An industrial bank is a state-chartered, FDIC-insured financial institution that operates much like a traditional bank but can be owned by a commercial company with no other ties to finance. It is sometimes called an industrial loan company, or ILC. The structure exists because federal law specifically excludes these institutions from the definition of “bank” under the Bank Holding Company Act, which frees their parent companies from Federal Reserve oversight. About two dozen industrial banks currently operate in the United States, collectively holding tens of billions in assets and handling things like auto financing, consumer lending, health savings accounts, and payment processing.
What an Industrial Bank Does
From a customer’s perspective, an industrial bank looks almost identical to any other FDIC-insured bank. It takes deposits. It makes loans. Accounts carry the same federal deposit insurance protection as a traditional bank: up to $250,000 per depositor, per bank, per ownership category.1FDIC. Understanding Deposit Insurance
One quiet difference shows up on the deposit side. Most industrial banks offer money market accounts and certificates of deposit rather than traditional checking accounts. That isn’t a product preference; it’s tied directly to the legal exemption that makes the whole structure possible, which is explained below. Funding typically comes from a mix of retail deposits, commercial deposits, and brokered deposits sourced nationally.
The lending side is where industrial banks tend to specialize. Rather than acting as general-purpose community banks, most focus on a niche aligned with their parent company’s business. An automaker’s industrial bank handles vehicle financing. A health services company’s industrial bank manages health savings accounts. A fintech’s industrial bank originates consumer loans or processes payments for the parent’s platform. Regardless of the niche, these institutions must comply with the same federal consumer protection rules as any other bank, including the Truth in Lending Act and the Community Reinvestment Act.2Federal Financial Institutions Examination Council. A Guide to CRA Data Collection and Reporting
Why Commercial Companies Can Own One
The feature that sets industrial banks apart from every other type of FDIC-insured institution is a specific carve-out in the Bank Holding Company Act of 1956. Under normal rules, any company that controls a “bank” becomes a bank holding company, falls under Federal Reserve supervision, and is restricted to activities closely related to banking. Industrial banks sit outside that framework because Congress excluded them from the statutory definition of “bank.”3Office of the Law Revision Counsel. 12 USC 1841 – Definitions
The exclusion traces back to the Competitive Equality Banking Act of 1987. Before that law, some institutions avoided the “bank” label by either not accepting demand deposits or not making commercial loans. Congress closed that loophole by redefining “bank” to cover any FDIC-insured institution, and at the same time wrote in explicit exemptions for certain institution types, including industrial banks, credit card banks, and limited-purpose trust companies.4Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies
To qualify for the exemption, an industrial bank must be chartered in a state that had enacted or was considering legislation requiring FDIC insurance as of March 5, 1987, and must satisfy at least one of three conditions: it does not accept demand deposits (like checking accounts), it has total assets below $100 million, or it was not acquired by a new owner after August 10, 1987.3Office of the Law Revision Counsel. 12 USC 1841 – Definitions Most large modern industrial banks satisfy the first condition by not offering checking accounts. That is why you rarely see one of these institutions advertising a checking product: doing so could collapse the exemption and pull the parent company into the full bank holding company regime.
Who Owns Industrial Banks
The practical consequence of the exemption is that companies whose primary business has nothing to do with banking can own a federally insured depository. The current list of parent companies shows the range. Toyota and BMW each run industrial banks to finance vehicle purchases. Harley-Davidson operates Eaglemark Savings Bank for motorcycle loans. Optum, a health services company, runs Optum Bank for health savings accounts. UBS, Sallie Mae, and Merrick Bank operate industrial banks tied to their financial services businesses.
The fintech wave has added a newer layer. Square (now Block) received FDIC approval for its industrial bank charter in March 2020 and launched Square Financial Services to handle lending and deposit products for small businesses using its payment platform.5Federal Deposit Insurance Corporation. FDIC Approves the Deposit Insurance Application for Square Financial Services, Inc. Nelnet Bank, affiliated with the student loan servicer, operates as an industrial bank. WebBank, chartered in Utah, partners with dozens of fintech lenders and platforms to originate loans nationally. For a technology company that wants to hold deposits or originate loans directly rather than route everything through a partner bank, the industrial bank charter has become the preferred entry point.
Where Industrial Banks Are Chartered
Only five states currently authorize industrial bank charters: California, Hawaii, Minnesota, Nevada, and Utah.6Congress.gov. Industrial Loan Companies (ILCs) – Background and Policy Issues Utah dominates, with roughly 15 active institutions. Its banking department has built deep institutional expertise around the charter type, and its regulatory framework is tailored to these institutions, which makes it the default destination for companies seeking one.
Getting chartered takes two separate approvals. The applicant files with the chosen state’s banking department, which evaluates management, capital, and business plan. Because the institution will accept federally insured deposits, the applicant must also apply to the FDIC for deposit insurance. The FDIC reviews financial resources, the business plan, risk management systems, and the fitness of the parent company. Both approvals are required before the bank can open.
How Industrial Banks Are Regulated
Industrial banks operate under a dual regulatory framework. The chartering state’s banking department conducts examinations, enforces state banking law, and monitors capital on an ongoing basis, the same way it would supervise any state-chartered bank. The FDIC’s role is mandatory because the institution takes insured deposits. The FDIC runs its own examinations, often jointly with the state regulator, and has enforcement power if the institution threatens the Deposit Insurance Fund.7Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies
The gap in this framework sits one level up. When a traditional bank holding company owns a commercial bank, the Federal Reserve supervises the entire corporate family on a consolidated basis, watching whether problems at the parent could reach the bank. That consolidated oversight does not apply to industrial bank parent companies. The FDIC’s authority runs to the bank itself, not to the parent’s broader commercial operations.
The FDIC partially filled that gap in December 2020 with a rule aimed at parent companies that are not already supervised by the Federal Reserve.7Federal Deposit Insurance Corporation. Final Rule – Parent Companies of Industrial Banks and Industrial Loan Companies It applies to new deposit insurance approvals, mergers, and changes in control, and requires the parent to enter a written agreement with the FDIC. Under that agreement, the parent must maintain the bank’s capital and liquidity at adequate levels, consent to FDIC examination of the parent and its subsidiaries, submit annual reports on its financial condition and risk management, keep its representation on the bank’s board below 50 percent, and remit tax assets generated by the bank promptly to the bank.8eCFR. 12 CFR 354.4 – Required Commitments and Provisions of Written Agreement The bank itself must undergo an annual independent audit. Whether these conditions substitute adequately for full consolidated oversight is the open question in the ongoing regulatory debate.
Why the Structure Is Controversial
The United States has maintained a general policy of separating banking from commercial activity since at least the Banking Act of 1933. The concern is straightforward: when the same company runs a commercial enterprise and controls a federally insured bank, it can use insured deposits to fund its own ventures, gain funding advantages over commercial rivals, and put the deposit insurance system at risk if the non-bank side fails. The Bank Holding Company Act formalized that separation by limiting bank owners to financially related activities.
The industrial bank exemption cuts through that wall, and critics have been pointing it out for decades. Traditional banks and the Federal Reserve argue that the absence of consolidated oversight over commercial parents creates a real risk, because stress in the parent’s non-banking operations could drain the insured bank before the FDIC sees it coming. Proponents argue the opposite case: industrial banks have a strong safety record relative to traditional banks, the 2020 rule gives the FDIC direct access to parent companies, and Congress has repeatedly declined to close the exemption since creating it. They also argue that ownership by non-traditional companies expands credit access and brings new entrants into markets where conventional banks have shown little interest.
Where Things Stand Now
In July 2025, the FDIC issued a formal Request for Information on industrial banks and their parent companies, asking for public comment on how the agency evaluates applications and filings involving these institutions.9Federal Deposit Insurance Corporation. Request for Information on Industrial Banks and Industrial Loan Companies The review signals that the FDIC is actively reconsidering its approach rather than simply processing applications under existing guidelines. Fintech firms and automakers have continued to push for new charters, and the structure remains the most accessible path to a banking license for a company that does not want its parent to become a bank holding company. Any legislative move to require Federal Reserve consolidated supervision for all industrial bank parents would effectively close the exemption; a more permissive approach could open the door to a wider set of commercial owners holding FDIC-insured charters.