Rep. Frank to Hold Hearings on ILCs

The American Banker reported on Monday that the Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, will hold hearings on March 22 on whether to close "the loophole" that allows general commercial firms to own a type of financial institution known as an Industrial Loan Corporation. At the time of this writing, there is no mention of the hearings on the Committee's website.

Frank and Rep. Paul Gilmour (R-OH) have introduced the Industrial Bank Holding Company Act of 2007 (H.R. 698) which would put an end to the practice. Frank and Gilmour proposed similar legislation in the prior Congress, but the issue has taken on new steam with the recent application by Wal-Mart to purchase an ILC. That request prompted the FDIC to extend a moratorium on applications by ILCs for deposit insurance. In explaining its actions, the FDIC noted:

In 2006, the FDIC received more than 13,800 comment letters regarding the proposed Wal-Mart Bank’s 2005 deposit insurance application. Most of these comments expressed opposition to granting deposit insurance with respect to this particular applicant; however, some commenters raised more universal concerns about industrial banks. Over 640 of the more general comments were specifically focused on the risk posed to the deposit insurance fund by industrial banks owned by commercial companies or by holding companies without a Federal consolidated bank supervisor.

For its part, Wal-Mart has expressed an interest in owning an ILC in order to provide cheaper and more convenient financial services to its customers. Business Week covered the story well when Wal-Mart first expressed interest in entering the banking world back in 2005.