FDIC Industrial Bank Rules
Legal Authority
- 12 U.S.C. § 1811 — Federal Deposit Insurance Act: authorizes the FDIC to impose conditions on deposit insurance approvals; the basis for requiring written agreements before approving industrial bank applications from Covered Companies
- 12 U.S.C. § 1816 — FDIC insurance approval factors: requires FDIC to consider financial history, capital adequacy, management competence, and risk to the insurance fund when evaluating insurance applications
- 12 U.S.C. § 1817 — FDIC insurance application procedures: governs the process for applying for and obtaining federal deposit insurance
- 12 CFR Part 354 — FDIC regulations establishing conditions for industrial bank subsidiaries owned by Covered Companies; requires written agreements imposing capital, liquidity, governance, and activity commitments on parent companies that are not subject to Bank Holding Company Act oversight
Key Mechanics
Industrial banks (also called industrial loan companies, or ILCs) hold federal deposit insurance but are exempt from the Bank Holding Company Act — so their parent companies are not regulated by the Federal Reserve as bank holding companies. This creates a regulatory gap: a commercial company can own an FDIC-insured deposit-taking institution without subjecting itself to consolidated Fed supervision. Part 354 addresses this gap by requiring any "Covered Company" (a company controlling an industrial bank without being a BHC) to enter a written agreement with the FDIC before acquiring or establishing an industrial bank. The written agreement substitutes for BHC Act holding company oversight: it commits the parent to maintaining the bank's capital and liquidity, accepting FDIC examination of the parent itself, pre-approving material business changes, maintaining a ring-fence between the bank and affiliates, and limiting dividend extraction from the bank.
Current Rule (2026)
| Parameter | Value |
|---|---|
| Citation | 12 CFR Part 354 |
| Issuing agency | FDIC |
| Statutory authority | 12 U.S.C. § 1811 (Federal Deposit Insurance Act) |
| Last major amendment | 2020 (85 FR 17771 — final rule requiring written agreements for Covered Company ownership) |
What This Rule Does
Industrial banks (also called industrial loan companies, or ILCs) are a special class of FDIC-insured depository institution that can accept federally insured deposits but are exempt from the Bank Holding Company Act — meaning their parent companies are not required to be regulated as bank holding companies. This exemption allows commercial firms (retailers, fintech companies, manufacturers) to own deposit-taking institutions without subjecting the entire corporate family to Fed supervision.
12 CFR Part 354 establishes the FDIC's conditions for approving and supervising industrial bank subsidiaries owned by "Covered Companies" — entities that are not themselves subject to consolidated federal banking regulation. The rule fills the supervisory gap created by the BHC Act exemption: if the parent is not regulated by the Fed, the FDIC uses written agreements, capital commitments, and activity restrictions to impose oversight conditions directly on the industrial bank and its non-bank parent.
Key Provisions
- § 354.1 — Scope: Part 354 applies to any industrial bank seeking to become a subsidiary of a Covered Company, and to any Covered Company seeking to acquire or control an industrial bank; supplements (but does not replace) the standard filing procedures at 12 CFR Part 303
- § 354.2 — Definitions: "Industrial bank" means an insured state bank or insured uninsured institution whose parent is not required to be a bank holding company under the BHC Act; "Covered Company" means any company that controls an industrial bank but is not itself a bank holding company, savings and loan holding company, or company required to be treated as one; "Control" means the power to direct the management or policies of the industrial bank
- § 354.3 — Written agreement required: no industrial bank may become a subsidiary of a Covered Company unless the Covered Company enters into a written agreement with both the FDIC and the industrial bank; the agreement is a condition precedent — no acquisition or de novo charter can be finalized without it
- § 354.4 — Required commitments: the written agreement must include commitments by the Covered Company to: (1) maintain the industrial bank's capital and liquidity at required levels; (2) comply with the FDIC's supervisory directives; (3) submit to FDIC examination of the Covered Company itself (not just the bank); (4) provide periodic financial reports; (5) ensure any material change to the bank's business plan is pre-approved; (6) maintain a ring-fence — keep the bank's assets separate from affiliate obligations; (7) limit dividend extraction from the bank; and (8) maintain a succession plan for orderly management transition
- § 354.5 — Activity restrictions: without FDIC prior written approval, an industrial bank subsidiary of a Covered Company may not make material acquisitions, enter into significant new business lines, merge with affiliates, change ownership, or make capital distributions above specified thresholds — a prior-approval regime that substitutes for BHC Act holding company oversight
- § 354.6 — Reservation of authority: Part 354 does not limit FDIC's supervisory or enforcement authority under any other statute or regulation; the FDIC retains authority to impose additional conditions, issue cease-and-desist orders, or revoke FDIC insurance regardless of written agreement terms
How It Affects You
If you are a fintech or retail company: The industrial bank charter is one of the few pathways to deposit-taking without full bank holding company regulation. Companies like Square (now Block, which obtained an ILC charter in 2020) use industrial banks to offer FDIC-insured deposits and payments infrastructure. Part 354's written agreement requirement means you will need to accept direct FDIC oversight of your parent company's finances and governance as a condition of charter approval — even if you avoid Fed supervision.
If you are a consumer: Industrial banks are FDIC-insured to the same limits as conventional banks ($250,000 per depositor, per ownership category). The regulatory gap addressed by Part 354 is about parent company oversight, not deposit safety — your deposits at an ILC are protected the same way they would be at any other FDIC-insured bank.
If you are a bank or banking trade group: The BHC Act exemption for industrial banks is a longstanding point of contention. Commercial firms owning deposit-taking institutions without Fed oversight is viewed by traditional banks as an unfair advantage and a systemic risk. Part 354's written agreement regime is the FDIC's effort to close this gap without congressional action.
Statutory Authority
This rule implements:
- 12 U.S.C. § 1811 — Federal Deposit Insurance Act, which authorizes the FDIC to impose conditions on insurance approvals
- 12 U.S.C. § 1816 — FDIC deposit insurance approval factors, including financial history, capital adequacy, and risk to the insurance fund
- 12 U.S.C. § 1817 — FDIC deposit insurance application procedures
Recent Rulemakings
The FDIC finalized Part 354 in March 2020 (85 FR 17771), ending a de facto moratorium on industrial bank applications that had been in effect since 2006. The 2020 rule imposed the written agreement requirement as a condition for any new Covered Company ownership of an industrial bank — addressing concerns that had blocked ILC applications from Walmart, Target, and other commercial firms in the prior period. Square Financial Services received FDIC insurance in 2020 under the new framework and is the most prominent example of a fintech-owned ILC operating under Part 354 written agreement requirements.