Owning a US bank is hard — deliberately so. A long-standing belief that commerce and banking are best kept separate has spawned rules and hurdles that effectively prevent Walmart, Google or Tesla from taking deposits and making loans. But that could change. If it does, customers will get more choice and the financial system will get more risk.
Simply put, a company that owns a bank must be regulated like a bank. But there is an exception. If it buys or creates what’s known as an industrial loan company, the parent company is exempted from that onerous oversight. Most ILCs are based in Utah. They can’t offer demand deposits on a large scale, but they can offer products like “negotiated order of withdrawal” accounts that amount to the same thing.
Many companies would love to own a bank — understandably, since US retail banks can earn returns on equity of 20 per cent or more. The catch has been that the Federal Deposit Insurance Corp, which protects savers with less than $250,000 in the bank, has since 2020 resisted granting that cover to new owners of ILCs in almost all cases. Ecommerce company Rakuten petitioned, and eventually gave up. So did GM Financial, an affiliate of General Motors.