Why Five Industrial Bank Bids Are the New Competitive Threat You Need to Watch
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Simple Subscribe
Subscribe Now!
Executive Summary
- Interest in industrial bank charters — and new bank charters in general — is picking up. By yearend, as many as 20 applications could be in play, an expert suggests.
- Industrial banks represent a way for nonbanks, from fintechs to automakers, to access federal deposit insurance without Federal Reserve supervision. This crosses the classical “banking and commerce” divide.
- Some potential players would gain more competitive ability versus traditional banks. Others like fintechs that might have gone the banking as a service route — giving bank partners some business — will become more direct competitors.
A “surge” is a relative thing.
In the years before the Great Financial Crisis, state and federal chartering authorities were approving large numbers of new charters annually — averaging 144. In recent years, new bank formations have slowed to a trickle. There are now applications pending at the FDIC for deposit insurance for five proposed industrial banks — four by auto companies and one by OneMain Financial, a finance company that serves nonprime borrowers.
The latest application came June 20 from Nissan Motor Acceptance Co. — NMAC — an arm of the Japanese automaker Nissan Motor Co., joining bids by Ford, Stellantis and General Motors. The proposed Nissan Bank U.S. would provide expanded commercial financing options for both Nissan dealers as well as other auto dealer. NMAC would continue to handle the manufacturer’s consumer auto financing activities.
Ordinarily, five applications wouldn’t seem like a surge. But the population of existing industrial banks is small. At yearend 2024 there were 15 in Utah, three in Nevada and five in other states, according to a study on the state of industrial banks by the Utah Center for Financial Services at the University of Utah. (Industrial banks are also called industrial loan companies, or ILCs.)
So, if all five applications receive insurance approval and obtain charters, that would mark a rise in the tally of about 21%.
“So, when you consider how rare new bank formation has been on top of how very rare new ILC formation has been, I do think calling it a ‘surge’ is fair,” says Michele Alt, a former regulator and now partner at Klaros Group. Alt has been working with Nissan on its application and has worked with other nonbanks and fintechs on charters.
In 2025, SmartBiz Bank resulted from a fintech’s acquisition of a community bank and its charter. Alt worked with SmartBiz on that. While not an industrial bank, it is seen as an harbinger of loosening federal attitudes on nonbank entrance into banking in general.
In general, the Trump administration has made it clear it is open to more charters and that applications for charters and mergers and acquisitions will proceed more quickly than during the Biden administration years.
Much attention has centered on the potential of the industrial bank charter, which appeals to nonbank companies particularly because they can own one and avoid coming under oversight and regulation by the Federal Reserve as a bank holding company. These state-chartered entities exist in a handful of states but depend on federal deposit insurance, which is granted, or not, by FDIC. During the Biden years, especially, policy was clearly against permitting more of them to open. The banking lobby has been fighting encroachment by industrial banks for years.
How Much Warmer, Actually, is the Temperature for Charters and Insurance?
Alt cautions the enthusiastic from taking the wrong message from what Trump regulators have said so far.
“I keep telling folks, ‘The gates are open again, but the path you’ll take is not easier’,” Alt explains. What she’s been hearing is that agencies plan to hew more closely to stated timeframes for processing applications — a significant change by itself.
That shift will lower the barrier, in one way, for new players. Alt explains that in recent years an expectation at the beginning of the chartering process was that the applicant entity would have a management team in place already — even if approval was, potentially, as much as three years away.
During that period, the executives are on the payroll, which means that backers must account for those salaries, and yet no revenue, while an application sits in a regulatory inbox.
“If your application is in the hopper for three years, it’s really expensive to pay for a full C-suite that isn’t working,” says Alt. The regulators have typically expected much of the proposed bank to be “built,” even in terms of establishing policies and obtaining headquarters space, while the application is pending.
“It’s like being a builder, and going to the zoning commission, and saying, ‘Here are the plans for the building,’ and the zoning commission says, ‘Okay, let’s see it built, and then we’ll decide if you can build it’.”
What Alt is also hearing: Federally, there’s renewed interest in moving to a two-stage process that may address that expensive process. First, does the business plan pass muster? And do the organizers have the qualifications to get things started? Assuming the answer is affirmative to both, then conditional approval of the application will come, and then the building of the proposed bank will begin.
“In that sense things will be easier,” says Alt. “But it will still be a rigorous path, but hopefully what will be easier is lowering the upfront investment necessary to get an approval, which is only fair.”
Read more:
Looking Ahead as the Chartering Thaw Continues
Presently much of the activity that’s been seen in both the industrial bank and traditional bank chartering (and deposit insurance coverage) reflects deals that were in the works prior to the election, notes Alt. Fresh activity driven by the thawing regulatory environment is coming. Alt says it will be led by refilings of proposals withdrawn earlier. Gradually completely new proposals, already being discussed with Alt’s firm and others, will begin to emerge.
It’s a time-consuming process, not like ordering something on Amazon.
“It takes quite a while to prepare an application. It’s a big megillah,” says Alt. “One of the best visuals that I was ever given came from a former regulator back before e-filing, when you would deliver paper copies of applications. The regulator told me that when I was ready to drop off the application, to think in terms of copy paper boxes, not binder. The complete application is something you load an SUV with.”
How much activity is coming? Alt sees commitment picking up as the year goes on, and says her best guess, based on what she hears, is that by the end of the year there will be 15-20 applications pending for both industrial banks and regular charters. Many will be from fintechs and other nonbanks.
Alt points out that while four auto companies are in the regulatory process for industrial bank charters, that’s a limited universe. She believes fintechs will be candidates soon, as more clarity emerges.
“But remember it is a rare charter type and politically controversial,” says Alt. Some in Washington don’t like the fact that these charters allow nonbanks to own banks and yet be out from under the Fed.
As more fintechs investigate bank charters of all kinds — industrial banks, full-service charters, limited-purpose charters — Alt says the concept of “community,” in terms of serving the needs and convenience of a community in exchange for a charter, may evolve.
“In fairness, the regulators have absolutely been going to school on innovation and figuring out how to supervise innovative models,” says Alt. “They’ve really done a lot of work there.”
From the viewpoint of incumbent banks and credit unions, such new players getting charters represents a challenge, especially in the ability to raise insured deposits. Alt says 95% of applicants see the deposit powers as a key feature.
But that said, while traditional players tend to bristle at nonbank competitors, even a charter for a traditional bank represents a competitive threat — one more player going after business that already “belongs” to someone else.
Read more: Open Banking Isn’t Dead. The Battle Over Regulation 1033 Now Pits Banks vs. Fintechs
