One of the most difficult challenges industrial banks face in Washington is correcting the misinformation spread by critics, much of which is deliberately misleading. A good example is a recent article on industrial banks written by Arthur E. Wilmarth, Jr., of the George Washington University Law School.

The National Association of Industrial Bankers, the Utah Bankers Association and the Nevada Bankers Association appreciate the opportunity to submit this statement for the record of the Subcommittee on Consumer Protection and Financial Institutions hearing on “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters.”

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.

Bank Holding Company regulated by Federal Reserve (BHC) compared to parent of an industrial bank regulated by the bank’s state and federal regulators (IBHC).

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.

The Volcker Rule was intended to regulate certain trading and investment activities of banks, bank holding companies and their affiliates, such as broker-dealers. It restricts so-called proprietary trading – the purchase and sale of financial instruments for purposes of short-term profits – and sponsoring and investing in hedge funds and private equity funds.

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.

Industrial banks do not engage in any activity not allowed for a national bank.

The NAIB is urging the FDIC review the exclusion of all fully-insured brokered deposits from the definition of the term “core deposit” used in the Uniform Bank Performance Report (“UBPR”).