Not every company that wants a bank charter ought to get one

• Key insight: The industrial bank charter is attracting increased interest because of the combination of innovation and safety it offers. However, charters should only go to companies that can meet a rigorous set of requirements.
• Supporting information: The FDIC's recent approvals of industrial banks operated by Ford, General Motors, Stellantis, and Edward Jones reflect an interest in serving customers through specialized banking platforms while upholding the protections of operating fully within the insured banking system.
• Forward look: The answer to greater competition in financial services is to insist that every applicant meet high standards.
  

Financial innovation is transforming how Americans borrow, save, invest and make payments. Consumers and small businesses stand to benefit from greater convenience, competition and choice. New entrants in the payments and banking space help innovation and competition thrive, benefiting both consumers and the broader economy.

For decades, industrial banks have offered a sweet spot on the continuum between innovation and safety and soundness. Industrial banks are state-chartered, FDIC-insured banks that combine the protections of insured banking with the flexibility to support specialized business models to serve customers often overlooked by others. Whether financing automobiles, serving investment clients, or supporting specialized payment systems, industrial banks enable firms to bring industry-specific expertise into banking while remaining fully inside the regulated, insured banking system.

The number of industrial banks is growing as the model attracts greater interest. The FDIC's recent approvals of industrial banks operated by Ford, General Motors, Stellantis, and Edward Jones reflect this interest in serving customers through specialized banking platforms while upholding the protections of operating fully within the insured banking system.

Industrial bank parent companies are held to standards for capital, liquidity, and governance that are as high as or higher than traditional bank holding companies. As a condition of approval, the FDIC requires industrial bank parent companies to commit resources and capital to support the bank and protect the Deposit Insurance Fund. As a result, the sector has maintained an exceptional safety record and some of the strongest capitalization levels in banking.

Not every company considering an industrial bank charter should receive one. The requirements are tough and may not be feasible for some expressing interest. Only applicants that can meet the requirements should be approved. The answer to greater competition in financial services is to insist that every applicant meet these high standards.

With those high standards in mind, the National Association of Industrial Bankers has developed a set of principles to evaluate prospective industrial bank applicants. The FDIC and the state chartering authority, of course, have the last word. But if an applicant cannot meet these principles, we know it is unlikely to be approved to operate an industrial bank.

Read more:

• Fiserv, FIS weigh options for underperforming business units
• CU vendor TruStage faces 14 suits over monthslong outage
• Second CFPB union member placed on administrative leave
• Fifth Third latest target in USAA's patent war with banks

First, industrial banks must meet the same rigorous standards for capital, liquidity and governance as all insured institutions. They must operate independently, with strong safeguards to protect depositors, customers and the financial system, consistent with the level of trust reflected in the strongest safety records in American banking.

Second, industrial banks must be backed by established, well-capitalized companies that bring solid financial resources, management and operational expertise, and a demonstrated commitment to sound operations. These parent companies are required to serve as a source of financial strength — ensuring stability, accountability and long-term success. Businesses that don't have the capital, income and management expertise have no business asking for a bank charter.

Third, the success of industrial banks is driven by qualified directors and officers with the experience and judgment necessary to operate in a highly regulated environment. Strong leadership reinforces safety, soundness and the consistent delivery of high-quality financial services.

Fourth, industrial banks must provide practical, responsible financial products that meet the needs of consumers, small businesses and underserved markets. By combining disciplined risk management with innovation, they expand access to credit and payments while supporting economic growth in communities across the country.

Finally, industrial banks must be built for durability — not short-term speculation. With a focus on sustainable business models and contingency planning, they contribute to a more competitive, diverse and resilient financial system, advancing the goals Congress intended when it preserved the industrial bank charter.

Many options exist to compete in the financial services marketplace. As prospective applicants consider which regulatory model is the best fit for their business, they should recognize the high bar for industrial bank ownership and operation that has been set.

The track record shows that industrial banks have successfully combined innovation with trust. American consumers ultimately benefit most from this increased competition and choice within such a strong and proven regulatory framework.