Comptroller Dugan Supports Moratorium On ILCs with Commercial Affiliations And Urges Congress to Address Anomalous Treatment of ILC Holding Companies

WASHINGTON — Comptroller of the Currency John C. Dugan voted today for a one-year moratorium on applications for deposit insurance by industrial loan companies with commercial affiliations, saying that Congress should have an opportunity to consider the issue.

Mr. Dugan also emphasized that the question of commercial ownership is one for Congress, and not the Federal Deposit Insurance Corporation, to decide. If Congress does not act, he said, he would not vote to deny an ILC application solely because of a commercial affiliation.

"I believe this is a legitimate policy question for Congress to address given the growth in ILCs and the recent uptick in applications by commercial companies," the Comptroller said at a meeting of the FDIC's Board of Directors. As Comptroller, Mr. Dugan is a member of the FDIC board.

Mr. Dugan noted that while bank holding companies are subject to consolidated regulation and a prohibition on commercial affiliations, ILC holding companies are not.

"Why should that be?" he asked. "Why should a commercial company be allowed to own a large or small ILC, but not a large or small national bank? And why should the holding company be regulated in one case but not the other? In short, given the recent growth in ILCs, it is entirely appropriate for Congress to re-examine the anomalous regulatory treatment of ILC holding companies."

The Comptroller noted that the legislative history, beginning in 1987, makes clear that Congress intended to allow commercial companies to own ILCs.

"For 20 years the FDIC has recognized this fact by repeatedly granting deposit insurance to ILCs affiliated with commercial companies and by establishing a supervisory regime to address unique issues raised by such affiliations," he added.

The Comptroller noted that, of the seven statutory factors the FDIC board can consider in making deposit insurance determinations, the only one relevant to the commercial affiliation issue is the need to assess potential risks to the deposit insurance fund.

The FDIC has a strong track record in supervising ILCs with commercial parents, he said, and "no commercially owned ILC has caused a single dollar of loss to the deposit insurance fund."

The Comptroller also voted to seek comment on a proposed rule establishing conditions that should generally be applied in approving deposit insurance applications by ILCs affiliated with certain types of financial companies, but said he has significant questions about the proposal that he hopes will be addressed in the comment period.

The Comptroller noted that the rapid growth in assets of ILCs has come not from those with commercial parents, but from those owned by financial companies not subject to consolidated supervision at the holding company level, and he questioned whether the rule should only be applied to new ILCs.

The five largest ILCs, he said, hold approximately 70 percent of the $180 billion in total assets held by all ILCs, and the largest one holds total assets exceeding $60 billion dollars.

"These are big numbers," he said. "If we believe that future ILCs should be subject to the conditions in the proposed rule to guard against potential risks, shouldn't we consider whether existing ILCs that fall in the same category – especially the largest ones – should be subject to similar conditions?"

Related Links

• Statement Regarding the ILC Moratorium Extension
• Statement Regarding a Proposed ILC Rule