FDIC Rethinks Industrial Banks—Again

Will the FDIC open the door to broader participation in a modern banking system?

Industrial banks or industrial loan companies (ILCs)—FDIC-insured banks chartered by certain states, notably Utah—have long been a niche component of the U.S. financial system. These institutions may be owned by commercial entities because, while they are essentially insured banks in many respects, they are not "banks" under the Bank Holding Company Act. ILCs have faced public scrutiny and encountered regulatory hurdles to obtaining FDIC deposit insurance approval, however, because they blur the line between banking and commerce, even though federal law expressly permits them.[1]

But recent moves by the FDIC signal that change may be coming. With the withdrawal of a prior rulemaking that would have further tightened regulations for ILC parent companies and the July 21 publication of a comprehensive Request for Comments, the FDIC appears to be reevaluating how it approves ILC applications for deposit insurance and supervises ILCs and their affiliates. The recent departure of long-serving FDIC staff likely will allow for a fresh look at many issues, and possibly lead to an increase in successful deposit insurance approvals.

Comments are due September 19, 2025.

Key Takeaways

• Regulatory reset. The FDIC has withdrawn its 2024 proposed rule on additional requirements for ILC parents (there still are regulations that apply to them) and launched a sweeping Request for Comments signaling a comprehensive review of the ILC framework.
• Broader participation. The FDIC is considering whether to open the door wider to non-financial parent companies—such as tech, retail (including online retailers), and manufacturers—as well as to non-U.S. firms. Interested parties should consider commenting on this initiative and explaining how they plan to manage safety and soundness and compliance risks in a more modern financial system.
• Risk focus. Key concerns include the impact of non-financial parent company reliance, potential systemic risks, consumer data protection laws, and adequacy of the existing regulatory and supervisory framework.
• Competitive tensions. The review has implications for traditional banks, which continue to raise concerns about uneven regulatory treatment between ILCs and banking organizations—notably, that banks' parent companies and non-bank affiliates are subject to comprehensive regulation and supervision by the Federal Reserve through the bank holding company (BHC) framework.
• Momentum building. A rise in 2025 ILC deposit insurance applications suggests increasing interest in the ILC option—and the potential for significant growth if the FDIC clarifies its expectations. ILCs notably are a way for fintechs and other non-banks to engage in a nationwide lending business with one charter, rather than many state licenses, and without having to accept deposits—a business model that remains legally uncertain under the national bank charter.

A Comprehensive Shift in FDIC Strategy

The FDIC withdrew its earlier proposed rule that would impose additional requirements on certain parent companies of ILCs and, instead, is now focusing its attention on the new far-reaching Request for Comments. Despite the recent enactment of the GENIUS Act, the U.S. regulatory framework has not completely modernized. Applicants are looking to the ILC to provide for a nationwide lending option, otherwise not available under U.S. law outside a deposit-taking bank model. The FDIC has seen a notable uptick in deposit insurance applications for new ILCs—while some have been formally filed so far this year, many applicants are exploring the option.

Under current rules adopted in 2021 (which have not changed), parent companies that control ILCs and that are not subject to consolidated supervision by the Federal Reserve must enter into written supervisory agreements with the FDIC. These agreements are intended to ensure that the parent company can act as a reliable source of strength to the ILC, even though the broader corporate structure is not subject to the same level of oversight and restrictions on activities as BHCs.

The now-withdrawn 2024 proposed rule was narrowly focused on technical changes and certain perceived regulatory gaps. The new initiative, however, starts a much broader conversation about how to regulate ILCs in a modern, tech-driven economy. It invites public input across a wide range of issues, including business model risks, corporate governance, and community impact.

What the 2025 Questions Reveal

The 2025 Request for Comments is structured around certain core areas. A major focus is how the FDIC should interpret the statutory factors in the Federal Deposit Insurance Act (FDI Act) when reviewing ILC applications, especially when the parent company is large, complex, or based in a nonfinancial sector. The FDIC is seeking comment on whether certain business types—retailers, tech firms, insurers, manufacturers, or non-U.S. firms—warrant different treatment due to the risks they may pose.

Section 6 of the FDI Act requires the FDIC to consider the following statutory factors when reviewing an application for deposit insurance, including from an ILC:

• The institution's financial history and condition;
• The adequacy of the institution's capital structure;
• The institution's future earnings prospects;
• The general character and fitness of the institution's management;
• The risk presented to the Deposit Insurance Fund;
• The convenience and needs of the community to be served; and
• Whether the institution's corporate powers are consistent with the purposes of the FDI Act.

The FDIC also reviews applications from companies seeking to acquire an ILC through a change in control or merger transaction. The Change in Bank Control Act and the Bank Merger Act each have their own factors that the FDIC must consider.

Another key area is financial risk and capital adequacy. The FDIC seeks comments on how to assess whether an ILC can operate safely and independently from its parent, and whether reliance on the parent for deposits or loan generation introduces unacceptable exposure. The FDIC is also considering whether additional tools—such as resolution planning, activity restrictions, or growth limits—might be needed to manage these risks.

The FDIC is also seeking comment on the "convenience and needs" of the community served by ILCs and whether access to low-cost credit, especially when tied to essential consumer goods or services, should weigh more favorably in the evaluation process. This question is particularly relevant for firms seeking to embed financial services into broader commercial platforms, including brick-and-mortar and online retailers.

Finally, the FDIC is reexamining the role and supervision of parent companies of ILCs. The FDIC notes that while ILC parents are not typically subject to the BHCA and federal consolidated supervision, ILCs are otherwise subject to many of the same restrictions and requirements, regulatory oversight, and safety and soundness exams as other insured depository institutions. With that primer, the FDIC asks for comments on how effective the existing regulatory and supervisory framework is for ILCs and their affiliates.

"Urgent" Broad Regulatory Realignment

The FDIC's evolving stance on ILCs, while far from fully developed, comes at a moment of broader upheaval in the financial regulatory landscape. In addition to withdrawing its proposed rule on changes to the ILC parent company regulations, the FDIC has issued a series of other rulemakings and policy actions including streamlining branch applications, setting up a more independent supervisory appeals process, and downsizing staff.

These moves are unfolding within a larger push by the federal banking agencies to right-size and reform after years of "regulatory accretion"—as Treasury Secretary Bessent said this week at a Federal Reserve capital conference. Not only does Secretary Bessent want deeper reforms, but he sees Treasury's role as reinforcing the urgency for them. He seeks to "break through policy inertia, settle turf battles, drive consensus, and motivate action to ensure no single regulator holds up reform." The FDIC appears to have received the message.

The federal banking agencies' momentum is mirrored in major legislative developments, including the recent enactment of landmark payment stablecoin legislation. Together, these shifts signal a wider reexamination of how financial services are structured, regulated, and delivered in a modern financial system.

In this context, the FDIC's inquiry into ILCs should be evaluated as part of a larger, system-wide reevaluation. Whether ILCs ultimately become a more widely accepted part of the banking ecosystem will depend on how the FDIC navigates this turning point.

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