The ILC and the Reconstruction of U.S. Banking

Abstract

Since the Great Depression, bank regulators in the United States have endeavored to separate banking institutions from commercial firms, believing such separation was necessary for stability and growth. The recent collapse of our financial system indicates that this premise may be false, as Industrial Loan Companies ("ILCs") – the only institutions where commercial firms are permitted to own banks – remain sound. ILCs have persisted throughout U.S. banking history through exceptions and omissions in banking legislation, but the strength and resilience they have exhibited in the current financial collapse are worth investigating and even emulating. This article examines recent controversy surrounding the ILC charter sparked by Wal-Mart''s application to own a bank, and revisits the arguments against the ILC charter in the wake of the current banking collapse. The article concludes that certain banking regulations created within a financial system that is unrecognizable today should be discarded and argues that, based on the past success of ILC banks, integration of commerce and banking would lead to a more stable and diversified financial system.

Keywords: Banking Policy, Finance, Regulation, Administrative Law