An industrial bank, also called an industrial loan company or ILC, is a state-chartered, FDIC-insured financial institution that takes deposits and makes loans like any other bank, but sits in a special category under federal law that lets it be owned by a commercial company. That ownership feature is the defining trait: because federal law excludes industrial banks from the statutory definition of “bank,” their parent companies escape Federal Reserve supervision as bank holding companies. About two dozen ILCs operate in the United States today, collectively holding tens of billions in assets and financing everything from cars and motorcycles to health savings accounts and small-business loans.
What an Industrial Bank Actually Does
From a customer’s perspective, an industrial bank looks almost indistinguishable from any other FDIC-insured institution. Deposits carry the same federal insurance protection, up to $250,000 per depositor, per bank, per ownership category.1FDIC. Understanding Deposit Insurance ILCs fund themselves through a mix of retail deposits, commercial deposits, and brokered deposits sourced nationally, and they generally offer money market accounts and certificates of deposit.
What you rarely find at an ILC is a traditional checking account. That absence is deliberate, and it ties directly to the legal exemption discussed below. On the lending side, most industrial banks specialize rather than serve as general-purpose community banks. The niche usually matches the parent company: an automaker’s ILC finances vehicles, a health services company’s ILC administers health savings accounts, a fintech company’s ILC originates consumer loans or processes payments. Despite the specialization, ILCs must comply with the same federal consumer protection rules as any other bank, including the Truth in Lending Act and the Community Reinvestment Act.2Federal Financial Institutions Examination Council. A Guide to CRA Data Collection and Reporting
The Legal Carve-Out That Defines the Category
The feature that distinguishes an industrial bank from every other FDIC-insured institution is a specific exclusion in the Bank Holding Company Act of 1956. Under the general rule, any company that controls a “bank” becomes a bank holding company and falls under Federal Reserve supervision, with its permitted activities restricted to those closely related to banking. Congress carved industrial banks out of the statutory definition of “bank,” so their parents avoid that framework entirely.3Office of the Law Revision Counsel. 12 USC 1841 – Definitions
The exemption in its current form comes from the Competitive Equality Banking Act of 1987. Before CEBA, some institutions escaped the “bank” label by avoiding either demand deposits or commercial loans. Congress closed that loophole by redefining “bank” to cover any FDIC-insured institution, while simultaneously writing in explicit exemptions for certain institution types, including industrial banks, credit card banks, and limited-purpose trust companies.4Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies
To qualify, an industrial bank must be chartered in a state that had enacted or was considering legislation requiring FDIC insurance as of March 5, 1987. It must also meet at least one of three additional conditions: it does not accept demand deposits, it has total assets below $100 million, or it was not acquired by a new owner after August 10, 1987.3Office of the Law Revision Counsel. 12 USC 1841 – Definitions Most large modern ILCs satisfy the first condition, which is why checking accounts are unusual in this corner of banking. Offering one could collapse the exemption and pull the parent into full bank holding company regulation.
Who Owns Industrial Banks, and Where They’re Chartered
Only five states currently authorize industrial bank charters: California, Hawaii, Minnesota, Nevada, and Utah.5Congress.gov. Industrial Loan Companies (ILCs) – Background and Policy Issues Utah hosts roughly 15 active ILCs, and its banking department has developed deep expertise around the charter, making it the default destination for companies seeking one. Chartering an ILC requires two approvals in parallel: the state banking department reviews management, capital, and the business plan, and the FDIC separately evaluates the applicant’s financial resources, risk management, and the fitness of the parent company. The bank cannot open until both approvals are in hand.
The practical result of the BHCA exemption is that companies with no roots in banking can own a federally insured depository. Toyota and BMW each run industrial banks to finance vehicle purchases. Harley-Davidson operates Eaglemark Savings Bank for motorcycle loans. Optum, a health services company, runs Optum Bank to administer health savings accounts. UBS, Sallie Mae, and Merrick Bank operate ILCs tied to their financial services businesses.
The fintech wave has expanded that pool. Square, now Block, received FDIC approval for its ILC charter in March 2020 and launched Square Financial Services to handle lending and deposit products for small businesses on its payment platform.6Federal Deposit Insurance Corporation. FDIC Approves the Deposit Insurance Application for Square Financial Services, Inc. Nelnet Bank, affiliated with the student loan servicer, is also an ILC. WebBank, a Utah-chartered ILC, partners with dozens of fintech lenders and platforms to originate loans nationally. For technology companies that want to hold deposits or originate loans directly rather than route through a partner bank, the ILC has become the preferred entry point.
How Industrial Banks Are Regulated
Industrial banks operate under a dual regulatory framework. The chartering state’s banking department conducts ongoing examinations, enforces state banking law, and monitors capital adequacy, the same as it would for any state-chartered bank. The FDIC steps in because the ILC accepts federally insured deposits, and it conducts its own examinations, often jointly with the state regulator, focused on financial condition, risk management, and federal compliance. The FDIC has enforcement power and can act if the institution threatens the Deposit Insurance Fund.7Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies
The gap in this framework is the parent company. When a traditional bank holding company owns a commercial bank, the Federal Reserve supervises the entire corporate family on a consolidated basis. That consolidated oversight does not apply to ILC parent companies. The FDIC’s authority runs to the bank itself, not to the parent’s broader commercial operations, and this gap sits at the center of the policy debate over the structure.
The 2020 Rule on Parent Companies
In December 2020, the FDIC finalized a rule aimed at partly filling that gap for parents not already supervised by the Federal Reserve.7Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies The rule applies to new deposit insurance approvals, mergers, and changes in control. It requires the parent to sign a written agreement with the FDIC committing to maintain the ILC’s capital and liquidity, consent to FDIC examination of the parent and its subsidiaries, submit annual reports on financial condition and risk management, subject the ILC to an independent annual audit, keep its direct and indirect representation on the ILC’s board below 50 percent, and execute a tax allocation agreement recognizing that tax assets generated by the ILC belong to the ILC.8eCFR. 12 CFR 354.4 – Required Commitments and Provisions of Written Agreement
The rule gives the FDIC meaningful leverage over parent companies without formally extending Federal Reserve consolidated supervision. Whether that substitute is sufficient remains the central question in the ongoing debate.
Why the Structure Is Controversial
The United States has generally kept banking separate from commercial activity, and the ILC exemption cuts across that policy. Critics, including traditional banks and the Federal Reserve, argue that without consolidated oversight of commercial parents, stress in a parent’s non-banking operations could drain resources from the insured bank before regulators see the trouble coming. In their framing, when a retailer, automaker, or tech company owns a bank, the deposit insurance fund is effectively backstopping commercial risk.
Proponents counter that ILCs have a strong safety record with very few failures relative to traditional banks, that the 2020 FDIC rule gives regulators direct reach into parent companies, and that Congress deliberately created the exemption in 1987 and has declined to close it since. They also argue that ownership by non-traditional companies expands credit access and drives innovation in markets conventional banks have neglected.
Where Things Stand Now
The political tension has produced repeated cycles of freeze and reopening. The Dodd-Frank Act imposed a three-year moratorium in 2010 that blocked the FDIC from approving deposit insurance for any new industrial bank, credit card bank, or trust bank controlled by a commercial firm. The moratorium applied to applications received after November 23, 2009, and expired on July 21, 2013.9Office of the Law Revision Counsel. 12 USC 1815 – Deposit Insurance Before that, the FDIC had already imposed an informal pause in 2006 during the controversy over Walmart’s ILC application.
Since the statutory moratorium expired, the FDIC has gradually reopened the door, with the 2020 Square approval serving as the most visible signal that new applications would be seriously considered.6Federal Deposit Insurance Corporation. FDIC Approves the Deposit Insurance Application for Square Financial Services, Inc. In July 2025, the FDIC issued a formal Request for Information on industrial banks and their parent companies, seeking public comment on how the agency evaluates ILC applications and the issues those applications raise in the current marketplace.10Federal Deposit Insurance Corporation. Request for Information on Industrial Banks and Industrial Loan Companies The RFI signals that the agency is actively reconsidering its approach rather than simply processing applications under existing guidelines. With fintech companies and automakers continuing to pursue the charter, the question of whether the parent-company exemption stays open, narrows, or closes will shape the next round of who gets to hold an FDIC-insured banking license.