Overview
Title
To address applications for deposit insurance submitted by industrial banks to the Federal Deposit Insurance Corporation, and for other purposes.
ELI5 AI
The bill wants to make sure that special banks called industrial banks follow strict rules if they want to keep people's money safe with insurance. It also wants to double-check that the big companies in charge of these banks are making smart and safe choices.
Summary AI
S. 3538, also known as the "Close the Shadow Banking Loophole Act," aims to regulate industrial banks' applications for deposit insurance submitted to the Federal Deposit Insurance Corporation (FDIC). The bill introduces stricter conditions for industrial banks' deposit insurance applications and requires thorough reviews, including a 90-day public comment period and a public hearing for applications pending as of September 23, 2021. Additionally, it grants the FDIC authority to supervise parent companies of industrial loan companies, ensuring their financial stability and safety. The bill also sets guidelines for changes in control of industrial banks to prevent any risky financial behavior.
Published
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Bill Statistics
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AnalysisAI
Bill Summary
The proposed bill, referred to as the "Close the Shadow Banking Loophole Act," aims to address the intricacies of deposit insurance applications submitted by industrial banks to the Federal Deposit Insurance Corporation (FDIC). The legislation outlines procedures for handling these applications, particularly focusing on those filed before and after a specific date, September 23, 2021. It also provides a framework for supervising parent companies of industrial loan companies, granting the FDIC authority to enforce regulations and tailor requirements for these entities.
Significant Issues
One major issue within the bill is the broad authority granted to regulatory bodies, which could lead to potential overreach, particularly concerning the examinations and restrictions imposed on parent companies by the primary financial regulatory agency. Moreover, there is ambiguity in certain definitions, such as what constitutes a "parent company of an industrial loan company," which could lead to confusion over regulatory responsibilities.
Another concern is the exception for change of control rules that might inadvertently create loopholes. Specifically, rules allowing entities to acquire substantial shares of an industrial bank without exercising control could undermine regulatory oversight.
Additionally, the bill requires a public comment period and a hearing for certain applications, but it lacks specific guidelines on how the public will be informed, which could affect transparency and participation.
Impact on the Public
Broadly, the bill attempts to close gaps in financial regulation concerning industrial banks and their parent companies, potentially leading to a more stable and transparent financial sector. For the general public, this could mean increased trust in the banking system, as regulatory bodies are given more oversight powers. However, there may be concerns over potential bureaucratic overreach and complexities that could lead to slower processing times for financial institutions, potentially affecting services they provide to consumers.
Impact on Stakeholders
Industrial Banks: These entities could face stricter scrutiny and a more challenging landscape for obtaining deposit insurance. Compliance with new regulatory definitions and procedural requirements might strain resources, particularly for smaller banks.
Parent Companies of Industrial Loan Companies: These entities will be subject to new supervision rules, requiring them to submit reports and undergo examinations that are tailored to their size and complexity. This could increase operational transparency but may also impose additional compliance costs.
Regulatory Agencies: Agencies like the FDIC will have enhanced oversight and authority. While this could lead to better regulatory practices and financial stability, there is a risk of overlap and confusion with existing regulatory frameworks.
Financial Market Participants: Investors may find the environment more predictable with the closing of regulatory loopholes, though the potential for complex and extensive regulations could lead to hesitancy until the implications are clear.
Overall, the bill strives to strengthen the financial regulatory framework but must carefully balance enforcement with transparency and clarity to ensure no undue burden is placed on stakeholders and that public interest is safeguarded.
Issues
The definition of 'widget' in Section 301 might unfairly favor larger manufacturers.
The broad authority granted to the primary financial regulatory agency in Section 2(d) to conduct examinations or impose restrictions could lead to potential overreach without clear and defined criteria, leading to concerns over regulatory power and fairness.
The exception to the change of control rules in Section 2(e) could create exploitable loopholes, particularly regarding entities acquiring less than 25% of voting shares without exercising control, potentially undermining regulatory oversight.
The lack of specification in Section 2(c)(1)(A) on how the public will be notified about the 90-day public comment period and hearing may affect public participation and transparency.
The absence of clarity and examples in defining 'parent company of an industrial loan company' in Sections 3 and 6 could lead to ambiguity and challenges in determining regulatory responsibility.
The section on supervision of parent companies of industrial loan companies in Sections 3 and 6 grants broad authority to the Federal Deposit Insurance Corporation (FDIC), potentially causing regulatory overlap and confusion, which underscores the need for defined guidelines and boundaries.
The rulemaking authority in Section 3(d) is open-ended, which could lead to unpredictable regulatory changes; more specific objectives or guidelines could provide clearer direction to regulators and stakeholders.
The exception from the definition of bank in Section 2(b) hinges on specific dates without explaining their significance, which might confuse stakeholders affected by these regulations.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the Act states that it can be referred to as the "Close the Shadow Banking Loophole Act."
2. Industrial banks Read Opens in new tab
Summary AI
The section of the bill outlines definitions and rules for industrial banks, focusing on the approval and conditions of deposit insurance applications both before and after September 23, 2021. It also details authority and conditions for examining parent companies of industrial banks, exceptions regarding changes in control of these banks, and necessary regulatory approvals.
3. Supervision of parent companies of industrial loan companies Read Opens in new tab
Summary AI
In this section, the Bank Holding Company Act of 1956 is amended to grant the Federal Deposit Insurance Corporation (FDIC) the authority to supervise parent companies of industrial loan companies by requiring them to report and undergo examinations, similar to the oversight provided to bank holding companies. The FDIC must tailor its requirements based on the size, complexity, and nature of the company, and it can enforce these rules and issue regulations to implement the new section.
6. Supervision of parent companies of industrial loan companies Read Opens in new tab
Summary AI
In this section, the Federal Deposit Insurance Corporation (FDIC) is given the power to require parent companies of industrial loan companies to provide reports and allow inspections, similar to the oversight it has on bank holding companies. The FDIC must adjust these requirements based on the company's size, complexity, and business nature, especially for companies approved for deposit insurance by September 23, 2021. Additionally, the FDIC retains the right to enforce these powers and can create rules to implement the section.
4. Application with respect to contracts and other agreements Read Opens in new tab
Summary AI
In this section, the term "industrial loan company" is defined. The section states that the new law does not change the authority of the Federal Deposit Insurance Corporation (FDIC) to make agreements with these companies, nor does it affect agreements made before the law was passed.