PACB Letter to Federal Deposit Insurance Corporation

November 6, 2006

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

RE: Notice and Request for Comment: Industrial Loan Companies and Industrial Banks

Dear Mr. Feldman:

The Pennsylvania Association of Community Bankers (PACB), representing 175 community banks, commends the FDIC on its decision to impose a six-month moratorium on deposit insurance applications for new industrial loan companies and on changes of control of ILCs. This decision recognizes that pending applications are not routine applications. Granting them would have a far-reaching impact on the fundamental structure and safety and soundness of our financial and economic system and on local communities, small businesses and consumers.

PACB also commends the FDIC, in light of the numerous significant ILC applications pending before the agency, for issuing the Notice in order to consider the regulatory, supervisory and policy issues surrounding ILCs. PACB is pleased to respond to the FDIC’s request for comment. Previously, we have written to you on April 7, 2006 and on June 5, 2006 to oppose the individual applications of Wal-Mart & Home Depot to become ILCs.

The questions raised in the request highlight the key issues raised by the expansion of the ILC industry. The responses you receive will help the FDIC, as well as the Congress, decide the appropriate policy for the ownership and regulation of ILCs and their holding companies. We believe it is crucial that federal policy makers reaffirm our nation’s long-standing policy of separating banking and commerce and ensure that any company that owns an insured depository institution be subject to consolidated supervision.

While the FDIC could take steps to enhance its supervision of the ILC industry, Congress will have to step in to achieve these results as the FDIC’s regulatory authority vis-a-vis ILCs and their parent companies is limited. Therefore, we strongly urge the FDIC extend its moratorium beyond January 31, 2007, so that the new Congress will have the opportunity to review the agencies’ findings on this matter and to act on the issue.

Congress has already exhibited substantial interest in the ILC issue as evidenced by a hearing held earlier this year in the House Financial Services Committee, and legislation co-sponsored by nearly 60 members of Congress that would prohibit commercial firm ownership of ILCs and enhance federal supervision of ILC parent companies (H.R. 5746, Industrial Bank Holding Company Act of 2006 and H.R. 3882, Financial Safety and Equity Act of 2005).

In addition, we urge the FDIC to hold a public hearing to gather additional public input on the ILC supervision and ownership issues. Just as the FDIC’s public hearings on the Wal-Mart ILC application in April 2006 provided a mechanism for more robust public input, so would a public hearing on the overall issues surrounding ILCs aid careful deliberation by the FDIC and the Congress on the matter.

Finally, we urge the FDIC to support legislation that will prohibit commercial ownership of ILCs and provide for comprehensive, consolidated regulation of ILCs and their parent companies. An obscure exception or loophole in the law should not become a vehicle through which the financial and economic landscape of our nation is rearranged, or to create a parallel banking system with different rules and regulations than those that govern the “regular” banking system.

Thank you for your consideration of our comments.

Sincerely,

Frank A. Pinto
President/CEO

Cc: Members of the Pennsylvania Congressional Delegation
      All PACB Members