Lafayette Reporter

WASHINGTON – Senators John Kennedy (R-La.) and Sherrod Brown (D-Ohio) have joined forces to introduce the Close the Shadow Banking Loophole Act, aimed at closing loopholes that would allow commercial companies to offer banking services without oversight from the Federal Reserve. The act seeks to ensure a stable and accountable financial system that protects American consumers.

According to Kennedy, "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."

Brown also emphasizes the need for proper oversight, stating, "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."

The Close the Shadow Banking Loophole Act includes several key provisions to address the issue. It 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. The act also provides a carve-out for existing ILCs and allows the Federal Deposit Insurance Corporation (FDIC) time to consider pending ILC applications. Additionally, it prohibits federal banking agencies from approving a change in control of an existing ILC unless the acquirer is subject to consolidated supervision by the Federal Reserve.

Industrial loan companies (ILCs) were initially established as small loan companies in 1910 to lend money to industrial workers. However, over time, the powers of ILCs 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 non-bank commercial holding companies to determine the risks they pose to the stability of the ILC and the overall financial system.

Non-bank commercial companies that seek to operate like banks through an ILC raise concerns regarding systemic financial stability, competition, and consumer protection. The Close the Shadow Banking Loophole Act aims to protect consumers and ensure the safety and soundness of the financial system by closing the ILC loophole.

The full text of the bill can be accessed here.

Click this link to access more information: https://www.kennedy.senate.gov/public/press-releases?ID=088A2C10-E90D-4467-BD6E-BE0E593F0D14