Saturday, April 20, 2024

Kennedy, Brown introduce Close the Shadow Banking Loophole Act to ensure fair banking system

by BIZ Magazine

WASHINGTON – Sen. John Kennedy (R-La.) joined Sen. Sherrod Brown (D-Ohio) in introducing the Close the Shadow Banking Loophole Act to close loopholes that would allow commercial companies to offer banking services without oversight from the Federal Reserve.  

“American consumers deserve confidence that our financial system is stable and accountable to protect consumers. Allowing companies to run their own big full-service banks without effective oversight puts individual Americans and the U.S. financial system at risk. I’m working to close the shadow banking loopholes that have left consumers vulnerable,” said Kennedy.

“Letting Big Tech and commercial companies operate banks without proper oversight will only open doors for predatory lending, invasions of consumer privacy, and broader financial instability. To protect consumers’ pocketbooks and ensure a strong banking system for Main Street, we need to ensure all banking institutions play by the same rules,” said Brown.

The Close the Shadow Banking Loophole Act would:

  • Require a company that owns or controls an industrial loan company (ILC) to be subject to the same consolidated supervision by the Federal Reserve as any other bank holding company under the Bank Holding Company Act.
  • Provide a carve-out for existing ILCs and allow the FDIC time to consider pending ILC applications.
  • Prohibit the federal banking agencies from approving a change in control of an existing ILC unless its acquirer is subject to consolidated supervision by the Federal Reserve.

ILCs were established as small loan companies in 1910 to lend money to industrial workers. Over time, ILC powers have expanded, and non-bank companies can offer financial services without the same regulations and oversight as traditional banks.

This loophole prevents federal regulators from examining the non-bank commercial holding company to determine the risks its non-bank operations pose to both the stability of the ILC and the financial system.

Non-bank commercial companies that seek to operate like banks through an ILC raise systemic financial stability, competition and consumer protection concerns. This bill would protect consumers and ensure the safety and soundness of the financial system by closing the ILC loophole. 

The full bill text is available here.

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