Karen Petrou: How New-Age ILCs Will Bust the Old Banking Paradigm
As our forthcoming in-depth analysis will make clear, the FDIC’s request for information (RFI) on industrial loan company charters is a critical document to which one must respond in order to have any say in the future of banking as it may soon be set. This is easy to miss — RFIs are usually little more than a duck and cover. See for example the recent inter-agency RFI on payment fraud, from which one can deduce little but that the agencies think fraud is bad — questions asked, decisions deferred, discretion preserved. That is definitely not what the FDIC is about when it comes to ILCs – it is asking tough questions it will begin to answer even before RFI comments are submitted later this year. Who gets an ILC charter will determine winners and losers for decades to come, or so history teaches us.
Due to decisions deferred, the ILC charter has been an unresolved question since the 1980s. Congress then enacted the “Competitive Banking Act” which was anything but since all it did was grandfather the banking/commerce mixes achieved through ILCs through 1987 without quashing all those that came thereafter. As the FDIC notes, ILC and similarly chartered assets grew from $4 billion in 1987 to $213 billion by 2006, when more than a few of the most aggressive ILCs were in high-flying nonbanks that were then bailed out during the 2008 crisis.
One might have thought Congress, or the FDIC would then decide what to do with …