Title 12—Banks and Banking--Volume 1
PART 354—INDUSTRIAL BANKS
§ 354.1   Scope.
(a) In addition to the applicable filing procedures of part 303 of this chapter, this part establishes certain requirements for filings involving an industrial bank or a Covered Company.
(b) The requirements of this part do not apply to an industrial bank that is organized as a subsidiary of a company that is not subject to Federal consolidated supervision by the Federal Reserve Board (FRB) before April 1, 2021. In addition, this part does not apply to:
(1) Any industrial bank that is or becomes controlled by a company that is subject to Federal consolidated supervision by the FRB; and
(2) Any industrial bank that is not or will not become a subsidiary of a company.
§ 354.2   Definitions.
Unless defined in this section, terms shall have the meaning given to them in section 3 of the FDI Act.
Control means the power, directly or indirectly, to direct the management or policies of a company or to vote 25 percent or more of any class of voting securities of a company, and includes the rebuttable presumptions of control at § 303.82(b)(1) of this chapter and of acting in concert at § 303.82(b)(2) of this chapter. For purposes of this part, the presumptions set forth in § 303.82(b)(1) and (2) of this chapter shall apply with respect to any company in the same manner and to the same extent as if they applied to an acquisition of securities of the company.
Covered Company means any company that is not subject to Federal consolidated supervision by the FRB and that controls an industrial bank:
(1) As a result of a change in bank control pursuant to section 7(j) of the FDI Act;
(2) As a result of a merger transaction pursuant to section 18(c) of the FDI Act; or
(3) That is granted deposit insurance by the FDIC pursuant to section 6 of the FDI Act, in each case on or after April 1, 2021.
FDI Act means the Federal Deposit Insurance Act, 12 U.S.C. 1811, et seq.
Filing has the meaning given to it in § 303.2(s) of this chapter.
FRB means the Board of Governors of the Federal Reserve System and each Federal Reserve Bank.
Industrial bank means any insured State bank that is an industrial bank, industrial loan company, or other similar institution that is excluded from the definition of the term “bank” in section 2(c)(2)(H) of the Bank Holding Company Act, 12 U.S.C. 1841(c)(2)(H).
Senior executive officer has the meaning given it in § 303.101(b) of this chapter.
§ 354.3   Written agreement.
(a) No industrial bank may become a subsidiary of a Covered Company unless the Covered Company enters into one or more written agreements with both the Federal Deposit Insurance Corporation (FDIC) and the subsidiary industrial bank, which contain commitments by the Covered Company to comply with each of paragraphs (a)(1) through (8) in § 354.4 and such other written agreements, commitments, or restrictions as the FDIC deems appropriate, including, but not limited to, the provisions of §§ 354.4 and 354.5.
(b) The FDIC may, at its sole discretion, condition a grant of deposit insurance, issuance of a non-objection to a change in control, or approval of a merger on an individual who is a controlling shareholder of a Covered Company joining as a party to any written agreement required by paragraph (a) of this section.
§ 354.4   Required commitments and provisions of written agreement.
(a) The commitments required to be made in the written agreements referenced in § 354.3 are set forth in paragraphs (a)(1) through (8) of this section. In addition, with respect to an industrial bank subject to this part, the FDIC will condition each grant of deposit insurance, each issuance of a non-objection to a change in control, and each approval of a merger on compliance with paragraphs (a)(1) through (8) of this section by the parties to the written agreement. As required, each Covered Company must:
(1) Submit to the FDIC an initial listing of all of the Covered Company's subsidiaries and update such list annually;
(2) Consent to the examination by the FDIC of the Covered Company and each of its subsidiaries to permit the FDIC to assess compliance with the provisions of any written agreement, commitment, or condition imposed; the FDI Act; or any other Federal law for which the FDIC has specific enforcement jurisdiction against such Covered Company or subsidiary, and all relevant laws and regulations;
(3) Submit to the FDIC an annual report describing the Covered Company's operations and activities, in the form and manner prescribed by the FDIC, and such other reports as may be requested by the FDIC to inform the FDIC as to the Covered Company's:
(i) Financial condition;
(ii) Systems for identifying, measuring, monitoring, and controlling financial and operational risks;
(iii) Transactions with depository institution subsidiaries of the Covered Company;
(iv) Systems for protecting the security, confidentiality, and integrity of consumer and nonpublic personal information; and
(v) Compliance with applicable provisions of the FDI Act and any other law or regulation;
(4) Maintain such records as the FDIC may deem necessary to assess the risks to the subsidiary industrial bank or to the Deposit Insurance Fund;
(5) Cause an independent audit of each subsidiary industrial bank to be performed annually;
(6) Limit the Covered Company's direct and indirect representation on the board of directors or board of managers, as the case may be, of each subsidiary industrial bank to less than 50 percent of the members of such board of directors or board of managers, in the aggregate, and, in the case of a subsidiary industrial bank that is organized as a member-managed limited liability company, limit the Covered Company's direct and indirect representation as a managing member to less than 50 percent of the managing member interests of the subsidiary industrial bank, in the aggregate;
(7) Maintain the capital and liquidity of the subsidiary industrial bank at such levels as the FDIC deems appropriate, and take such other actions as the FDIC deems appropriate to provide the subsidiary industrial bank with a resource for additional capital and liquidity including, for example, pledging assets, obtaining and maintaining a letter of credit from a third-party institution acceptable to the FDIC, and providing indemnification of the subsidiary industrial bank; and
(8) Execute a tax allocation agreement with its subsidiary industrial bank that expressly states that an agency relationship exists between the Covered Company and the subsidiary industrial bank with respect to tax assets generated by such industrial bank, and that further states that all such tax assets are held in trust by the Covered Company for the benefit of the subsidiary industrial bank and will be promptly remitted to such industrial bank. The tax allocation agreement also must provide that the amount and timing of any payments or refunds to the subsidiary industrial bank by the Covered Company should be no less favorable than if the subsidiary industrial bank were a separate taxpayer.
(b) The FDIC may require such Covered Company and industrial bank to commit to provide to the FDIC, and, thereafter, implement and adhere to, a contingency plan subject to the FDIC's approval that sets forth, at a minimum, recovery actions to address significant financial or operational stress that could threaten the safe and sound operation of the industrial bank and one or more strategies for the orderly disposition of such industrial bank without the need for the appointment of a receiver or conservator.
§ 354.5   Restrictions on industrial bank subsidiaries of Covered Companies.
Without the FDIC's prior written approval, an industrial bank that is controlled by a Covered Company shall not:
(a) Make a material change in its business plan after becoming a subsidiary of such Covered Company;
(b) Add or replace a member of the board of directors, board of managers, or a managing member, as the case may be, of the subsidiary industrial bank during the first three years after becoming a subsidiary of such Covered Company;
(c) Add or replace a senior executive officer during the first three years after becoming a subsidiary of such Covered Company;
(d) Employ a senior executive officer who is, or during the past three years has been, associated in any manner ( e.g., as a director, officer, employee, agent, owner, partner, or consultant) with an affiliate of the industrial bank; or
(e) Enter into any contract for services material to the operations of the industrial bank (for example, loan servicing function) with such Covered Company or any subsidiary thereof.
§ 354.6   Reservation of authority.
Nothing in this part limits the authority of the FDIC under any other provision of law or regulation to take supervisory or enforcement actions, including actions to address unsafe or unsound practices or conditions, or violations of law.