Alert January 31, 2012

GAO Releases Study Required by Dodd-Frank Act on Implications of Removing Exemption from Definition of “Bank” in BHCA

Section 603 of the Dodd-Frank Act required the Government Accountability Office (“GAO”) to conduct a study (the “Study”) of those institutions that are exempt from the definition of “bank” under the Bank Holding Company Act (the “BHCA”).  In general, the types of institutions exempt from the definition of “bank” under Section 2 of the BHCA (even though their deposits are FDIC-insured) are industrial loan corporations, limited purpose credit card banks, limited purpose trust banks, and savings and loans (whose parent savings and loan holding companies are, after the Dodd-Frank Act, subject to supervision by the FRB).  The GAO was directed to consider, among other things, the implications of subjecting companies that control such exempt institutions to the restrictions and requirements of the BHCA. 

In the Study, the GAO concluded that removing the BHCA exemption “would likely have a limited impact on the overall credit markets.”  The GAO said that its interviews of representatives of exempt institutions and bank regulators left it unclear whether removal of the exemption would lead to improved safety and soundness or strengthened regulatory oversight.  The GAO further noted in the Study that representatives from limited purpose credit card banks and industrial loan corporations stated that the parent companies of those institutions would be likely to divest the exempt institution if the BHCA exemption were removed.

            The Study provides as an appendix comments from the Department of the Treasury (“Treasury”) on the Study.  In Treasury’s comments, Treasury states:

…Treasury in its white paper expressed concern regarding the potential future problems that could arise from the continued exemption from consolidated Federal Reserve supervision and activity restrictions of the holding companies of industrial loan corporation, limited purpose credit card banks, and other exempt companies.  Treasury continues to have concerns about potential future problems from these exemptions.  Accordingly, Treasury recommends that the appropriate federal agencies maintain continued oversight to the extent legally permissible within their respective existing authorities over all holding companies owning insured depository institutions.