processes and policies with respect to parent companies varied, noting that interested parties operate business industrial banks that would not be FDIC officials interviewed in connection models focused on traditional subject to Federal consolidated with the study indicated that community bank products and services, supervision. The proposed rule also supervision of exempt institutions was others operate unique business models, includes additional safeguards the FDIC adequate, but also noted the added some of which are focused on believes are appropriate based on its benefit of Federal consolidated innovative technologies and strategies. experience, such as requiring a tax supervision. Finally, data examined by Some of the companies recently allocation agreement. the GAO suggested that removing the exploring an industrial bank charter BHCA exemptions would likely have a engage in commercial activities or have IV. Description of the Proposed Rule limited impact on the overall credit diversified business operations and A. Section 354.1—Scope market, chiefly because the overall activities that would not otherwise be market share of exempt institutions was, permissible for BHCs under the BHCA This section describes the industrial at the time of the study, small. and applicable regulations. Given the banks and parent companies that would continuing evolution of the industrial be subject to the proposed rule. The III. Need for Rulemaking and bank charter, the utility of codifying proposed rule would apply to industrial Rulemaking Authority certain supervisory requirements for banks that, as of the effective date, As discussed above, the 2007 NPR industrial banks, the nature of entities become subsidiaries of companies that would have imposed certain conditions interested in de novo industrial banks, are Covered Companies, as such term is and requirements for approval of certain the statutory changes enacted in the defined in § 354.2. Industrial bank deposit insurance applications and Dodd-Frank Act that clearly address the subsidiaries of companies that are nonobjections to change in control source of financial strength obligations subject to Federal consolidated notices involving industrial banks. of any company that controls an supervision by the FRB would not be However, the FDIC did not finalize the industrial bank, as well as the legitimate covered by the proposed rule. An 2007 NPR. Although multiple factors considerations raised by interested industrial bank that, on or before the contributed to the FDIC’s decision to not parties, the FDIC believes a rule is effective date, is a subsidiary of a advance a final rule, the most significant appropriate to provide necessary company that is not subject to Federal factor was the onset of the financial transparency for market participants. consolidated supervision by the FRB (a crisis. With the advent of the crisis, Through the proposed rule, the FDIC grandfathered industrial bank) generally applications to form de novo insured would formalize its framework to institutions, or to acquire existing supervise industrial banks and mitigate issue such rules and regulations has been expressly institutions, declined significantly, and exclusively granted to any other regulatory risk to the DIF that may otherwise be agency).’’ 12 U.S.C. 1819(a)(Tenth). including with respect to industrial presented in the absence of Federal 53 See 12 U.S.C. 1815, 1818(a). banks. Further, provisions included in consolidated supervision of an 54 Such factors are the financial history and the 2007 NPR, which reflected the industrial bank and its parent company. condition of the depository institution, the FDIC’s practices beginning in 2005 with The FDIC has the authority to issue adequacy of the depository institution’s capital respect to proposed de novo industrial structure, the future earnings prospects of the rules to carry out the provisions of the depository institution, the general character and 52 banks, were being tested in an adverse FDI Act, including rules to ensure the fitness of the management of the depository economic environment for the first time. institution, the risk presented by such depository 52 ‘‘[T]he Corporation . . . shall have power . . . institution to the DIF, the convenience and needs 50 See U.S. Government Accountability Office, [t]o prescribe by its Board of Directors such rules of the community to be served by such depository GAO–12–160, Characteristics and Regulation of and regulations as it may deem necessary to carry institution, and whether the depository institution’s Exempt Institutions and the Implications of out the provisions of this chapter or of any other corporate powers are consistent with the purposes Removing the Exemptions (Jan. 2012). law which it has the responsibility of administering of the FDI Act. See 12 U.S.C. 1816. 51 Id. at 13. or enforcing (except to the extent that authority to 55 See 12 U.S.C. 1817(j), 1828(c), and 1828(d).

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would not be covered by the proposed not defined in the proposed rule that are bank’s shares or the parent company’s rule.56 A grandfathered industrial bank defined in section 3 of the FDI Act have shares are registered under section 12 of could become subject to the proposed the meanings given in section 3 of the the Securities Exchange Act of 1934, or rule following a change in control, FDI Act.57 no other person (including a company) merger, or grant of deposit insurance The term ‘‘control’’ would be defined will own, control, or hold with power occurring after the effective date in to mean the power, directly or to vote a greater percentage of any class which the resulting institution is an indirectly, to direct the management or of voting securities. If two or more industrial bank that is a subsidiary of a policies of a company or to vote 25 companies, not acting in concert, will Covered Company. Thus, a percent or more of any class of voting each have the same percentage, each grandfathered industrial bank would be securities of a company and specifically such company will have control. As subject to the proposed rule, as would would include the rebuttable noted above, control of an industrial its parent company that is not subject to presumption of control at 12 CFR bank can be indirect. For example, Federal consolidated supervision, if 303.82(b)(1) and the presumptions of company A may control company B such a parent company acquired control acting in concert at 12 CFR 303.82(b)(2) which in turn may control company C of the grandfathered industrial bank in the same manner and to the same which may control an industrial bank. pursuant to a change in bank control extent as if they applied to an Company A and company B would each transaction that closes after the effective acquisition of securities of a company have indirect control of the industrial date, or if the grandfathered industrial instead of a ‘‘covered institution’’. These bank, and company C would have direct bank is the surviving institution in a definitions are nearly the same as the control. As a result, the industrial bank merger transaction that closes after the definitions of ‘‘control’’ in the Change in would be a subsidiary of companies A, effective date. Industrial banks that are Bank Control Act (CBCA) 58 and the B, and C. not subsidiaries of a company, for FDIC’s regulations implementing the Question 5: Would there be any example, those wholly owned by one or CBCA except that they broaden the term benefit in having or requiring a Covered more individuals, would not be subject to apply to control of a company and Company that conducts activities other to the proposed rule. not solely insured depository than financial activities to conduct Question 1: Should the proposed rule institutions so that the definition can some or all of its financial activities apply only prospectively, that is, to accurately describe the relationship (including ownership and control of an industrial banks that become a between the parent company of an industrial bank) through an subsidiary of a parent company that is industrial bank and any of its nonbank intermediate holding company similar a Covered Company? Or should the subsidiaries, which also would be to what a grandfathered unitary savings proposed rule also apply to all affiliates of the industrial bank. and loan holding company may be industrial banks that, as of the effective The term ‘‘Covered Company’’ means required to do pursuant to section 626 date, are a subsidiary of a parent that is any company that is not subject to of the Dodd-Frank Act? What other not subject to Federal consolidated Federal consolidated supervision by the approaches may be appropriate? supervision by the FRB? What are the FRB and that, directly or indirectly, The term ‘‘FDI Act’’ would be defined concerns with each approach? controls an industrial bank (i) as a result to mean the Federal Deposit Insurance Question 2: Should the proposed rule of a change in bank control under Act, 12.U.S.C. 1811 et seq. apply to industrial banks that do not section 7(j) of the FDI Act,59 (ii) as a The term ‘‘filing’’ would mean an have a parent company? How should result of a merger transaction pursuant application, notice, or request submitted the rule be applied in such a case? to section 18(c) of the FDI Act,60 or (iii) to the FDIC. This is the definition used Question 3: Should the proposed rule that is granted deposit insurance under in the FDIC’s rules of procedure and apply to industrial banks that are section 6 of the FDI Act,61 in each case practice 62 and allows the use of one controlled by an individual rather than after the effective date of the rule. term to describe the different documents a company? Under these provisions, a company submitted to the FDIC. Question 4: If an individual controls would control an industrial bank if the The term ‘‘FRB’’ would be defined to the parent company of an industrial company would have the power, mean the Board of Governors of the bank, should the individual be directly or indirectly, (i) to vote 25 Federal Reserve System and each responsible for the maintenance of the percent or more of any class of voting Federal Reserve Bank. industrial bank’s capital and liquidity at shares of any industrial bank or any The term ‘‘industrial bank’’ would be or above FDIC-specified levels? Should company that controls the industrial defined to mean any insured State bank an individual who controls a parent bank (i.e., a parent company), or (ii) to that is an industrial bank, industrial company be responsible for causing the direct the management or policies of loan company or other similar parent company to comply with the any industrial bank or any parent institution that is excluded from the written agreements, commitments, and company. In addition, the FDIC BHCA definition of ‘‘bank’’ pursuant to restrictions imposed on the industrial 63 presumes that a company would have section 2(c)(2)(H) of the BHCA. The bank? How should the rule be applied the power to direct the management or effect of section 2(c)(2)(H) is that the in such a case? policies of any industrial bank or any parent company of an industrial bank 64 B. Section 354.2—Definitions parent company if the company will, need not be a BHC. directly or indirectly, own, control, or Question 6: Should the proposed rule This section lists the definitions that also apply to other institutions that are would apply to part 354. Terms that are hold with power to vote at least 10 percent of any class of voting securities excluded from the BHCA definition of ‘‘bank’’ pursuant to section 2(c)(2), such 56 Although generally not subject to the proposed of any industrial bank or any parent rule, grandfathered industrial banks and their company, and either the industrial 62 parent companies that are not subject to Federal See 12 CFR 303.2(s). consolidated supervision by the FRB will remain 63 See 12 U.S.C. 1841(c)(2)(H). 57 12 U.S.C. 1813. 64 Section 2(a)(1) of the BHCA provides that subject to FDIC supervision, including but not 58 limited to examinations and capital requirements. 12 U.S.C. 1817(j)(8)(B). ‘‘bank holding company’’ means any company See also the discussion of the reservation of 59 12 U.S.C. 1817(j). which has control over any bank or over any authority in section IV.F, of this SUPPLEMENTARY 60 12 U.S.C. 1828(c). company that is or becomes a BHC by virtue of the INFORMATION, infra. 61 12 U.S.C. 1816. BHCA. 12 U.S.C. 1841(a)(1).

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as credit card banks and trust banks? industrial bank, the stock of which is parent company obligations similar to For example, the CEBA amended the registered under section 12 of the that which would be in place if the BHCA to exempt certain other Securities Exchange Act of 1934, or (ii) Covered Company were subject to institutions from the requirement that when one Covered Company will Federal consolidated supervision. The the parent company of a bank must be control another Covered Company that requirements reflect commitments and a BHC,65 meaning that the parent directly controls an industrial bank. additional provisions that, for the most companies of such institutions are not In certain instances, the FDIC may, in part, the FDIC has previously required subject to Federal consolidated its sole discretion, require, as a as a condition of granting deposit supervision. Explain what types of condition to the approval of or insurance to industrial banks. The FDIC institutions should be addressed by the nonobjection to a filing, that a is proposing to include these required proposed rule and why. controlling shareholder of a Covered commitments in the rule to provide The term ‘‘senior executive officer’’ Company join as a party to any written transparency to current and potential would have the meaning given to it in agreement required in § 354.3. In such industrial banks, the companies that the FDIC’s regulations on changes in cases, the controlling shareholder would control them, and the general public. senior executive officer at 12 CFR be required to cause the Covered In order to provide the FDIC with 303.101(b). Thus, the term ‘‘senior Company to fulfill its obligations under more timely and more complete executive officer’’ would mean a person the written agreement, through voting information about the activities, who holds the title of president, chief his or her shares, or otherwise. financial performance and condition, executive officer, chief operating officer, In addition to the written agreements, operations, prospects, and risk profile of chief managing official (in an insured commitments, and restrictions of the each Covered Company and its State branch of a foreign bank), chief proposed rule, the FDIC may, and likely subsidiaries and affiliates, the proposed financial officer, chief lending officer, or will, condition an approval of an rule would require that each Covered chief investment officer, or, without application or a nonobjection to a notice Company must furnish to the FDIC an regard to title, salary, or compensation, on one or more actions or inactions of initial listing, with annual updates, of 66 performs the function of one or more of the applicant or notificant. The FDIC all of the Covered Company’s these positions. ‘‘Senior executive may enforce conditions imposed in subsidiaries (commitment (1)); consent officer’’ also would include any other writing in connection with any action to the FDIC’s examination of the person identified by the FDIC, whether on any application, notice, or other Covered Company and each of its or not hired as an employee, with request by an industrial bank or a subsidiaries to monitor compliance with company that controls an industrial any written agreements, commitments, significant influence over, or who 67 participates in, major policymaking bank, so it is not necessary to include conditions, and certain provisions of decisions of the industrial bank. provisions regarding conditions in the law (commitment (2)); submit to the proposed rule. Question 7: Are the definitions clear FDIC an annual report on the Covered in their meaning and application? D. Section 354.4—Required Company and its subsidiaries, and such Should any other terms used in the Commitments and Provisions of Written other reports as the FDIC may request proposed rule be defined? Agreement (commitment (3)); maintain such records as the FDIC deems necessary to C. Section 354.3—Written Agreement The FDIC historically has included assess the risks to the industrial bank conditions in deposit insurance and to the DIF (commitment (4)); and This section would prohibit any approval orders for industrial banks that industrial bank from becoming a cause an independent audit of each are intended to create a sufficient subsidiary industrial bank to be subsidiary of a Covered Company unless supervisory structure with respect to a the Covered Company enters into one or performed annually (commitment (5)). Covered Company. The commitments Question 8: For purposes of more written agreements with the FDIC that the FDIC has required industrial transparency and identifying any and its subsidiary industrial bank. In banks and their parent companies to potential risks to the industrial bank, we such agreements, the Covered Company undertake in written agreements have have included commitments requiring would make certain required varied on a case-by-case basis, examination and reporting. Is this commitments to the FDIC and the depending on the facts and approach the best way to gain that industrial bank, including those listed circumstances and the particular transparency, or is there a better way? in paragraphs (a)(1) through (8) of concerns the FDIC has identified during To what extent, if any, is the FDIC’s § 354.4, the restrictions in § 354.5, and the review of the application materials. supervision enhanced by requiring a such other provisions as the FDIC may This section would require each party Covered Company to consent to deem appropriate in the particular to a written agreement to comply with examination of the Covered Company circumstances. When two or more subsections (a)(1) through (8) of § 354.4. and each of its subsidiaries as Covered Companies will control (as the These required commitments are proposed? Is there another way to term ‘‘control’’ is defined in § 354.2), intended to provide the safeguards and identify any potential risks? directly or indirectly, the industrial protections that the FDIC believes are Question 9: The Gramm-Leach-Bliley bank, each such Covered Company prudent to impose to maintain the safety Act of 1999 imposed certain restrictions would be required to execute such and soundness of industrial banks that on the extent to which a Federal written agreement(s). This circumstance are controlled by Covered Companies. banking agency may regulate and could occur, for example, (i) when two These required commitments and other supervise a functionally regulated or more Covered Companies will each provisions are intended to establish a affiliate of an insured depository have the power to vote 10 percent or level of information reporting and institution.68 Conversely, the Federal more of the voting stock of an industrial banking agencies, including the FRB, bank or of a company that controls an 66 See 12 CFR 303.11(a) (‘‘The FDIC may approve, impose various periodic reporting conditionally approve, deny, or not object to a filing requirements on depository institutions 65 Public Law 100–86, 101 Stat. 552 (Aug. 10, after appropriate review and consideration of the 1987). See also 12 CFR 225.145 (limitations record.’’). See 12 CFR 303.2(dd) for a list of and their parent companies. In view of established by the CEBA on the activities and standard conditions. growth of nonbank banks). 67 12 U.S.C. 1818(b); 1831aa(a). 68 See section 45 of the FDI Act, 12 U.S.C. 1831v.

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these restrictions and requirements, are Lastly, the proposed rule includes a sale of the industrial bank to, or merger the commitments and requirements requirement that each Covered with, a third party. The proposed rule appropriately tailored to adequately Company and its subsidiary industrial describes this contingency plan carry out the purpose and intent of the bank(s) enter into a tax allocation commitment in general terms, thereby proposed rule? agreement that expressly recognizes an preserving the FDIC’s supervisory Question 10: The proposed rule would agency relationship between the discretion to tailor the contents of any require a Covered Company to disclose Covered Company and the subsidiary contingency plan to a given Covered to the FDIC the subsidiaries of the industrial bank with respect to tax Company and its insured industrial Covered Company. Should the proposed assets generated by such industrial bank subsidiary. The FDIC’s ability to rule also require disclosure to the FDIC bank, and that all such tax assets are tailor the contents of a contingency plan of certain additional affiliates or held in trust by the Covered Company for a given Covered Company and its portfolio companies of the Covered for the benefit of the subsidiary industrial bank minimizes the burden of Company, given that such entities could industrial bank and promptly remitted developing and implementing the plan. engage in transactions with, or to such industrial bank (commitment In the case where a contingency plan otherwise impact, the subsidiary (8)). Companies and their subsidiaries, commitment is included as a condition industrial bank? including insured depository to approval of an application or In order to limit the extent of each institutions and their holding nonobjection to a notice, the FDIC may Covered Company’s influence over a companies, will often file a consolidated take into account the size, complexity, subsidiary industrial bank, each income tax return. A 1998 interagency interdependencies, and other factors Covered Company would commit to policy statement issued by the Federal relevant to the industrial bank and limit its representation on the industrial banking agencies and the U.S. Covered Company. The FDIC is of the bank’s board of directors to 25 percent Department of the Treasury, and an view that requiring a contingency plan of the members of the board, or if the addendum thereto 69 (collectively, would lead the FDIC, as well as the bank is organized as a limited liability Policy Statement), acknowledges such Covered Company and its subsidiary company and is managed by a board of practices, noting that a consolidated industrial bank, to a better managers, to 25 percent of the members group may prepare and file Federal and understanding of the interdependencies, of the board of managers, or if the bank State income tax returns as a group so operational risks, and other is organized as a limited liability long as the interests of any insured circumstances or events that could company and is managed by its depository institution subsidiaries are create safety and soundness concerns members, to 25 percent of managing not prejudiced. Given the potential for the insured industrial bank and member interests (commitment (6)). For harm to insured subsidiary institutions, attendant risk to the DIF. The example, if company A, which has 15 the Policy Statement encourages contingency plan would not be a percent representation on the subsidiary holding companies and their insured resolution plan, but rather, an industrial bank’s board, controls depository institution subsidiaries to explanation of the steps the industrial company B, then the companies’ enter into written, comprehensive tax bank and Covered Company could take representation would be aggregated and allocation agreements, and notes that to mitigate the impacts of financial and limited to no more than 25 percent. inconsistent practices regarding tax operational stress outside of the Thus, company B’s representation obligations may be viewed as an unsafe receivership process. would be limited to no more than 10 and unsound practice prompting either While the contingency plan is one percent. informal or formal corrective action. type of commitment that the FDIC Question 11: The proposed rule would The proposed rule similarly seeks to would be able to require of Covered limit board of directors (or similar body) avoid potential harm to the insured Companies and their industrial bank representation to 25 percent of the subsidiary institution by requiring such subsidiaries, there may be other members of the board of directors (or a written tax allocation agreement. commitments that the FDIC may similar entity). The FDIC has chosen In addition to the eight commitments determine to be appropriate given the this threshold with the idea that 25 discussed above, pursuant to proposed business plan, capital levels, or percent is a key threshold for control § 354.4(b), the FDIC may condition the organizational structure of a Covered purposes. Is another threshold more approval of an application or Company or its subsidiary industrial appropriate? If so, what and why? nonobjection to a notice on the Covered bank. Section 354.4(c) would provide, Additionally, in order to ensure that Company and industrial bank then, that the FDIC may require such a subsidiary industrial bank has committing to adopt, maintain, and additional commitments in addition to available to it the resources necessary to implement an FDIC-approved those described in § 354.4(a) or (b) in maintain sufficient capital and liquidity, contingency plan that presents one or order to ensure the safety and each party to a written agreement would more actions to address potential soundness of the industrial bank and commit to maintain each subsidiary significant financial or operational reduce potential risk to the DIF. industrial bank’s capital and liquidity at stress that could threaten the safe and Question 13: Some of the provisions such levels as the FDIC deems necessary sound operation of the insured include continuing commitments, such for the safe and sound operation of the industrial bank. The plan also would as to maintain capital. Should the industrial bank, and to take such other reflect strategies for the orderly proposed rule include a cure period in actions as the FDIC finds appropriate to disposition of the industrial bank the event that the industrial bank or its provide each subsidiary industrial bank without the need for the appointment of parent company initially comply with with the resources for additional capital a receiver or conservator. Such these commitments, but later fall out of or liquidity (commitment (7)). disposition could include, for example, compliance? If so, should such a cure Question 12: If there is an individual period be provided for all commitments who is the dominant shareholder of a 69 See Interagency Policy Statement on Income or certain commitments (please Covered Company, should that Tax Allocation in a Holding Company Structure, 63 specify)? Alternatively, should the FDIC individual be required to commit to the FR 64757 (Nov. 23, 1998); Addendum to the rely on its enforcement authorities Interagency Policy Statement on Income Tax maintenance of appropriate capital and Allocation in a Holding Company Structure, 79 FR under sections 8 and 50 of the FDI Act liquidity levels? 35228 (June 19, 2014). to take action as appropriate?

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Question 14: In order to ensure that operations of the industrial bank’’ as A. Overview of Industrial Banks each Covered Company can serve as a that phrase is used in the proposed As of December 31, 2019, the FDIC source of financial strength to its § 354.5(e)? If so, how should the term be supervised 3,344 insured depository industrial bank subsidiary and fulfill its defined? institutions, with combined assets of obligations under a capital maintenance Question 16: Should any of the $3.4 trillion. Of these, 23 institutions agreement, should the FDIC include a restrictions in § 354.5 be temporally were industrial banks, comprising 0.7 commitment that the parent company limited, for example, to the first three percent of all FDIC-supervised will maintain its own capital at some years after becoming a subsidiary of institutions. The industrial banks hold defined level on a consolidated basis in such Covered Company? combined assets of $150.3 billion, all circumstances? How should the FDIC comprising 4.4 percent of the combined F. Section 354.6—Reservation of determine the level? assets of FDIC-supervised institutions.70 Authority E. Section 354.5—Restrictions on The majority of industrial banks are Industrial Bank Subsidiaries of Covered The FDIC proposes to clarify that it headquartered in Utah and Nevada, and Companies retains the authority to take supervisory hold nearly all of the combined assets of industrial banks. As of December 31, Section 354.5 would require the or enforcement actions, including 2019, 14 industrial banks were FDIC’s prior written approval before an actions to address unsafe or unsound headquartered in Utah, four in Nevada, industrial bank that is a subsidiary of a practices, or violations of law. three in California, one in Hawaii, and Covered Company may take certain Thus, the FDIC could require one in Minnesota. actions. These restrictions, like the grandfathered industrial banks and their The proposed rule would apply required commitments discussed above, parent companies that are not subject to prospectively to deposit insurance, are generally intended to provide the Federal consolidated supervision by the change in control, and merger safeguards and protections that the FDIC FRB to enter into written agreements, transactions involving an industrial believes would be prudent to impose provide commitments, or abide by bank as the resultant institution that is with respect to maintaining the safety restrictions if necessary to maintain the controlled by a Covered Company. It is and soundness of industrial banks that safety and soundness of the industrial difficult to estimate the number of become controlled by companies that bank. Similarly, the FDIC retains the potential Covered Companies that will are not subject to Federal consolidated authority to require additional seek to establish or acquire an industrial supervision. Accordingly, the proposed commitments from a Covered Company bank, as such an estimate depends on rule would require prior FDIC approval and its subsidiary industrial bank to considerations that affect Covered if the subsidiary industrial bank wanted enter into written agreements, provide Companies’ decisions. These to take any of five actions set forth in commitments, or abide by restrictions if considerations, and how they affect § 354.5(a). necessary to maintain the safety and decision making, are difficult for the In order to ensure that the industrial soundness of the industrial bank, even FDIC to forecast, estimate, or model, as bank does not immediately after if not in the context of a filing. the considerations include external becoming a subsidiary of a Covered parties’ evaluations of potential Company engage in high-risk or other Question 17: Should the FDIC retain business strategies for the industrial inappropriate activities, the subsidiary the authority to require additional bank as well as future financial industrial bank would be required to written agreements, commitments, or conditions, rates of return on capital, obtain the FDIC’s prior approval to conditions on or by an industrial bank and innovations in the provision of make a material change in its business or Covered Company after the financial services, among others. plan after becoming a subsidiary of a nonobjection to a change in bank However, during the period of 2017 Covered Company (paragraph (1)). In control, approval of a merger through 2019, the FDIC received nine order to limit the influence of the parent transaction, or a grant of deposit industrial bank deposit insurance Covered Company, the subsidiary insurance by the FDIC? Should the FDIC applications and one change in control industrial bank would have to obtain retain the power to require additional application.71 Consistent with the the FDIC’s prior approval to add or written agreements, commitments, or Paperwork Reduction Act (PRA) replace a member of the board of conditions on or by an industrial bank directors or board of managers or a or parent company of an industrial bank estimates presented elsewhere in this managing member, as the case may be that became a subsidiary of a parent notice of proposed rulemaking, for this (paragraph (2)); add or replace a senior company that is not subject to Federal analysis the FDIC is estimating that the executive officer (paragraph (3)); employ consolidated supervision by the FRB proposed rule, if implemented, would a senior executive officer who is prior to the effective date? apply to four filings per year seeking to associated in any manner with an establish or acquire an industrial bank. V. Expected Effects The proposed rule could indirectly affiliate of the industrial bank, such as affect subsidiaries of Covered a director, officer, employee, agent, As previously discussed, the Companies. Such Covered Companies owner, partner, or consultant of the proposed rule would require or impose operate through a variety of structures Covered Company or a subsidiary certain commitments, restrictions, and that include a range of subsidiaries and thereof (paragraph (4)); or enter into any conditions for each deposit insurance affiliates. Further, the proposal includes contract for material services with the application approval, nonobjection to a the FDIC’s reservation of authority to Covered Company or a subsidiary change in control notice, and merger require any industrial bank and its thereof (paragraph (5)). Pursuant to application approval that would result parent company, if not otherwise proposed § 354.5(b), the FDIC could, on in an industrial bank becoming, subject to part 354, to enter into written a case-by-case basis, impose additional pursuant to the proposed rule, a agreements, provide commitments, or restrictions on the Covered Company or subsidiary of a Covered Company. The its controlling shareholder if proposal would require such Covered 70 December 31, 2019, Call Report data. circumstances warrant. Company to enter into one or more 71 During the same period, the FDIC did not Question 15: Should the FDIC further written agreements with the FDIC and receive any merger applications involving define ‘‘services material to the the industrial bank subsidiary. industrial banks.

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abide by restrictions, as appropriate. • Consent to the examination of the the orderly disposition of the industrial Therefore, it is difficult to estimate the Covered Company and its subsidiaries. bank without the need for a receiver or number of subsidiaries and affiliates of • Submit an annual report on the conservator. prospective Covered Companies, based Covered Company and its subsidiaries, The FDIC historically has imposed on information currently available to the and such other reports as requested. • prudential conditions similar to the FDIC. However, based on the FDIC’s Maintain such records as deemed commitments listed above in connection experience as the primary Federal necessary. with approving or not objecting to 72 • Cause an independent annual audit regulator of industrial banks, the FDIC certain industrial bank filings. These of each industrial bank. believes that the number of subsidiaries conditions generally relate to the board • Limit the Covered Company’s of the prospective Covered Companies and senior management, the business representation on the industrial bank’s affected by the proposed rule is likely to plan, operating policies, financial board of directors or managers (board), be small. records, affiliate relationships, and other as the case may be, to 25 percent. B. Analysis of the Commitments • Maintain the industrial bank’s conditions on a case-by-case basis, Under the proposal, prospective capital and liquidity at such levels as depending on the facts and circumstances identified during the Covered Companies would be required deemed appropriate and take such other 73 to agree to the eight commitments, and action to provide the industrial bank review of the respective filings. may be required to agree to additional with a resource for additional capital or The table below presents the FDIC’s commitments under certain liquidity. analysis of the estimated costs to circumstances, which in summary • Enter into a tax allocation institutions that would be affected by include commitments by the Covered agreement. the proposed rule of each required Company to: • Depending on the facts and commitment included in the proposal. • Furnish an initial listing, with circumstances, provide, adopt, and In each case, the FDIC used a total annual updates, of the Covered implement a contingency plan that sets hourly compensation estimate of $94.15 Company’s subsidiaries. forth strategies for recovery actions and per hour.74

Estimated annual Estimated annual Proposed commitment compliance hours compliance costs

Lists of Subsidiaries ...... 4 $376.60 Consent to the FDIC Examination ...... 100 9,415.00 Annual and Such Other Reports as the FDIC may Request ...... 10 941.50 Maintain Such Records as the FDIC Deems Necessary ...... 10 941.50 Independent Audit Note 1 ...... 100 9,415.00 Limit Membership on Board Note 2 ...... 0 0.00 Maintain Capital and Liquidity ...... 12 1,129.80 Tax Allocation Agreement Note 3 ...... 0 0.00

Total ...... 236 22,219.40 Note 1 The disclosure requirement and time to fulfill it are due to satisfying regulatory inquiries about the audit, and do not include the cost of the audit itself because Covered Companies already conduct audits for other purposes. Note 2 Determinations regarding board membership are considered in the normal course of business. Note 3 Tax allocation agreements are normal and customary among affiliated corporate entities.

The proposed rule also authorizes the the facts and circumstances presented analyzed the estimated burden in FDIC to require additional and taking into consideration the size, greater detail. commitments, including a contingency complexity, interdependencies, and It is difficult to estimate the plan that sets forth strategies for other factors relevant to the industrial recordkeeping, reporting, and disclosure recovery actions and the orderly bank and Covered Company. Because costs associated with the contingency disposition of the industrial bank this commitment is an enhancement to plan aspect of the proposed rule because without the appointment of a receiver or the FDIC’s historical approach, and it depends on the organizational conservator. The additional contingency because the commitment is not expected structure and activities of potential plan commitment would be required to be required in all cases, the FDIC future Covered Companies. The FDIC only in certain circumstances, based on currently lacks such detailed

72 Historically, industrial banks have elected not Classification System occupations and codes used The hourly wage rates reported do not include non- to become members of the Federal Reserve System. by the FDIC are: Executives and Managers monetary compensation. According to the The FDIC is the primary Federal regulator for State (Management Occupations, 110000), Lawyers September 2019 Employer Cost of Employee nonmember banks and the insurer for all insured (Lawyers, Judges, and Related Workers, 231000), Compensation data, compensation rates for health depository institutions. Compliance Officers (Compliance Officers, 131041), and other benefits are 33.8 percent of total 73 See FDIC Deposit Insurance Application Financial Analysts (Financial Analysts, 132051), IT compensation. To account for non-monetary Procedures Manual Supplement, Applications from Specialists (Computer and Mathematical compensation, the hourly wage rates reported by Occupations, 150000), and Clerical (Office and Non-Bank and Non-Community Bank Applicants, BLS are adjusted by that percentage. The hourly Administrative Support Occupations, 430000). To FIL–8–2020 (Feb. 10, 2020). wage is adjusted by 2.28 percent based on changes estimate the weighted average hourly compensation 74 Subject matter experts in the FDIC’s Division of cost of these employees, the 75th percentile hourly in the Consumer Price Index for Urban Consumers Risk Management Supervision estimated that time wages reported by the Bureau of Labor Statistics from May 2018 to September 2019 to account for devoted to complying with the commitments is (BLS) National Industry-Specific Occupational inflation and ensure that the wage information is broken down as follows: 25 percent (Executives and Employment and Wage Estimates as used for the contemporaneous with the non-monetary Managers), 15 percent (Legal), 15 percent relevant occupations in the Depository Credit compensation statistic. Finally, the benefit-and- (Compliance Officers), 15 percent (Financial Intermediation sector, as of May 2018. The 75th- inflation-adjusted wages for each occupation are Analysts), 15 percent (IT Specialists), and 15 percentile wage for lawyers is not reported, as it weighted by the percentages listed above to arrive percent (Clerical). The Standard Occupational exceeds $100 per hour, so $100 per hour is used. at a weighted hourly compensation rate of $94.15.

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information on potential future Covered It is difficult to estimate whether the reduced fees, less restrictive Companies. While the contingency plan proposed rule would serve as an underwriting standards, greater account commitment is meaningfully different incentive or disincentive for affected opening bonuses for new customers, from resolution plan requirements for parties. Decisions to establish or acquire and other benefits. To the extent that the large banks, and while industrial banks an industrial bank depend on many proposed rule does not result in a higher that might need to develop such considerations that the FDIC cannot number of industrial banks, this would contingency plans are meaningfully accurately forecast, estimate, or model, not be expected to lead to increased different from large banks subject to such as future financial conditions, rates competition for depositors and resolution planning requirements, the of return on capital, and innovations in borrowers. FDIC considered prior analyses the provision of financial services. The E. Expected Effects on Consumers regarding resolution planning proposed rule would enhance requirements imposed on certain transparency in the FDIC’s evaluation of To the degree the proposal, once institutions to instruct its analysis. filings, which could increase the adopted, results in an increase in the Based in part on the FDIC’s number of applications received. number of industrial banks, consumers experience implementing and managing However, such transparency could also could benefit from increased the resolution planning requirements of serve to limit the number of competition within the banking 12 CFR 360.10, the FDIC estimates that applications received. industry. These benefits could take the Covered Companies and their industrial The FDIC analyzed historical trends form of higher rates on deposit banks subject to the contingency plan in filings that would be subject to the accounts, improved access to credit commitment could incur $326,000 in proposal. Based on that analysis, and with better terms or lower rates, and recordkeeping, reporting, and disclosure consistent with the FDIC’s PRA lower fees for banking services. To the compliance costs annually. To put the analysis, the FDIC assumes four extent that the proposed rule does not estimated cost of this commitment into applications: Three deposit insurance result in a higher number of industrial context, the pre-tax net income of the applications, and one change in bank banks, this would not be expected to median industrial bank in 2019 was control notice per year, on average. lead to potential benefits from increased $64,515,000.75 But, because the FDIC Between 2000 and 2009, the FDIC competition within the banking would have the supervisory discretion received as many as 12 and as few as industry. two deposit insurance applications from to tailor the contents of any contingency F. Expected Effects on the Economy plan to a given Covered Company and entities seeking to organize an industrial its industrial bank, and because of the bank; between 2017 and 2019, the FDIC The proposal’s effects on the economy unique circumstances of the respective received as many as four and as few as are likely to be modest, in line with its Covered Companies and industrial two such applications. Therefore, the potential effects on the banking industry banks, the compliance costs incurred by FDIC believes it is reasonable to assume and consumers. If the proposal results Covered Companies would vary on a an annual deposit insurance application in a modest increase in the number of case-by-case basis, and could be lower. volume of three for the purpose of this industrial banks or improvement in the analysis. In addition, the FDIC has As illustrated by the preceding provision of banking products and received three change in bank control analysis, the proposed rule could pose services, the effects on the economy are notices relating to industrial banks since as much as $348,000 in additional likely to be modest. 2010; therefore, the FDIC believes it is recordkeeping, reporting, and disclosure reasonable to assume an annual volume VI. Request for Comment compliance costs for each Covered of one for the purpose of this analysis. The FDIC is inviting comment on all Company that seeks to establish or aspects of the proposed rule. In addition acquire an industrial bank.76 Covered C. Safety and Soundness of Affected to the questions above, the FDIC seeks Companies would also be likely to incur Banks responses to the following additional some regulatory costs associated with The FDIC believes the proposed rule questions: making the necessary changes to is consistent with supervisory Question 18: In evaluating the internal systems and processes. For approaches the FDIC has used to statutory factors under section 6 of the context, the estimated $348,000 insulate industrial banks from risks FDI Act for deposit insurance recordkeeping, reporting, and disclosure posed by their parent companies, and applications, should the FDIC consider costs only comprise 0.8 percent of the that these supervisory approaches have an evaluation of the competitive effects median non-interest expense for the 23 been effective. For example, as 77 of the parent company’s or the parent existing industrial banks. previously noted, only two small company’s affiliates’ provision of The FDIC believes that the proposed industrial banks failed during the crisis. consumer products aggregated with the rule would benefit the public by The FDIC believes the proposed rule activities of the industrial bank? providing transparency for market would provide a prudentially sound Question 19: The current Interagency participants and other interested parties. framework for reaching decisions on Charter and Federal Deposit Insurance Additionally, the FDIC believes that the industrial bank filings that the FDIC Application 78 requests information proposed rule would benefit the public receives from time to time. related to two broad categories, Market by formalizing a framework by which Characteristics and Community the FDIC would supervise industrial D. Broad Effects on the Banking Industry Reinvestment Act Plan, to assist the banks and mitigate risk to the DIF that FDIC in determining whether the may otherwise be presented. To the extent that the proposed rule convenience and needs of the results in higher numbers of industrial community to be served by an industrial 75 December 31, 2019, Call Report data. banks, the increase could lead to bank will be met with the overall 76 $22,219.40 for all Covered Companies that seek increased competition for depositors purpose of maintaining a sound and to establish or acquire an industrial bank, and an and borrowers. The increased additional $326,000 for those institutions required effective banking system. Are there any to adopt, implement, and adhere to a contingency competition could result in one or more plan. of: Higher yields on deposit products, 78 See https://www.fdic.gov/formsdocuments/ 77 December 31, 2019, Call Report data. lower interest rates on loan products, interagencycharter-insuranceapplication.pdf.

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other categories of information that the RFA. Based on its analysis and for the Additionally, the FDIC has received FDIC should consider in evaluating an reasons stated below, the FDIC believes three change in control notices relating industrial bank’s ability to meet the that this proposed rule will not have a to industrial banks since 2010. Of those convenience and needs of the significant economic impact on a three, only one was from an industrial community to be served by such substantial number of small entities. bank that could possibly be small for industrial bank where the industrial As of September 30, 2019, the FDIC purposes of the RFA. bank will have a limited physical supervises 3,390 institutions, of which Therefore, given that no more than presence or will rely heavily on 2,662 are defined as small institutions five of the 23 existing industrial banks technology to deliver products and by the terms of the RFA.82 Of these services? are small entities for the purposes of the 3,390 institutions, 23 are industrial RFA, and that no more than one change Question 20: The FDIC has typically banks. required, as conditions for approval, a in control notice received by the FDIC As previously discussed, a currently number of additional commitments since 2010 may be from a small entity, chartered industrial bank would be when considering applications involving the FDIC believes the aspects of the subject to the proposed rule, as would foreign ownership of a proposed insured proposal relating to change in control depository institution. These conditions its parent company that is not subject to notices or merger applications involving address matters regarding service of Federal consolidated supervision, if industrial banks is not likely to affect a process and access to information on such a parent company acquired control substantial number of small entities of the grandfathered industrial bank the operations and activities of the among existing industrial banks. parent company and its subsidiaries. pursuant to a change in bank control transaction that closes after the effective As previously discussed, the Are there additional safeguards, proposed rule would apply to industrial commitments, or restrictions the FDIC date of the proposed rule, or if the banks that, as of the effective date, should consider for a foreign Covered grandfathered industrial bank is the become subsidiaries of companies that Company? Should additional capital or surviving institution in a merger are Covered Companies, as such term is liquidity levels be considered? transaction that closes after the effective date of the proposed rule. defined in § 354.2. It is difficult for the VII. Regulatory Analysis Of the 23 existing industrial banks, FDIC to estimate the volume of future A. Regulatory Flexibility Act eight reported total assets less than $600 applications from entities who seek to million, indicating that they could be own and operate an insured industrial The Regulatory Flexibility Act (RFA) small entities. However, to determine bank, or whether those entities would generally requires an agency, in whether an institution is ‘‘small’’ for the be considered ‘‘small’’ according to the connection with a proposed rule, to terms of RFA, with the information prepare and make available for public purposes of the RFA, the SBA requires currently available to the FDIC. Such comment an initial regulatory flexibility consideration of the receipts, analysis that describes the impact of a employees, or other measure of size of estimates would require detailed proposed rule on small entities.79 the concern whose size is at issue and information on the particular business all of its domestic and foreign models of institutions, prevailing However, an initial regulatory flexibility 83 analysis is not required if the agency affiliates. The FDIC conducted an economic and financial conditions, the certifies that the rule will not have a analysis to determine whether each decisions of senior management, and significant economic impact on a industrial bank’s parent company was the demand for financial services, substantial number of small entities.80 ‘‘small’’, according to the SBA size among other things. However, the FDIC The Small Business Administration standards applicable to each particular reviewed the firms with industrial bank 84 (SBA) has defined ‘‘small entities’’ to parent company. Of the eight applications pending before the FDIC as include banking organizations with total industrial banks that reported total of December 31, 2019. Each publically assets of less than or equal to $600 assets less than $600 million, the FDIC traded applicant had a market million.81 was able to determine that three of these capitalization of at least $1 billion as of Generally, the FDIC considers a potentially small industrial banks were March 6, 2020. Each applicant operates significant effect to be a quantified effect owned by holding companies which either nationally within the United in excess of 5 percent of total annual were not small for purposes of the RFA. States, or operates worldwide, and none salaries and benefits per institution, or However, the FDIC currently lacks appear likely to be small for purposes of information necessary to determine 2.5 percent of total non-interest the RFA. Therefore, the FDIC believes whether the remaining five industrial expenses. The FDIC has considered the that the aspects of the proposal relating banks are small. Therefore, of the 23 potential impact of the proposed rule on to entities who seek to own and operate small entities in accordance with the existing industrial banks, 18 are not small entities for purposes of the RFA, an insured industrial bank is not likely to affect a substantial number of small 79 5 U.S.C. 601 et seq. but no more than five, or about 22 80 5 U.S.C. 605(b). percent, may be small entities. entities among existing industrial banks. 81 The SBA defines a small banking organization Therefore, based on the preceding as having $600 million or less in assets, where an 82 information, the FDIC certifies that the organization’s ‘‘assets are determined by averaging September 30, 2019, Call Report data. In order the assets reported on its four quarterly financial to determine whether an entity is ‘‘small’’ for proposed rule does not significantly statements for the preceding year.’’ See 13 CFR purposes of the Regulatory Flexibility Act, the FDIC affect a substantial number of small uses its ‘‘affiliated and acquired assets’’ as 121.201 (as amended, effective Aug. 19, 2019). In entities. its determination, the SBA ‘‘counts the receipts, described in the immediately preceding footnote. employees, or other measure of size of the concern The latest available bank and thrift holding The FDIC invites comments on all whose size is at issue and all of its domestic and company reports, which the FDIC uses to determine aspects of the supporting information foreign affiliates, regardless of whether the affiliates an entity’s ‘‘affiliated and acquired assets,’’ are as are organized for profit.’’ 13 CFR 121.103. of September 30, 2019. provided in this section, and in Following these regulations, the FDIC uses a 83 12 CFR 121.103. particular, whether the proposed rule covered entity’s affiliated and acquired assets, 84 For example, if a particular industrial bank’s would have any significant effects on averaged over the preceding four quarters, to parent company was a motorcycle manufacturer, small entities that the FDIC has not determine whether the covered entity is ‘‘small’’ for then the size standards applicable to motorcycle the purposes of RFA. manufacturers were used. identified.

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B. Paperwork Reduction Act that would result in an industrial bank (c) Ways to enhance the quality, being controlled, directly or indirectly, utility, and clarity of the information to In accordance with the requirements by a Covered Company—on the Covered be collected; of the PRA,85 the FDIC may not conduct Company and industrial bank or sponsor, and the respondent is not (d) Ways to minimize the burden of committing to providing to the FDIC, required to respond to, an information the information collection on and thereafter adopting and collection unless it displays a currently respondents, including through the use implementing, a contingency plan that valid Office of Management and Budget of automated collection techniques or sets forth, at a minimum, one or more (OMB) control number. other forms of information technology; strategies for recovery actions and the As discussed above, the proposed rule and orderly disposition of such industrial (e) Estimates of capital or start-up imposes PRA reporting and bank, without the need for the recordkeeping requirements for each costs and costs of operation, appointment of a receiver or maintenance, and purchase of services industrial bank subject to the rule and conservator. its Covered Company. In particular, to provide information. The FDIC will request approval from All comments will become a matter of each industrial bank, and each Covered the OMB for this proposed information Company that directly or indirectly public record. Comments on the collection and the PRA reporting and collection of information should be sent controls the industrial bank, must (i) recordkeeping requirements. OMB will to the address listed in the ADDRESSES agree to furnish the FDIC an initial assign an OMB control number. The section of this document. A copy of the listing, with annual updates, of all of the information collection requirements comments may also be submitted to the Covered Company’s subsidiaries; (ii) contained in this proposed rulemaking OMB desk officer: By mail to U.S. Office submit to the FDIC an annual report on will be submitted by the FDIC to OMB of Management and Budget, 725 17th the Covered Company and its for review and approval under section Street NW, #10235, Washington, DC subsidiaries, and such other reports as 3507(d) of the PRA 86 and section 20503; or by facsimile to 202–395–6974; the FDIC may request; (iii) maintain 1320.11 of the OMB’s implementing or email to oira_submission@ such records as the FDIC deems regulations.87 Comments are invited on: necessary to assess the risks to the (a) Whether the collection of omb.eop.gov, Attention, Federal industrial bank and to the DIF; and (iv) information is necessary for the proper Banking Agency Desk Officer. in the event that the FDIC has concerns performance of the FDIC’s functions, Proposed Information Collection about a complex organizational including whether the information has Title: Industrial Banks and Industrial structure or based on other practical utility; Loan Companies. circumstances presented by a particular (b) The accuracy of the estimate of the OMB Number: 3064–NEW. filing, the FDIC may condition the burden of the information collection, Affected Public: Prospective parent approval of an application or the including the validity of the companies of industrial banks and nonobjection to a notice—in each case methodology and assumptions used; industrial loan companies. SUMMARY OF ANNUAL BURDEN AND INTERNAL COST

Total annual Obligation to Estimated Estimated Estimated Frequency estimated Type of burden respond number of frequency of time per of response burden respondents responses response (hours)

Initial listing of all of the Covered Reporting ...... Mandatory ...... 4 1.00 4 One Time...... 16 Company’s subsidiaries. Annual update of listing of all of the Reporting ...... Mandatory ...... 4 1.00 4 Annual...... 16 Covered Company’s subsidiaries. Annual report on the Covered Com- Reporting ...... Mandatory ...... 4 1.00 10 Annual...... 40 pany and its subsidiaries, and such other reports as the FDIC may request. Maintain records to assess the risks Recordkeeping ... Mandatory ...... 4 1.00 10 Annual...... 40 to the industrial bank and to the DIF. Contingency Plan ...... Reporting ...... Mandatory ...... 1 1.00 345 On Occasion ...... 345

Total Hourly Burden ...... 457

C. Plain Language and effectively organized, and how the • Would a different format (grouping Section 722 of the Gramm-Leach- FDIC might make the proposal easier to and order of sections, use of headings, Bliley Act 88 requires each Federal understand. For example: paragraphing) make the regulation • banking agency to use plain language in Has the FDIC organized the material easier to understand? If so, what all of its proposed and final rules to suit your needs? If not, how could it changes would make the regulation published after January 1, 2000. As a present the rule more clearly? easier to understand? • Federal banking agency subject to the Has the FDIC clearly stated the • What else could the FDIC do to provisions of this section, the FDIC has requirements of the rule? If not, how make the regulation easier to sought to present the proposed rule in could the rule be more clearly stated? understand? a simple and straightforward manner. • Does the rule contain technical The FDIC invites comments on jargon that is not clear? If so, which whether the proposal is clearly stated language requires clarification?

85 44 U.S.C. 3501 et seq. 87 5 CFR 1320.11. 86 44 U.S.C. 3507(d). 88 12 U.S.C. 4809.

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D. Riegle Community Development and (2) Any industrial bank that is not or merger on an individual who is a Regulatory Improvement Act of 1994 will not become a subsidiary of a controlling shareholder of a Covered company. Company joining as a party to any Pursuant to section 302(a) of the written agreement required by Riegle Community Development and § 354.2 Definitions. paragraph (a) of this section. Regulatory Improvement Act Unless defined in this part, terms (RCDRIA),89 in determining the effective shall have the meaning given to them in § 354.4 Required commitments and date and administrative compliance section 3 of the FDI Act. provisions of written agreement. requirements for new regulations that ‘‘Control’’ means the power, directly (a) The commitments required to be impose additional reporting, disclosure, or indirectly, to direct the management made in the written agreements or other requirements on insured or policies of a company or to vote 25 referenced in § 354.3 are set forth in depository institutions, each Federal percent or more of any class of voting paragraphs (1) through (8) of this banking agency must consider, securities of a company, and includes section. In addition, with respect to an consistent with principles of safety and the rebuttable presumptions of control industrial bank subject to this part, the soundness and the public interest, any at 12 CFR 303.82(b)(1) and of acting in FDIC will condition each grant of administrative burdens that such concert at 12 CFR 303.82(b)(2). For deposit insurance, each issuance of a regulations would place on depository purposes of this part, the presumptions nonobjection to a change in control, and institutions, including small depository set forth in 12 CFR 303.83(b)(1) and (2) each approval of a merger on institutions, and customers of shall apply with respect to any company compliance with paragraphs (1) through depository institutions, as well as the in the same manner and to the same (8) of this section by the parties to the benefits of such regulations. In addition, extent as if they applied to an written agreement. As required, each section 302(b) of RCDRIA requires new acquisition of securities of the company. Covered Company must: regulations and amendments to ‘‘Covered Company’’ means any (1) Submit to the FDIC an initial regulations that impose additional company that is not subject to Federal listing of all of the Covered Company’s reporting, disclosures, or other new consolidated supervision by the FRB subsidiaries and update such list requirements on insured depository and that controls an industrial bank (i) annually; institutions generally to take effect on as a result of a change in bank control (2) Consent to the examination by the the first day of a calendar quarter that pursuant to section 7(j) of the FDI Act; FDIC of the Covered Company and each begins on or after the date on which the (ii) as a result of a merger transaction of its subsidiaries to permit the FDIC to regulations are published in final pursuant to section 18(c) of the FDI Act; assess compliance with the provisions form.90 The FDIC invites comments that or (iii) that is granted deposit insurance of any written agreement, commitment, further will inform its consideration of by the FDIC pursuant to section 6 of the or condition imposed; the FDI Act; or RCDRIA. FDI Act, in each case after [EFFECTIVE any other Federal law for which the DATE OF THE RULE]. FDIC has specific enforcement PART 354—INDUSTRIAL BANKS ‘‘FDI Act’’ means the Federal Deposit jurisdiction against such Covered Sec. Insurance Act, 12 U.S.C. 1811, et seq. Company or subsidiary; and all relevant 354.1 Scope. ‘‘Filing’’ has the meaning given to it laws and regulations; 354.2 Definitions. in 12 CFR 303.2(s). (3) Submit to the FDIC an annual 354.3 Written agreement. ‘‘FRB’’ means the Board of Governors report describing the Covered 354.4 Required commitments and of the Federal Reserve System and each Company’s operations and activities, in provisions of written agreement. Federal Reserve Bank. the form and manner prescribed by the 354.5 Restrictions on industrial bank ‘‘Industrial bank’’ means any insured FDIC, and such other reports as may be subsidiaries of Covered Companies. State bank that is an industrial bank, requested by the FDIC to inform the 354.6 Reservation of authority. industrial loan company, or other FDIC as to the Covered Company’s: Authority: 12 U.S.C. 1811, 1815, 1816, similar institution that is excluded from (i) Financial condition; 1817, 1818, 1819(a) (Seventh) and (Tenth), the definition of the term ‘‘bank’’ in (ii) systems for identifying, 1820(g), 1831o–1, 3108, 3207. section 2(c)(2)(H) of the Bank Holding measuring, monitoring, and controlling § 354.1 Scope. Company Act, 12 U.S.C. 1841(c)(2)(H). financial and operational risks; ‘‘Senior executive officer’’ has the (iii) transactions with depository (a) In addition to the applicable filing meaning given it in 12 CFR 303.101(b). institution subsidiaries of the Covered procedures of part 303 of this chapter, Company; and this part establishes certain § 354.3 Written agreement. (iv) compliance with applicable requirements for filings involving an (a) No industrial bank may become a provisions of the FDI Act and any other industrial bank or a Covered Company. subsidiary of a Covered Company unless law or regulation. (b) The requirements of this part do the Covered Company enters into one or (4) Maintain such records as the FDIC not apply to an industrial bank that is more written agreements with both the may deem necessary to assess the risks organized as a subsidiary of a company FDIC and the subsidiary industrial bank, to the subsidiary industrial bank or to that is not subject to Federal which contain commitments by the the Deposit Insurance Fund; consolidated supervision by the FRB on Covered Company to comply with each (5) Cause an independent audit of or before [EFFECTIVE DATE OF THE of paragraphs (a)(1) through (8) in each subsidiary industrial bank to be RULE]. In addition, this part does not § 354.4 of this part and such other performed annually; apply to: written agreements, commitments, or (6) Limit the Covered Company’s (1) Any industrial bank that is or restrictions as the FDIC deems direct or indirect representation on the becomes controlled by a company that appropriate, including, but not limited board of directors or board of managers, is subject to Federal consolidated to, the provisions of §§ 354.4 and 354.5. as the case may be, of each subsidiary supervision by the FRB; and (b) The FDIC may, at its sole industrial bank to no more than 25% of discretion, condition a grant of deposit the members of such board of directors 89 12 U.S.C. 4802(a). insurance, issuance of a nonobjection to or board of managers, in the aggregate, 90 12 U.S.C. 4802(b). a change in control, or approval of a and, in the case of a subsidiary

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industrial bank that is organized as a (1) Make a material change in its 800 airplane. This airplane, as modified member-managed limited liability business plan after becoming a by Qantas Airways Limited (Qantas), company, limit the Covered Company’s subsidiary of such Covered Company; will have a novel or unusual design representation as a managing member to (2) Add or replace a member of the feature when compared to the state of no more than 25% of the managing board of directors, board of managers, or technology envisioned in the member interests of the subsidiary a managing member, as the case may be, airworthiness standards for transport- industrial bank, in the aggregate; of the subsidiary industrial bank after category airplanes. This design feature (7) Maintain the capital and liquidity becoming a subsidiary of such Covered is personal electronic-device (PED) of the subsidiary industrial bank at such Company; retention straps installed on the backs of levels as the FDIC deems appropriate, (3) Add or replace a senior executive passenger seats. The applicable and take such other actions as the FDIC officer after becoming a subsidiary of airworthiness regulations do not contain deems appropriate to provide the such Covered Company; adequate or appropriate safety standards subsidiary industrial bank with a (4) Employ a senior executive officer for this design feature. These proposed resource for additional capital and who is associated in any manner (e.g., special conditions contain the liquidity including, for example, as a director, officer, employee, agent, additional safety standards that the pledging assets, obtaining and owner, partner, or consultant) with an Administrator considers necessary to maintaining a letter of credit from a affiliate of the industrial bank; or establish a level of safety equivalent to third-party institution acceptable to the (5) Enter into any contract for services that established by the existing FDIC, and providing indemnification of material to the operations of the airworthiness standards. the subsidiary industrial bank; and industrial bank (for example, loan DATES: Send comments on or before (8) Execute a tax allocation agreement servicing function) with such Covered May 15, 2020. with its subsidiary industrial bank that Company or any subsidiary thereof. ADDRESSES: Send comments identified expressly states that an agency (b) The FDIC may, at its sole by Docket No. FAA–2019–1102 using relationship exists between the Covered discretion, impose restrictions on the any of the following methods: Company and the subsidiary industrial activities or operations of an industrial • Federal eRegulations Portal: Go to bank with respect to tax assets generated bank that is controlled by a Covered http://www.regulations.gov/ and follow by such industrial bank, and that further Company. Such restrictions may be in the online instructions for sending your states that all such tax assets are held in addition to those required pursuant to comments electronically. trust by the Covered Company for the paragraph (a) of this section. • Mail: Send comments to Docket benefit of the subsidiary industrial bank § 354.6 Reservation of authority. Operations, M–30, U.S. Department of and will be promptly remitted to such Transportation (DOT), 1200 New Jersey Nothing in this part limits the industrial bank. The tax allocation Avenue SE, Room W12–140, West authority of the FDIC under any other agreement also must provide that the Building Ground Floor, Washington, DC provision of law or regulation to take amount and timing of any payments or 20590–0001. supervisory or enforcement actions, refunds to the subsidiary industrial • Hand Delivery or Courier: Take including actions to address unsafe or bank by the Covered Company should comments to Docket Operations in unsound practices or conditions, or be no less favorable than if the Room W12–140 of the West Building violations of law. subsidiary industrial bank were a Ground Floor at 1200 New Jersey separate taxpayer. Federal Deposit Insurance Corporation. Avenue SE, Washington, DC, between 9 (b) The FDIC may require such By order of the Board of Directors. a.m. and 5 p.m., Monday through Covered Company and industrial bank Dated at Washington, DC, on March 17, Friday, except Federal holidays. to commit to provide to the FDIC, and, 2020. • Fax: Fax comments to Docket thereafter, implement and adhere to, a Robert E. Feldman, Operations at 202–493–2251. contingency plan subject to the FDIC’s Executive Secretary. Privacy: The FAA will post all approval that sets forth, at a minimum, [FR Doc. 2020–06153 Filed 3–30–20; 8:45 am] comments it receives, without change, recovery actions to address significant BILLING CODE 6714–01–P to http://www.regulations.gov/, financial or operational stress that could including any personal information the threaten the safe and sound operation of commenter provides. Using the search function of the docket website, anyone the industrial bank and one or more DEPARTMENT OF TRANSPORTATION strategies for the orderly disposition of can find and read the electronic form of such industrial bank without the need Federal Aviation Administration all comments received into any FAA for the appointment of a receiver or docket, including the name of the conservator. 14 CFR Part 25 individual sending the comment (or (c) The FDIC may, at its sole signing the comment for an association, discretion, require additional [Docket No. FAA–2019–1102; Notice No. 25– business, labor union, etc.). DOT’s 20–03–SC] commitments by a Covered Company or complete Privacy Act Statement can be by an individual who is a controlling Special Conditions: Qantas Airways found in the Federal Register published shareholder of a Covered Company. Limited, Boeing Model 737–800 on April 11, 2000 (65 FR 19477–19478). Such commitments may be in addition Airplane; Personal Electronic-Device Docket: Background documents or to those set forth in paragraphs (a) and Straps Installed on Seat Backs comments received may be read at (b) of this section. http://www.regulations.gov/ at any time. AGENCY: Federal Aviation Follow the online instructions for § 354.5 Restrictions on industrial bank Administration (FAA), DOT. accessing the docket or go to Docket subsidiaries of Covered Companies. ACTION: Notice of proposed special Operations in Room W12–140 of the (a) Without the FDIC’s prior written conditions. West Building Ground Floor at 1200 approval, an industrial bank that is New Jersey Avenue SE, Washington, controlled by a Covered Company shall SUMMARY: This action proposes special DC, between 9 a.m. and 5 p.m., Monday not: conditions for the Boeing Model 737– through Friday, except Federal holidays.

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