FDIC Approves Deposit Insurance Applications for ILCs Proposing Specialty Business Models

An industrial bank or industrial loan company (each, an ILC) charter can be an attractive option for a financial technology (fintech) company or another company seeking to enter the banking space. Since January 2026, the Federal Deposit Insurance Corporation (FDIC) has conditionally approved four separate de novo deposit insurance applications for Utah-chartered ILCs submitted by Ford Credit Bank, GM Financial Bank, Edward Jones Bank, and Stellantis Bank. Applications related to additional ILC charters remain pending before the FDIC.

The spate of recent deposit insurance approvals for ILCs is significant because the FDIC has approved very few applications over the past two decades. In June 2024, during the Biden administration, the FDIC approved one application by Thrivent Bank, a Utah-chartered ILC proposing a traditional bank business model. In 2020, during the first Trump administration, the FDIC approved two separate applications for Utah-chartered ILCs submitted by fintech companies Nelnet and Square, respectively. The FDIC’s recent actions confirm that the FDIC is open to approving deposit insurance applications for ILCs proposing specialty business models.

ILCs: What Are They?

ILCs are state-chartered institutions that may be formed under the laws of certain states, including California, Colorado, Nevada, and Utah. ILCs are regulated by state banking authorities and the FDIC, and they are empowered to make loans and accept certain types of deposits. As insured depository institutions, ILCs may avail themselves of interest rate exportation under the Federal Deposit Insurance Act. They are also exempt from regulation under most state money transmission laws. These benefits are particularly attractive for fintechs or other companies with lending or payments operations, which are otherwise subject to a hodgepodge of state rules or must conduct business through a bank partnership arrangement.

A company may own an ILC without becoming a bank holding company if the ILC qualifies under an exception in the Bank Holding Company Act of 1956, as amended (BHC Act) for certain ILCs. To qualify, the ILC must be organized in a state that, on March 5, 1987, had in effect or under consideration in its legislature a statute requiring such an institution to obtain FDIC insurance. In addition, it either (1) must not have assets exceeding $100 million or (2) must not accept demand deposits. While the limitation on accepting demand deposits is significant, it does not preclude an ILC from providing negotiable order of withdrawal accounts (NOW accounts) to consumers and other eligible depositors, as well as money market deposit accounts and other deposit accounts that are not considered demand deposits but that still provide check-writing and other transactional capabilities. Because qualifying ILCs are not “banks” for the purposes of the BHC Act, acquiring control of an ILC will not cause the acquiring company to become a bank holding company subject to regulation under the BHC Act, including its limitations on activities and investments.

The ILC exemption from the BHC Act comes with limitations. In particular, any company that directly or indirectly controls an ILC will be considered a “banking entity” subject to the Volcker rule, unless exempted under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The EGRRCPA provides an exemption from the Volcker rule for community banks, which are institutions that do not have (and are not controlled by a company that has) more than $10 billion in total consolidated assets or total trading assets and trading liabilities exceeding 5% of total consolidated assets. Some states may impose additional limitations. For example, a company that directly or indirectly controls a California ILC may engage only in activities that are considered financial in nature.

A provision in the Dodd-Frank Act mandates that US federal banking regulators require any company that directly or indirectly controls an insured depository institution that is not a subsidiary of a bank holding company or a savings and loan holding company to serve as a source of financial strength for the institution. This requirement means that a controlling investor could be called upon to provide capital support to a subsidiary depository institution, such as an ILC, at a time when it might prefer not to do so.

The ILC charter is also not without controversy. Because it is the only insured depository institution charter available to firms engaged in commercial activities not otherwise permissible for bank holding companies and nongrandfathered savings and loan holding companies, it has long been viewed by some as a loophole from the BHC Act. Historically, the charter was used primarily by automobile manufacturers and other commercial and industrial firms to conduct specialty finance operations. But Walmart’s application for an ILC charter in 2005 prompted concern among its competitors, the banking industry, and others that the retailer would unfairly enjoy a competitive advantage by avoiding the regulatory oversight and limitations that normally accompany ownership of a depository institution.

The FDIC responded by delaying action on ILC filings and ultimately imposed a moratorium on deposit insurance applications by new ILC charters owned by nonfinancial companies. Until its actions in 2020, 2024, and 2026, the FDIC had not approved a deposit insurance application for a new ILC charter since 2008, though several applications had been filed and subsequently withdrawn since 2013. The conditions the FDIC imposed on Square and Nelnet — as well as those it has formalized as a rule (described below) and imposed on the parent companies of the industrial banks for which it has approved deposit insurance applications in 2026 — are similar to those imposed as conditions on other applicants in 2008, with the notable exception that the FDIC’s rule and the conditions imposed in connection with recent conditional approvals do not limit the permissible activities of a company that controls an ILC.

The FDIC’s Regulations for Parent Companies of ILCs

The FDIC’s rules (12 C.F.R. Part 354) require certain conditions and commitments for approval or nonobjection to certain filings involving an ILC whose parent company is not subject to consolidated supervision by the Federal Reserve (covered parent company). Specifically, the rules prohibit any ILC from becoming a subsidiary of a covered parent company unless the covered parent company enters into one or more written agreements with the FDIC and its subsidiary ILC requiring that the covered parent company agree to do the following:

• Furnish an initial listing, with annual updates, of the covered parent company’s subsidiaries.
• Consent to the examination of the covered parent company and its subsidiaries.
• Submit an annual report on the operations and activities of the covered parent company and its subsidiaries and provide other reports as requested.
• Maintain such records as deemed necessary by the FDIC to assess the risks to the ILC or to the Deposit Insurance Fund.
• Cause an independent annual audit of each ILC.
• Limit the covered parent company’s representation on the ILC’s board of directors or board of managers, as the case may be, to less than 50%.
• Maintain the ILC’s capital and liquidity at such levels as deemed appropriate and take such other actions to provide the ILC with a resource for additional capital or liquidity.
• Enter into a tax allocation agreement expressly stating that an agency relationship exists between the covered parent company and the ILC with respect to tax assets generated by the ILC, and that all such tax assets are held in trust by the covered parent company for the benefit of the ILC and will be promptly remitted to it.
• Depending on the facts and circumstances, provide, adopt, and implement a contingency plan that sets forth strategies for recovery actions and the orderly disposition of the ILC without the need for a receiver or conservator.

In addition, the rules require the FDIC’s prior written approval before an ILC that is a subsidiary of a covered parent company may take the following actions:

• Make a material change in its business plan after becoming a subsidiary of a covered parent company.
• Obtain the FDIC’s prior approval to add or replace a member of the board of directors or board of managers or a managing member during the first three years after the ILC becomes a subsidiary of the covered parent company, as the case may be.
• Add or replace a senior executive officer during the first three years after the ILC becomes a subsidiary of the covered parent company.
• Employ a senior executive officer who is, or during the past three years was, associated in any manner with an affiliate of the ILC, such as a director, officer, employee, agent, owner, partner, or consultant of an affiliate of the ILC.
• Enter into any contract for services material to the operations of the ILC with the covered parent company or a subsidiary thereof.

The FDIC could, on a case-by-case basis, impose additional restrictions on the covered parent company or its controlling shareholder if circumstances warrant. As a result, it is essential that any company considering acquiring control of an ILC evaluate the impact of the rule’s requirements on the company and its investors.

Recent FDIC conditional approvals included the following noteworthy conditions that aren’t otherwise expressly imposed by 12 CFR Part 354:

• A relatively high initial paid-in capital requirement of $1,500,000,000 in the case of Ford, and $667,000,000 in the case of GM, though these amounts depend on the nature and scale of the bank’s proposed business
• With respect to Ford, GM, and Stellantis, a relatively high minimum tier 1 capital-to-assets leverage ratio requirement of 15%
• With respect to Ford and GM, a requirement to exceed “well capitalized” status, in addition to adequate allowance for credit losses
• With respect to Ford and GM, a requirement to obtain FDIC nonobjection or approval
  • For final proposed contracts, leases, and agreements related to construction or rental of permanent quarters
  • Before implementing a long-term incentive plan
  • Before declaring or paying dividends within the first three years of operations

In some cases, FDIC approval was also required for the bank’s Community Reinvestment Act (CRA) Strategic Plan. A CRA Strategic Plan permits a bank to be evaluated against tailored, measurable performance goals proposed by the bank and approved by its primary federal regulator following community input in lieu of being evaluated under the CRA by using the traditional lending, service, and investment tests.

We Can Help You Evaluate Your Organization’s Options

Whether to form or to acquire an ILC is an important decision requiring careful consideration of your organization’s unique activities and needs. Let our team of experienced banking lawyers help you identify the structure that best suits your organization, formulate a detailed action plan, and navigate through its execution. For additional information, please contact one of the authors or another member of Goodwin’s Banking practice, which is part of the firm’s Financial Services group.