NAIB Strongly Objects to the Kennedy / Kim Legislation Regarding Industrial Banks
The National Association of Industrial Bankers (NAIB) expressed its strong opposition to newly introduced legislation – the Close the Shadow Banking Loophole Act – introduced by Sen. John Kennedy (R-IA) and Sen. Andy Kim (D-NJ) and designed to curtail the ability of industrial banks to serve market needs that other banks overlook.
“Industrial banks are one of America's most reliable engines of jobs, consumer and small-business loans, payments, and community support,” said Frank Pignanelli, Executive Director of the National Association of Industrial Bankers. “They are banks like any other, fully regulated, with the same rigorous standards for capital, liquidity, and governance. We urge Congress to reject this unnecessary legislation that would only hurt consumers and undermine competition in the banking sector.”
Today's industrial banks and their parent companies are federally regulated, and their deposits are insured by the FDIC. Industrial banks must demonstrate financial strength and transparency and are subject to FDIC oversight that is as strong — and often stronger — than a bank holding company shell.
Industrial banks have the strongest safety record in American banking. Since Congress established industrial banks in 1987, only one has failed and caused a loss to the FDIC, and no commercially owned industrial bank has failed. Capital ratios average nearly 50% higher than the rest of the banking industry. Profitability, asset quality, and loss performance all exceed national norms.
Congress deliberately preserved the industrial bank structure because diversification makes the system stronger. Unlike bank holding companies, industrial bank parent companies must be a source of strength for their banks — or they don't get to have a bank in the first place. Also, any lending to affiliated companies is strictly limited and fully secured.
“What the system needs is more diversification — not more concentration,” said Pignanelli. “By expanding access to credit and fostering innovation in lending and payments, industrial banks make the system more competitive, inclusive, and resilient. That's how competition works and should be the focus of any congressional action.”