Close the Shadow Banking Loophole Act

Key Points

• This bill, introduced by Congress, aims to close a loophole that allows non-financial companies—like retailers or tech firms—to own 'industrial banks' without following the same strict oversight as traditional banks. Currently, these companies can run banks without being supervised by the Federal Reserve, which critics call 'shadow banking.'
• The policy gives the Federal Deposit Insurance Corporation (FDIC) more power to inspect the parent companies of these banks. It ensures that the government can check the financial health of the entire company, not just the banking side, to prevent a business failure from crashing the bank and hurting depositors.
• Any company with a pending application to start an industrial bank will face much tougher rules. These include a mandatory 90-day public comment period, a public hearing, and a requirement that two-thirds of the FDIC board must vote 'yes' for approval. If an application isn't approved by September 30, 2026, it will be automatically denied.
• The bill also makes it harder for these banks to be sold. In most cases, if an industrial bank is sold, the new owner must be a traditional bank holding company that is already subject to standard federal banking rules. This prevents the loophole from being passed on to new non-financial owners.
• While existing industrial banks are allowed to keep operating, they will be subject to more frequent reports and examinations. The FDIC will tailor these rules based on how large and complex the company is, ensuring that the biggest companies face the most scrutiny.

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