SALT LAKE CITY — In July 2024, the Federal Deposit Insurance Corporation (FDIC) Board of Directors approved a proposal to expand existing regulations governing parent companies of Industrial Loan Banks (IBs). While this proposed rule was withdrawn a year later, the FDIC is now conducting a broader review through a Request for Information (RFI).

New research and analysis supported by the Fintech Center at the University of Utah, however, suggests that additional regulation of industrial banks would not only be unnecessary, but likely harmful.

Industrial banks (also known as industrial loan companies) differ from traditional banks in that they can be owned by either financial firms or commercial businesses, are mostly branchless, offer operational flexibility due to being state-chartered but FDIC-insured, and often cater to a narrower group of customers than a typical bank, usually linked to their parent company’s industry.

In “Reassessing the Strength of Industrial Banks: Evidence, Trends, and Policy Implications‚” led by Nathan Seegert (University of Utah Fintech Research Fellow and Professor of Finance at Northeastern University) and co-authored Hanjun Kim and Chenhui Ling (both of the U’s David Eccles School of Business), it is noted that industrial banks:

• provide a valuable alternative to the market concentration taking place with traditional banks.

• have a substantial focus on consumer and small business lending — areas where traditional banks have retreated. (See “Key Statistics” below)

• boast a superior safety record without consolidated supervision.

• yield a consistently higher return on assets (ROA) and return on equity (ROE).

Additionally, the authors (who draw upon on a wide range of regulatory, financial, and historical sources, including two decades of FDIC and Compustat data) confirm in the study that industrial banks operate under the same prudential and compliance standards as other FDIC-insured institutions. They are jointly supervised by the FDIC and state regulators such as the Utah Department of Financial Institutions. Through Capital and Liquidity Maintenance Agreements (CALMA) and Parent Company Agreements (PCA), parent firms are required to provide financial support while remaining structurally separated from their banking subsidiaries.

While some policymakers argue for curtailing the unique regulatory structures of industrial banks, the researchers disagree, concluding that IBs already are among the most stable and well-regulated in U.S. finance: “We find little evidence that restrictions on commercial ownership would deliver stability benefits, but that they could increase compliance and innovation costs.”

In a correlated position paper, the Fintech Center contends that IBs are “a proven model that enhances competition, serves underserved markets, and maintains exceptional safety standards,” and that, “The question before policymakers isn’t whether to restrict this model, but how to learn from its success.”

“This research offers rigorous, data-driven evidence that industrial banks operate safely and effectively within the U.S. financial system,” said Ryan Christiansen, Executive Director of the University of Utah Fintech Research Center. “These findings validate what Utah’s banking community has long demonstrated: that industrial banks combine innovation with strong regulation, providing a model for how fintech and traditional finance can coexist responsibly.”

KEY STATISTICS FROM THE STUDY

  • Between 2000 and 2025, total U.S. banks declined from 8,300+ to 4,700+, but the top five banks’ assets increased from $2.4 trillion to $11.1 trillion.
  • Only 22 total IB failures from 1986-2025 (0.84% of all bank failures), compared with 2,610 other FDIC-insured institutions
  • No commercially-owned IB failure in the past century
  • IB failures represent just 0.17% of failed bank assets and 0.33% of FDIC losses
  • IBs maintain 17% capital ratios versus 11.2% for other banks