Industrial Bank Holding Company Act of 2007

Floor Speech

INDUSTRIAL BANK HOLDING COMPANY ACT OF 2007 -- (House of Representatives - May 21, 2007)

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Mr. BACHUS. Mr. Speaker, I rise in support of this legislation. I really believe that we do need enhanced regulatory supervisions over the ILCs, and this legislation does that. The Federal Reserve and other Federal regulators have urged us to enhance the regulation, and that is what this does.

It also does two things; and every year that we wait to pass this, it becomes a bigger problem. But we grandfather the existing ILCs. If we had done this bill 2 or 3 years ago, we would have had much fewer of these and we wouldn't have the problems that we have today, talking about, well, this commercial firm has one, this commercial doesn't.

But it was through no fault of the chairman of the full committee. Mr. Frank, when he was ranking member, pushed this very hard as a solution to this problem, as did the subcommittee chairman, Mr. Gillmor, and I want to commend both of them for their hard work over the past several years.

I also want to particularly commend the chairman of the committee, Mr. Frank. He has really made this a collaborative effort. It has been a bipartisan effort; and I hope the bill, because of that, is a better bill.

I think we are going to have a good vote here. I do think, because it is a bipartisan effort and it is a compromise, that we will have, hopefully, better success in not only passing this bill out of the House but seeing it ultimately enacted into law.

These ILCs, and they are ILCs, industrial loan companies, now they are industrial bank holding. This is the Industrial Bank Holding Company Act, because they really have evolved into bank holding companies; and what these started out primarily as is just a small loan company where industrial employees were able to borrow money. It is very similar to a credit union. The only difference is they didn't join as members. They just borrowed money, because they really didn't have access to a commercial bank at that time, and that was the whole reason for these.

As the chairman said and as the subcommittee Chair said, all of these exist in six States. The vast majority of the assets of ILCs are chartered in Utah; California and Nevada being the other States that have significant numbers of them.

As the subcommittee Chair has said, these things have grown 3,500 percent just since we started focusing on this.

It is really growing out of control. And what it does, we made a policy decision several years ago in this Congress that we would not allow commercial firms to operate banks, and this will really enforce that policy decision that we made.

As they have grown in size and nature and complexity, several not only regulatory but policy issues have been presented, not only to the Congress, but to the regulators. One of the concerns, as the subcommittee Chair and the chairman have both referred to, is a concern over mixing banking and commerce, which is really not what the American financial system is all about. Japan and other systems have allowed a mixing of commerce and banking, and we are evolving, but they have run into problems. We would like to avoid those problems.

An exemption in the current law permits any type of company, including a commercial firm, to acquire an ILC in six States. We want to close that loophole. We want to stop that.

Let me conclude by saying I do have one concern, and I am going to have a colloquy with the chairman in a moment. But I am concerned that this bill, and it is not intended and I know the chairman has said previously we hope to address this in the Senate or in conference, but I am concerned that it may discriminate against our domestic automobile manufacturing dealers.

The reason I say that is most automobile companies today, including the large foreign automobile manufacturers, have set up ILCs. General Motors has set up an ILC. But Chrysler and Ford do not have ILCs. And, as drafted today, the bill would allow the foreign automobile manufacturers as well as GM, and I am going to clarify that in the colloquy, to continue their ILCs. However, Ford and Chrysler, or DaimlerChrysler, which may end up to be Chrysler, does not have an ILC.

I am concerned not only that that is a disadvantage to the automobile companies but to the Nation's dealers that sell Ford and Chrysler products. People are going into this every day, they are thinking ILCs give them a competitive advantage, and I don't want to see Chrysler and Ford shut out of having an opportunity to have this advantage.

As the process moves forward, I would like to work with both the chairman and the ranking member to ensure the legislation does not create an unlevel playing field that harms our domestic automobile industry.

At this time, I would like to pose a question to the chairman.

Under the committee reported bill, Chairman Frank, a number of firms that already controlled industrial banks before January 29, 2007, are grandfathered from the new prohibition on control of industrial banks by commercial firms. The grandfathered firms that control a particular industrial bank are subject to a disposition agreement with the FDIC that is affected by the outcome of this legislation. Under the agreement, the FDIC has the power to waive the disposition requirement, depending on the state of the law, in 2008.

My question is whether it is the committee's intention that the decision to grandfather these firms supercedes this particular prior agreement and makes a waiver unnecessary, provided the grandfathered firms abide by all of the limitations imposed on grandfathered firms and operate under the supervision of the appropriate Federal supervisory agency.

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Mr. BACHUS. Chairman, your response does indeed clarify the situation, and I thank you for doing that. And I again thank you and the gentleman from Ohio (Mr. Gillmor) for their work on this important bill.

I would also like to join with you. You have both praised Chairman Bair, and I think she has done an exceptional job of trying to sort through this difficult situation. And I would also like to commend the OTS and the Federal Reserve for working a compromise on some of the supervisory questions that were presented by this bill. Late last week, they came to an agreement between themselves.

Mr. FRANK of Massachusetts. If the gentleman would yield. With some encouragement.

Mr. BACHUS. Yes, and I appreciate that encouragement; and I know they do, too.

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