S. 3734: Close the Shadow Banking Loophole Act

The "Close the Shadow Banking Loophole Act" (S. 3734) aims to regulate industrial banks and their deposit insurance applications more strictly. Here’s a breakdown of its key provisions:

Definitions and Scope

• Industrial Bank: Defined as an entity operating under specific regulations in the Bank Holding Company Act of 1956.
• Corporation: Refers to the Federal Deposit Insurance Corporation (FDIC).

Deposit Insurance Applications

• Industrial banks that submitted applications for deposit insurance before September 23, 2021, must go through a new process that requires a public comment period and a public hearing.
• The FDIC can only approve these applications with a two-thirds vote from its board of directors.
• If an application is not approved by September 30, 2026, it will be considered denied.

New Applications and Oversight

• For applications submitted after September 23, 2021, specific conditions will apply, including definitions around parent companies and regulatory authorities concerning these industrial banks.
• The primary financial regulatory agency can inspect parent companies of industrial loan companies to evaluate financial health and risk management systems. It may impose conditions to enhance safety and soundness.

Change of Control Regulations

• The bill disallows changes in control of an industrial bank unless certain criteria are met, such as being in danger of default or certain ownership restrictions.

Supervision of Parent Companies

• The FDIC will have authority to oversee the parent companies of industrial loan companies similarly to how bank holding companies are regulated, subject to conditions based on the complexity and size of the entity.
• They will use examination and reporting measures akin to those used with traditional banks to ensure compliance and safety.

Rules and Regulations

• The FDIC can create rules to implement these supervisory authorities and ensure the provisions of the Act are adhered to.

Impact on Existing Agreements

• The Act does not nullify any existing agreements or contracts made under prior regulations regarding industrial loan companies and their parent companies.

Relevant Companies

• None found