An important issue raised by some commentators is whether the lack of consolidated supervision of the parent companies of industrial banks (IBs) by the Federal Reserve is serious enough to require new legislation, such as the Close the IB Loophole Act. To gain more information regarding this issue, the U.S. House of Representatives Subcommittee on Consumer Protection and Financial Institutions held a hearing on “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters” on April 15, 2021.

The Bank Policy Institute (BPI) recently made erroneous allegations against ILCs and industrial banks without source documentation. The following comparison provides facts and evidence about their claims.

The Utah Center for Financial Services at the David Eccles School of Business at the University of Utah commissioned the Source of Strength and Consolidated Supervision: A Comparative Assessment of Industrial Banks and Commercial Banks.

Key measures of an insured institution’s safety and soundness are capital adequacy, asset quality and profitability. We have compiled and analyzed data related to these measures to provide an objective view of the US banking industry or a banking industry segment’s safety and soundness profile. Industry segments in our report include: all insured institutions; industrial banks (a/k/a industrial loan companies or ILC’s); commercially-owned industrial banks; and insured institutions net of industrial banks (“Other Banks”). All data is derived from FDIC quarterly call reports as of December 31, 2020.

Key measures of an insured institution’s safety and soundness are capital adequacy, asset quality and profitability. We have compiled and analyzed data related to these measures to provide an objective view of the US banking industry or a banking industry segment’s safety and soundness profile. Industry segments in our report include: all insured institutions; industrial banks (a/k/a industrial loan companies or ILC’s); commercially-owned industrial banks; and insured institutions net of industrial banks (“Other Banks”). All data is derived from FDIC quarterly call reports as of September 30, 2020.

Most people may not be familiar with industrial banks (IBs). Yet these financial institutions have been around for more than a century and predate the establishment of the Federal Reserve in 1913. Throughout the industry’s history, the only way a non-financial firm could enter banking was through the establishment of an IB.

James R. Barth and Yanfei Sun of Auburn University conducted a study for the Utah Center for Financial Services (UCFS) on how Industrial Loan Companies (ILCs a.k.a Industrial Banks) have performed compared to other FDIC insured institutions. The findings demonstrate ILCs perform better than all other FDIC institutions.

The Utah Center for Financial Services has released the report “Bank Funding Sources: A New Look at Brokered Deposits” (“The Barth Report”) by Dr. James Barth and his colleague, Yanfei Sun. In it they examine brokered deposits in the context of their origin, regulatory history, use, and performance.

James R. Barth and Yanfei Sun of Auburn University conducted a study for the Utah Center for Financial Services (UCFS) on how Industrial Loan Companies (ILCs a.k.a Industrial Banks) have performed compared to other FDIC insured institutions. The findings demonstrate ILCs perform better than all other FDIC institutions.

James R. Barth and Yanfei Sun of Auburn University conducted a study for the Center of Innovation in Banking & Financial Services (CIBFS) on how Industrial Loan Companies (ILCs a.k.a Industrial Banks) have performed compared to other FDIC insured institutions. The findings demonstrate ILCs perform better than all other FDIC institutions.