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July 2, 2020

Better Markets Opposes FDIC Proposal Encouraging Dangerous Combinations of Banking and Commerce

Thursday, July 2, 2020
Contact: Pamela Russell at 202-618-6433 or
Washington, D.C.  –  Stephen W. Hall, Legal Director and Securities Specialist for Better Markets, issued the following statement on the FDIC’s rule proposal that threatens to ramp up the acquisition of industrial banks by commercial enterprises.
“The FDIC is proposing to revive, without basis, a very dangerous loophole that allows industrial companies to own banks but avoid financial rules that protect depositors, the financial system and the economy. If this proposal is finalized, more and more huge commercial firms will seek to establish a banking arm by acquiring an industrial bank. That means a greater risk of bank instability, more claims on the deposit insurance fund established to protect customers’ bank balances, and ever-larger concentrations of wealth and economic power that hurt competition and consumers. That’s why we strongly opposed the proposal in this comment letter.
“Since 1956, the law has sensibly prohibited the mix of banking and commerce and it has required bank holding companies to submit to regulation and consolidated supervision by the Federal Reserve. But under a little-known 1987 loophole, industrial banks were carved out of that framework. That loophole allowed non-bank financial firms and even commercial enterprises to own and control industrial banks without the same comprehensive oversight that applies to virtually every other banking organization. 
“Although industrial banks started out 100 years ago as limited-purpose lenders serving low- and moderate-income workers, they have evolved enormously in size and complexity. They have generated intense debate, prompting innumerable studies and even moratoria, first imposed by the FDIC in 2006 and then by Congress in the Dodd-Frank Act. Now the FDIC, without any valid basis, wants to revitalize these combinations and cater to larger and more complex businesses that see profitable opportunities.
“But the regulatory requirements in the rule proposal are not strong enough, especially when it comes to the oversight of industrial banks owned by commercial firms. And the rule proposal offers no persuasive justification for encouraging these risky alliances. That’s why finalizing the proposal would be arbitrary and capricious, particularly because the FDIC acknowledges the serious risks surrounding these business and banking combinations but offers no good reason to tolerate, let alone foster, them.” 
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit
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