Should non-financial firms be allowed to own banks? That question was left unanswered by the Dodd-Frank Wall Street Reform and Consumer Protection Act - and today the future of one of the most stable and profitable segments of the banking industry remains in doubt.
Dodd-Frank extended a moratorium on new charters for commercially-owned industrial loan companies (ILCs) that had initially been put in place for all ILCs in 2006. It also directed the Government Accountability Office (GAO) to study whether industrial banks pose any special threat to the stability of the financial system.
A new report from the Milken Institute, "Industrial Loan Companies: Supporting America's Financial System," examines the track record of ILCs - including their strong performance during the recent financial crisis - and concludes that they are generally safe, sound and well-regulated.
"Overall, ILCs have operated successfully, serving their customers during the past 20 years, and as a group, they came through the recent crisis in better shape than most other financial institutions," said James R. Barth, senior finance fellow at the Milken Institute, the Lowder Eminent Scholar in Finance at Auburn University, and lead author of the report. "Our report addresses a major financial issue that truly can change the competitive position of the U.S. in the global financial system."