ILC to be under BHCA umbrella

WASHINGTON, DC – The American Congress has been urged to bring the parent companies of industrial loan corporations (ILCs) under consolidated supervision of the Bank Holding Company Act .

ILCs – traditionally state-chartered companies that lend to industrial workers unable to access uncollateralised loans from banks – have grown into some of the nation's complex financial institutions with extensive access to financial markets.

However, the Act allows companies that control a federally insured ILC to conduct banking activities through the ILC without being subjective to the federal supervisory regime that applies to companies that own or control banks and thrifts.

Thrift and bank holding companies fall under consolidated supervision of the Office of Thrift Supervision (OTS) and the Federal Reserve Board (Fed), respectively.

But many worry that the Federal Deposit Insurance Corporation (FDIC), the primary regulator of insured depository institutions, including ILCs, lacks explicit authority to supervise ILC holding companies. The Government Accountability Office (GAO) estimates that between 1987 and 2006, ILC assets grew over 3,900% from $3.8 to over $155 billion.

Options

"Congress should consider options for strengthening the regulatory oversight of ILCs and more broadly consider whether allowing ILCs a greater degree of mixing banking and commerce is warranted," said Richard Hillman, the managing director of financial markets and community investment at the GAO. Hillman was testifying to the Congressional subcommittee on financial institutions in early July.

The growth of ILCs threatens to undermine the decisions that Congress has made concerning the separation of banking and commerce and the proper supervisory framework for companies that own a federally insured bank.

"It also creates an [uneven] competitive playing field, allowing some firms to own an insured ILC and avoid the prudential limitations, supervisory framework and restrictions on affiliations that apply to corporate owners of competing insured banks," said Scott Alvarez, the general counsel at the Fed.

According to FDIC data there are about 61 insured ILCs nationwide, with 48 of them operated from Utah and California. OR&C