Title: Close the Shadow Banking Loophole Act
Policy area: Finance and Financial Sector

Summary:
Close the Shadow Banking Loophole Act
This bill (1) provides for the federal regulation and supervision of industrial banks, also known as industrial loan companies (ILCs), and their parent companies; and (2) sets forth a deadline for the consideration of pending ILC Federal Deposit Insurance Corporation (FDIC) deposit insurance applications. ILCs are state chartered institutions owned by nonfinancial businesses (parent companies) that provide several services similar to banks, such as originating loans and processing payments. The parent companies are not subject to supervision by the Federal Reserve Board. Under current law, the Federal Deposit Insurance Corporation (FDIC) may grant deposit insurance to these institutions.

[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 5189 Introduced in Senate (IS)]

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117th CONGRESS
  2d Session
                                S. 5189

 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 6, 2022

 Mr. Brown (for himself, Mr. Casey, and Mr. Van Hollen) 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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Close the Shadow Banking Loophole 
Act''.

SEC. 2. INDUSTRIAL BANKS.

    (a) Definitions.--In this section:
            (1) Appropriate federal banking agency.--The term 
        ``appropriate Federal banking agency'' has the meaning given 
        the term in section 3(q) of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813(q)).
            (2) Corporation.--The term ``Corporation'' means the 
        Federal Deposit Insurance Corporation.
            (3) Industrial bank.--The term ``industrial bank'' means an 
        entity described in section 2(c)(2)(H) of the Bank Holding 
        Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)), as in effect on 
        the day before the date of enactment of this Act.
    (b) Exception From Definition of Bank.--Section 2(c)(2)(H) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended, 
in the matter preceding clause (i), by inserting after ``similar 
institution'' the following: ``which has been approved to receive 
deposit insurance from the Federal Deposit Insurance Corporation on or 
before September 23, 2021 (or, with respect to such an entity to which 
section 2(c) of the Close the Shadow Banking Loophole Act applies, 
which is in compliance with such section 2(c)), and''.
    (c) Treatment of Deposit Insurance Applications Pending on 
September 23, 2021.--
            (1) In general.--With respect to an industrial bank that, 
        on the date of enactment of this Act, has an application to 
        receive deposit insurance pending before the Corporation that 
        was submitted on or before September 23, 2021, the 
        Corporation--
                    (A) shall provide for a 90-day public comment 
                period and a public hearing with respect to that 
                application; and
                    (B) may only approve that application by a \2/3\ 
                vote of the members of the Board of Directors of the 
                Corporation.
            (2) Deadline for approving application.--If the Corporation 
        does not approve an application described in paragraph (1) 
        before September 23, 2023, that application shall be deemed to 
        have been denied.
            (3) Rule of construction.--Except to the extent explicitly 
        provided in this subsection, this subsection may not be 
        construed to affect the authority of the Corporation to 
        consider deposit insurance applications under sections 5 and 6 
        of the Federal Deposit Insurance Act (12 U.S.C. 1815, 1816).
    (d) Authority With Respect to Deposit Insurance Applications 
Granted After September 23, 2021.--
            (1) Definitions.--In this subsection:
                    (A) Bank; depository institution.--The terms 
                ``bank'' and ``depository institution'' have the 
                meanings given those terms in section 2 of the Bank 
                Holding Company Act of 1956 (12 U.S.C. 1841), as 
                amended by this section.
                    (B) Covered industrial loan company.--The term 
                ``covered industrial loan company'' means an industrial 
                bank that has an application to receive deposit 
                insurance from the Corporation approved after September 
                23, 2021.
                    (C) Parent company.--The term ``parent company'' 
                means an entity that has control over a covered 
                industrial loan company.
                    (D) Primary financial regulatory agency.--With 
                respect to a parent company, the term ``primary 
                financial regulatory agency''--
                            (i) has the meaning given the term in 
                        section 2 of the Dodd-Frank Wall Street Reform 
                        and Consumer Protection Act (12 U.S.C. 5301); 
                        and
                            (ii) with respect to a parent company for 
                        which clause (i) does not apply, means the 
                        Corporation.
            (2) Authority.--The primary financial regulatory agency 
        with respect to a parent company may take any of the following 
        actions with respect to the parent company:
                    (A) Conduct such examinations of, and obtain 
                reports from, the parent company or any subsidiary of 
                the parent company (other than a bank) as the agency 
                determines necessary or appropriate to assess each of 
                the following:
                            (i) The financial condition of the parent 
                        company or subsidiary.
                            (ii) The systems of the parent company or 
                        subsidiary for maintaining and controlling 
                        financial and operating risks.
                            (iii) The transactions of the parent 
                        company or subsidiary with depository 
                        institution subsidiaries of the parent company.
                    (B) Impose any conditions or restrictions on the 
                parent company or any subsidiary of the parent company 
                (other than a bank), including restricting or 
                prohibiting transactions between the parent company or 
                subsidiary and any depository institution subsidiary of 
                the parent company, if those conditions or restrictions 
                would promote the safety and soundness of the parent 
                company or any of its depository institution 
                subsidiaries.
    (e) Change of Control.--
            (1) In general.--Except as provided in paragraph (2), the 
        appropriate Federal banking agency shall disapprove a change in 
        control, as provided in section 7(j) of the Federal Deposit 
        Insurance Act (12 U.S.C. 1817(j)), of an industrial bank.
            (2) Exceptions.--Paragraph (1) shall not apply to a change 
        in control of an industrial bank--
                    (A) that--
                            (i) is in danger of default, as determined 
                        by the appropriate Federal banking agency, 
                        provided that the entity acquiring control of 
                        the industrial bank is an entity described in 
                        clause (iii);
                            (ii) results from the acquisition of voting 
                        shares of an issuer that controls the 
                        industrial bank and the securities of which are 
                        listed on a national securities exchange, if, 
                        after the acquisition, the acquiring 
                        shareholder (or group of shareholders acting in 
                        concert) holds less than 25 percent of any 
                        class of the voting shares of, and does not 
                        otherwise exercise control over, that issuer; 
                        or
                            (iii) will be controlled, directly or 
                        indirectly, by an entity subject to 
                        consolidated supervision by the Board of 
                        Governors of the Federal Reserve System as a--
                                    (I) bank holding company;
                                    (II) savings and loan holding 
                                company; or
                                    (III) foreign bank that is treated, 
                                as of July 1, 2020, as a bank holding 
                                company under the International Banking 
                                Act of 1978 (12 U.S.C. 3101 et seq.); 
                                and
                    (B) that has obtained all regulatory approvals 
                otherwise required with respect to the change in 
                control under any applicable Federal or State law, 
                including section 7(j) of the Federal Deposit Insurance 
                Act (12 U.S.C. 1817(j)).

SEC. 3. SUPERVISION OF PARENT COMPANIES OF INDUSTRIAL LOAN COMPANIES.

    The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is 
amended by inserting after section 5 (12 U.S.C. 1844) the following:

``SEC. 6. SUPERVISION OF PARENT COMPANIES OF INDUSTRIAL LOAN COMPANIES.

    ``(a) Definitions.--In this section:
            ``(1) Corporation.--The term `Corporation' means the 
        Federal Deposit Insurance Corporation.
            ``(2) Parent company of an industrial loan company.--The 
        term `parent company of an industrial loan company' means a 
        company--
                    ``(A) that is not directly or indirectly subject to 
                a primary financial regulatory agency (as defined in 
                section 2 of the Dodd-Frank Wall Street Reform and 
                Consumer Protection Act (12 U.S.C. 5301)); and
                    ``(B) that has control over an entity that--
                            ``(i) is an industrial loan company, 
                        industrial bank, or other similar institution;
                            ``(ii) is not a bank; and
                            ``(iii) is not a person regulated by a 
                        State insurance regulator, as that term is 
                        defined in section 1002 of the Consumer 
                        Financial Protection Act of 2010 (12 U.S.C. 
                        5481).
    ``(b) Authority Relating to a Parent Company of an Industrial Loan 
Company.--
            ``(1) In general.--Subject to paragraph (2), the 
        Corporation shall have the same authority to require a parent 
        company of an industrial loan company (or a subsidiary of such 
        a parent company) to make reports and submit to examinations as 
        the Board has with respect to a bank holding company or a 
        subsidiary of a bank holding company.
            ``(2) Conditions.--In carrying out the report and 
        examination authority described in paragraph (1) and with 
        respect to the parent company of an industrial loan company 
        that has been approved to receive deposit insurance from the 
        Corporation on or before September 23, 2021, the Corporation 
        shall tailor any requirements to the size, complexity, and 
        nature of the business of that parent company.
            ``(3) Enforcement.--The Corporation may, using the 
        authorities under section 8 of the Federal Deposit Insurance 
        Act (12 U.S.C. 1818), enforce the report and examination 
        authority under this section with respect to a parent company 
        of an industrial loan company (or a subsidiary of such a parent 
        company) to the same extent as the Board may enforce the report 
        and examination authority of the Board with respect to a bank 
        holding company or a subsidiary of a bank holding company.
    ``(c) Rule of Construction.--Nothing in this section may be 
construed as a reduction of the authority of the Corporation, as in 
effect on the date of enactment of this section.
    ``(d) Rulemaking.--The Corporation may issue rules to implement 
this section.''.

SEC. 4. APPLICATION WITH RESPECT TO CONTRACTS AND OTHER AGREEMENTS.

    (a) Definition.--In this section, the term ``industrial loan 
company'' means an industrial loan company, industrial bank, or other 
similar institution.
    (b) Application.--This Act, and the amendments made by this Act, 
may not be construed to affect or impair--
            (1) the authority of the Federal Deposit Insurance 
        Corporation to enter into any agreement with a parent company 
        of an industrial loan company (as defined in section 6 of the 
        Bank Holding Company Act of 1956, as added by section 3 of this 
        Act) or an industrial loan company, or to impose any condition 
        in connection with the approval by the Corporation of an 
        application; or
            (2) the validity of any agreement described in paragraph 
        (1) entered into before the date of enactment of this Act.
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