Industrial Banks Respond to House Financial Services Committee Vote and Misrepresentation by Big Banks
The National Association of Industrial Bankers (NAIB) expresses gratitude to the members of the House Financial Services Committee (HFSC) who voted against H.R.5912 “Close the ILC Loophole Act” introduced by Representative Chuy Garcia (D-IL) in the June 23 markup hearing. NAIB is especially appreciative of the bipartisan support for the nations’ industrial banks.
H.R.5912 is a deceptive radical departure from nearly 40 years of authorized financial services policy. Since the enactment of the Competitive Equality Banking Act of 1987 (CEBA), Congress has on multiple occasions reaffirmed the current regulatory structure for Industrial Loan Corporations (ILCs), also known as industrial banks.
“The fraudulent misrepresentations against industrial banks are a shameless part of the big bank agenda to stifle competition. They ignore the fact that industrial banks are the safest and soundest financial institutions in the country. Since their inception nearly forty years ago, industrial banks have consistently maintained higher capital levels and return on assets than the average of all other banks. Industrial banks are vigorously regulated by the FDIC and state banking departments. They must comply with every Federal law as any other bank,” stated Frank Pignanelli, Executive Director, NAIB.
Unfortunately, during the HFSC consideration of HR 5912 several erroneous statements were made by the sponsor, including reference to "numerous studies" he asserts supported his position and false claims of “bail outs of failing ILCs” during the Great Recession.
“This statement is a total fabrication and is contradicted by the actual record of failures and financial performance of industrial banks since inception of the industry nearly forty years ago,” Pignanelli stated.
According to FDIC records, one industrial bank failed during the Great Recession while 529 commercial banks failed and required assistance from the FDIC insurance fund. In the past 22 years over 600 commercial banks failed but just the one industrial bank. A vast majority of the academic research documents the soundness of industrial Banks and their needed services to consumers. Last year, the FDIC adopted The Industrial Bank Rule requiring an industrial bank and its parent company to make written commitments to further ensure the safe and sound operation of the industrial bank.
“Multiple studies from leading academics consistently reaffirm industrial banks are the safest and soundest financial institutions in the country. These renowned authors also document the supervision provided by the FDIC and state regulators is equal to that of any other bank. After multiple investigations mandated by law, the U.S. Government Accountability Office (GAO) has not recommended any Congressional action regarding ILCs. Further, industrial banks are proud to be energetically engaged in Community Reinvestment Act activities.” stated Ray Specht, Chairman, NAIB.
Various trade associations led by the Bank Policy Institute (BPI) distributed information containing numerous allegations, without documentation, in support of the legislation. NAIB responded with a letter and other materials that remain unrefuted (links provided below). In their materials, the BPI and allies claim “Big Tech” could obtain an additional bank charter.Yet they avoid explaining how these companies could avoid current laws and regulations that would prevent their entry into the financial service system with existing business models.
“Since they have no facts to support their position, the big banks are using the fictional threat of big tech as a bogeyman to scare up support for their atrocious agenda. The unnecessarily broad sweep of this legislation, which would effectively eliminate a whole industry, rather than targeting issues relating to big tech clearly shows big tech is really a pretext for eliminating competition and innovation”, observed Pignanelli.
If H.R.5912 is signed into law, it would prohibit approval of any change of control of industrial banks, ultimately resulting in the closure or sale of all existing ILCs. Furthermore, in a blatant attempt to stifle competition and free enterprise, the proposed legislation would automatically deny pending applications not approved before September 23, 2022 and place a congressional prohibition on new ILC applicants. This extraordinary punitive action targets ILCs despite posing no risk to the U.S. financial system and the lowest risk to the FDIC deposit insurance fund of all insured banks.
NAIB is committed to fighting against H.R.5912 and the misrepresentations from anti-consumer groups. The supporting documents from NAIB are available at the following links:
Letter to Congressional Leadership