II 

118TH CONGRESS 

1ST SESSION S. 3538 

To address applications for deposit insurance submitted by industrial banks 

to the Federal Deposit Insurance Corporation, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 14, 2023 

Mr. BROWN (for himself, Mr. KENNEDY, Mr. CASEY, Mr. VAN HOLLEN, Mr. 

BRAUN, and Mr. WICKER) introduced the following bill; which was read 

twice and referred to the Committee on Banking, Housing, and Urban 

Affairs 

A BILL 

To address applications for deposit insurance submitted by 

industrial banks to the Federal Deposit Insurance Corporation, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Close the Shadow 

5 Banking Loophole Act’’. 

6 SEC. 2. INDUSTRIAL BANKS. 

7 (a) DEFINITIONS.—In this section: 

8 (1) APPROPRIATE FEDERAL BANKING AGEN9 CY.—The term ‘‘appropriate Federal banking agenVerDate Sep 11 2014 19:22 Jan 02, 2024 Jkt 049200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3538.IS S3538

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1 cy’’ has the meaning given the term in section 3(q) 

2 of the Federal Deposit Insurance Act (12 U.S.C. 

3 1813(q)). 

4 (2) CORPORATION.—The term ‘‘Corporation’’ 

5 means the Federal Deposit Insurance Corporation. 

6 (3) INDUSTRIAL BANK.—The term ‘‘industrial 

7 bank’’ means an entity described in section 

8 2(c)(2)(H) of the Bank Holding Company Act of 

9 1956 (12 U.S.C. 1841(c)(2)(H)), as in effect on the 

10 day before the date of enactment of this Act. 

11 (b) EXCEPTION FROM DEFINITION OF BANK.—Sec12 tion 2(c)(2)(H) of the Bank Holding Company Act of 

13 1956 (12 U.S.C. 1841(c)(2)(H)) is amended, in the mat14 ter preceding clause (i), by inserting after ‘‘similar institu15 tion’’ the following: ‘‘which has been approved to receive 

16 deposit insurance from the Federal Deposit Insurance 

17 Corporation on or before September 23, 2021 (or, with 

18 respect to such an entity to which section 2(c) of the Close 

19 the Shadow Banking Loophole Act applies, which is in 

20 compliance with such section 2(c)), and’’. 

21 (c) TREATMENT OF DEPOSIT INSURANCE APPLICA22 TIONS PENDING ON SEPTEMBER 23, 2021.— 

23 (1) IN GENERAL.—With respect to an industrial 

24 bank that, on the date of enactment of this Act, has 

25 an application to receive deposit insurance pending 


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1 before the Corporation that was submitted on or be2 fore September 23, 2021, the Corporation— 

3 (A) shall provide for a 90-day public com4 ment period and a public hearing with respect 

5 to that application; and 

6 (B) may only approve that application by 

a 2 7 ⁄3 vote of the members of the Board of Di8 rectors of the Corporation. 

9 (2) DEADLINE FOR APPROVING APPLICATION.— 

10 If the Corporation does not approve an application 

11 described in paragraph (1) before September 30, 

12 2024, that application shall be deemed to have been 

13 denied. 

14 (3) RULE OF CONSTRUCTION.—Except to the 

15 extent explicitly provided in this subsection, this sub16 section may not be construed to affect the authority 

17 of the Corporation to consider deposit insurance ap18 plications under sections 5 and 6 of the Federal De19 posit Insurance Act (12 U.S.C. 1815, 1816). 

20 (d) AUTHORITY WITH RESPECT TO DEPOSIT INSUR21 ANCE APPLICATIONS GRANTED AFTER SEPTEMBER 23, 

22 2021.— 

23 (1) DEFINITIONS.—In this subsection: 

24 (A) BANK; DEPOSITORY INSTITUTION.— 

25 The terms ‘‘bank’’ and ‘‘depository institution’’ 


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1 have the meanings given those terms in section 

2 2 of the Bank Holding Company Act of 1956 

3 (12 U.S.C. 1841), as amended by this section. 

4 (B) COVERED INDUSTRIAL LOAN COM5 PANY.—The term ‘‘covered industrial loan com6 pany’’ means an industrial bank that has an 

7 application to receive deposit insurance from 

8 the Corporation approved after September 23, 

9 2021. 

10 (C) PARENT COMPANY.—The term ‘‘parent 

11 company’’ means an entity that has control over 

12 a covered industrial loan company. 

13 (D) PRIMARY FINANCIAL REGULATORY

14 AGENCY.—With respect to a parent company, 

15 the term ‘‘primary financial regulatory agen16 cy’’— 

17 (i) has the meaning given the term in 

18 section 2 of the Dodd-Frank Wall Street 

19 Reform and Consumer Protection Act (12 

20 U.S.C. 5301); and 

21 (ii) with respect to a parent company 

22 for which clause (i) does not apply, means 

23 the Corporation. 

24 (2) AUTHORITY.—The primary financial regu25 latory agency with respect to a parent company may 


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1 take any of the following actions with respect to the 

2 parent company: 

3 (A) Conduct such examinations of, and ob4 tain reports from, the parent company or any 

5 subsidiary of the parent company (other than a 

6 bank) as the agency determines necessary or 

7 appropriate to assess each of the following: 

8 (i) The financial condition of the par9 ent company or subsidiary. 

10 (ii) The systems of the parent com11 pany or subsidiary for maintaining and 

12 controlling financial and operating risks. 

13 (iii) The transactions of the parent 

14 company or subsidiary with depository in15 stitution subsidiaries of the parent com16 pany. 

17 (B) Impose any conditions or restrictions 

18 on the parent company or any subsidiary of the 

19 parent company (other than a bank), including 

20 restricting or prohibiting transactions between 

21 the parent company or subsidiary and any de22 pository institution subsidiary of the parent 

23 company, if those conditions or restrictions 

24 would promote the safety and soundness of the 


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1 parent company or any of its depository institu2 tion subsidiaries. 

3 (e) CHANGE OF CONTROL.— 

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the appropriate Federal banking agency 

6 shall disapprove a change in control, as provided in 

7 section 7(j) of the Federal Deposit Insurance Act 

8 (12 U.S.C. 1817(j)), of an industrial bank. 

9 (2) EXCEPTIONS.—Paragraph (1) shall not 

10 apply to a change in control of an industrial bank— 

11 (A) that— 

12 (i) is in danger of default, as deter13 mined by the appropriate Federal banking 

14 agency, provided that the entity acquiring 

15 control of the industrial bank is an entity 

16 described in clause (iii); 

17 (ii) results from the acquisition of vot18 ing shares of an issuer that controls the in19 dustrial bank and the securities of which 

20 are listed on a national securities ex21 change, if, after the acquisition, the acquir22 ing shareholder (or group of shareholders 

23 acting in concert) holds less than 25 per24 cent of any class of the voting shares of, 


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1 and does not otherwise exercise control 

2 over, that issuer; or 

3 (iii) will be controlled, directly or indi4 rectly, by an entity subject to consolidated 

5 supervision by the Board of Governors of 

6 the Federal Reserve System as a— 

7 (I) bank holding company; 

8 (II) savings and loan holding 

9 company; or 

10 (III) foreign bank that is treated, 

11 as of July 1, 2020, as a bank holding 

12 company under the International 

13 Banking Act of 1978 (12 U.S.C. 3101 

14 et seq.); and 

15 (B) that has obtained all regulatory ap16 provals otherwise required with respect to the 

17 change in control under any applicable Federal 

18 or State law, including section 7(j) of the Fed19 eral Deposit Insurance Act (12 U.S.C. 1817(j)). 

20 SEC. 3. SUPERVISION OF PARENT COMPANIES OF INDUS21 TRIAL LOAN COMPANIES. 

22 The Bank Holding Company Act of 1956 (12 U.S.C. 

23 1841 et seq.) is amended by inserting after section 5 (12 

24 U.S.C. 1844) the following: 


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1 ‘‘SEC. 6. SUPERVISION OF PARENT COMPANIES OF INDUS2 TRIAL LOAN COMPANIES. 

3 ‘‘(a) DEFINITIONS.—In this section: 

4 ‘‘(1) CORPORATION.—The term ‘Corporation’ 

5 means the Federal Deposit Insurance Corporation. 

6 ‘‘(2) PARENT COMPANY OF AN INDUSTRIAL

7 LOAN COMPANY.—The term ‘parent company of an 

8 industrial loan company’ means a company— 

9 ‘‘(A) that is not directly or indirectly sub10 ject to a primary financial regulatory agency 

11 (as defined in section 2 of the Dodd-Frank Wall 

12 Street Reform and Consumer Protection Act 

13 (12 U.S.C. 5301)); and 

14 ‘‘(B) that has control over an entity that— 

15 ‘‘(i) is an industrial loan company, in16 dustrial bank, or other similar institution; 

17 ‘‘(ii) is not a bank; and 

18 ‘‘(iii) is not a person regulated by a 

19 State insurance regulator, as that term is 

20 defined in section 1002 of the Consumer 

21 Financial Protection Act of 2010 (12 

22 U.S.C. 5481). 

23 ‘‘(b) AUTHORITY RELATING TO A PARENT COMPANY

24 OF AN INDUSTRIAL LOAN COMPANY.— 

25 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

26 the Corporation shall have the same authority to reVerDate Sep 11 2014 19:22 Jan 02, 2024 Jkt 049200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S3538.IS S3538

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1 quire a parent company of an industrial loan com2 pany (or a subsidiary of such a parent company) to 

3 make reports and submit to examinations as the 

4 Board has with respect to a bank holding company 

5 or a subsidiary of a bank holding company. 

6 ‘‘(2) CONDITIONS.—In carrying out the report 

7 and examination authority described in paragraph 

8 (1) and with respect to the parent company of an in9 dustrial loan company that has been approved to re10 ceive deposit insurance from the Corporation on or 

11 before September 23, 2021, the Corporation shall 

12 tailor any requirements to the size, complexity, and 

13 nature of the business of that parent company. 

14 ‘‘(3) ENFORCEMENT.—The Corporation may, 

15 using the authorities under section 8 of the Federal 

16 Deposit Insurance Act (12 U.S.C. 1818), enforce the 

17 report and examination authority under this section 

18 with respect to a parent company of an industrial 

19 loan company (or a subsidiary of such a parent com20 pany) to the same extent as the Board may enforce 

21 the report and examination authority of the Board 

22 with respect to a bank holding company or a sub23 sidiary of a bank holding company. 

24 ‘‘(c) RULE OF CONSTRUCTION.—Nothing in this sec25 tion may be construed as a reduction of the authority of 


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1 the Corporation, as in effect on the date of enactment of 

2 this section. 

3 ‘‘(d) RULEMAKING.—The Corporation may issue 

4 rules to implement this section.’’. 

5 SEC. 4. APPLICATION WITH RESPECT TO CONTRACTS AND 

6 OTHER AGREEMENTS. 

7 (a) DEFINITION.—In this section, the term ‘‘indus8 trial loan company’’ means an industrial loan company, 

9 industrial bank, or other similar institution. 

10 (b) APPLICATION.—This Act, and the amendments 

11 made by this Act, may not be construed to affect or im12 pair— 

13 (1) the authority of the Federal Deposit Insur14 ance Corporation to enter into any agreement with 

15 a parent company of an industrial loan company (as 

16 defined in section 6 of the Bank Holding Company 

17 Act of 1956, as added by section 3 of this Act) or 

18 an industrial loan company, or to impose any condi19 tion in connection with the approval by the Corpora20 tion of an application; or 

21 (2) the validity of any agreement described in 

22 paragraph (1) entered into before the date of enact23 ment of this Act. 

Æ 


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