Industrial Banks

What is an industrial bank?

A Utah industrial bank is a state-chartered depository institution that is:

  • Required to have federal deposit insurance coverage.
  • Exempted by Congress under the Competitive Equality Banking Act of 1987 from the definition of a “bank” for the purposes of the Bank Holding Company Act of 1956 (“BHCA”) [12 USC 1841(c)(2)(H)].
  • Subject to the same federal banking laws and regulations as every other FDIC-insured bank, including anti-tying regulations and Regulation W. These regulations limit affiliate transactions and prohibit unfair competition and conflicts of interest between the bank and its parent company and affiliates.
  • Subject to the same regulatory and supervisory processes as any other FDIC-insured bank.

Industrial banks are full-purposed depository institutions that accept FDIC-insured deposits, make loans, participate in the federal payments system, and are eligible for membership in the card networks. Industrial banks must comply with all consumer compliance laws and the Community Reinvestment Act. They are also subject to the same statutory capital requirements as every other FDIC-insured bank.

In short, industrial banks are subject to equivalent regulation at the bank level. The primary distinction between commercial banks and industrial banks is how the parent company is treated under federal law. The parent companies of industrial banks are not required to become bank holding companies.

Industrial banks are also known as industrial loan corporations. In 2004, Utah law was amended to refer to these institutions as industrial banks to better reflect their legal status as FDIC-insured depository institutions. Outside of Utah, industrial banks may sometimes still be referred to as industrial loan companies, or ILCs.

How are industrial banks regulated?

At the bank level, Utah industrial banks are regulated like every other FDIC-insured bank. Historically, all Utah-based industrial banks have been state non-member banks. As a result, Utah’s industrial banks are jointly regulated by the Department of Financial Institutions and their primary federal regulator, the Federal Deposit Insurance Corporation (“FDIC”).

Utah’s industrial banks are subject to the same examination rigor as every other bank, including:

  • Safety and soundness examinations (subject to the Uniform Financial Institutions Rating System),
  • Continuous bank supervision programs when warranted by size or complexity,
  • Consumer compliance examinations (subject to the Uniform Interagency Consumer Compliance Rating System),
  • Community Reinvestment Act examinations,
  • Anti-money laundering/countering the financing of terrorism examinations, and
  • Information technology examinations (subject to the Uniform Rating System for Information Technology).

Other commonalities include:

  • The staff performing examinations of Utah industrial banks are the same examiners conducting examinations at other Utah banks.
  • The same examination tools and processes are deployed at Utah’s industrial banks as at every other bank (e.g., examination workprograms).
  • The same supervisory work products are issued to Utah’s industrial banks as are issued to every other bank (e.g., reports of examination, supervisory letters, etc.).
  • When necessary, the same types of formal and informal enforcement actions are used at industrial banks to promote corrective action.
  • Technology service providers (“TSP”s) of Utah industrial banks (including affiliates who provide IT services to the bank) can also be subject to TSP examinations.

What restrictions apply to industrial banks?

Under Utah Code Section 7-8-3(4), Utah industrial banks (a) are authorized to receive and hold deposits, and (b) may not conduct business as an industrial bank unless the industrial bank obtains deposit insurance from the FDIC.

Under the BHCA, if an industrial bank with total assets greater than $100 million accepts demand deposits, the bank loses its BHCA exemption. As a result, the parent company of the bank would need to become a bank holding company, be subject to regulation by the Federal Reserve, and be subject to activity restrictions and capital requirements associated with BHC status.

In addition, Part 354 of the FDIC Rules and Regulations requires the parent companies of new industrial banks to enter into a written agreement with the FDIC. The rule prescribes terms of the agreement, which can include obligations like consent to examination of the parent company, and some reporting and auditing requirements. Applicants should contact the FDIC for more information about compliance with Part 354.

Which states charter industrial banks?

Industrial banks can be organized under the laws of any state which had the charter type statutorily available prior to March 5, 1987. Those states are: California, Colorado, Hawaii, Indiana, Minnesota, Nevada, and Utah. Currently, five of these seven states have operating industrial banks.

What is the population of industrial banks in Utah?

Data relating to current Utah industrial banks can be found elsewhere on this website, or by reviewing the Federal Financial Institutions Examination Council’s Central Data Repository which provides access to the latest Consolidated Reports of Condition and Income (“Call Report”) information.

Browse the list of current Financial Institutions

What is the process to apply to establish a new industrial bank in Utah?

Please review these frequently asked questions to learn about the process to apply to establish a new industrial bank in Utah. Please direct any additional questions to the Supervisor of Industrial Banks.