WASHINGTON — House Financial Services Committee Chairman Barney Frank said Thursday that existing industrial loan companies should be grandfathered and not forced to convert to bank holding companies, thus breaking with the Obama administration's regulatory reform plan.
The administration has said that all ILCs and other specialty charters should be forced to convert to bank holding companies five years after a regulatory reform bill is enacted. As a result, many existing ILC owners, including General Electric Co., would be forced to divest their ILCs because they are commercial companies.
Though Frank said he supports curbs on new ILC charters, he said he does not want to force commercial firms to give up their existing banks. "I continue to believe that we should not have a lot of new ones, but … we were never for divestiture," he told reporters.
The ILC charter is one of the few available to commercial companies and has been controversial since 2005, when Wal-Mart Stores Inc. applied for one in Utah. Community banks opposed the bid, pushing a bill by Frank and the late Rep. Paul Gillmor, R-Ohio, that would have blocked any company from owning an ILC if it derived at least 15% of its revenue from nonfinancial activity. The bill passed but stalled in the Senate. Wal-Mart withdrew its application.
The Treasury Department plan is tougher, forcing existing owners to divest their banks if they do not cease their commercial activities within five years. Financial owners could keep their ILCs if they became bank holding companies.
"These firms generally were able to evade effective, consolidated supervision and the long-standing federal policy of separating banking from commerce," Treasury said in a June "white paper."
But Frank clearly expressed concern about that approach and even indicated openness to some new ILCs, saying he still favors the 15% ceiling.
"It's not a good idea to extend" the ILCs' mandate, "but to break up GE at this point, I think, would be a mistake, and there's no great need for it," he said.
Frank also said a compromise with the Fed is possible that would impose stricter oversight of ILCs but let them continue to exist. The central bank has long been wary of large corporations' escaping its regulation by owning ILCs.
"We're going to talk to the Fed and others and try and find some alternative to that," he said.