On February 10, 2020, the Federal Deposit Insurance Corporation (FDIC) issued supplementary guidance intended to clarify existing procedures for deposit insurance applications for non-traditional banks.
The FDIC released three updated documents. The first is a supplement to the FDIC’s Deposit Insurance Application Procedures Manual. It specifically addresses applications for “non-bank and other non-community bank applications whose business plans present non-traditional elements.” Among other things, it provides updated definitions and guidance on the application process for these non-traditional banks.
The FDIC explained that the supplement is “intended to increase transparency to the industry and other interested parties, clarify expectations for potential non-bank/non-community bank applicants, and promote efficiency in the FDI application process.” The supplement defines a non-bank as an institution “that is a ‘bank’ for purposes of the FDI Act, but is not a ‘bank’ for purposes of the Bank Holding Company Act.” This includes, for example, industrial loan companies, trust and credit card banks, and municipal deposit banks. A non-community bank, on the other hand, is an institution that may “(1) focus on products, services, activities, market segments, funding, or delivery channels other than local lending and deposit taking; (2) pursue a broad geographic footprint (such as operating nationwide from a limited number of offices); (3) pursue a monoline, limited, or specialty business model; or (4) operate within an organizational structure that involves significant affiliate or other third-party relationships (other than common relationships such as those providing audit, human resources, or core information technology processing services).” An application from a “non-bank” or a “non-community bank” may require review and decision in Washington. So, for example, an applicant for deposit insurance that is an industrial loan company or one whose business model involves an ongoing relationship with a third-party fintech company likely will need to engage with FDIC staff in Washington rather than staff at the regional level.
The FDIC also issued an update to the procedures manual for officials who review federal deposit insurance applications. The update focuses on all aspects of FDIC applications, including “pre-filing activities, the application process, and pre-opening efforts.” The manual seeks to establish the FDIC’s commitment to working with these non-traditional applicants, specifically recognizing that “[a]pplications with unique characteristics are not inherently problematic, but may require more in-depth analysis of certain features of the proposal.”
Finally, the FDIC also made revisions to its handbook for organizers of de novo institutions. The revised handbook explains that the FDIC will now permit de novo banks to give prior notice before making material changes to, or major deviations from, their business plans over the first three years, instead of requiring that they receive prior approval. The manual does, however, reserve the FDIC’s authority to require prior approval for changes to business plans in circumstances involving elevated risk or complexity.
These changes come on the heels of the FDIC’s decision to grant approval to Varo Money’s application for deposit insurance, which demonstrates the FDIC’s willingness to entertain proposals to act applications from banks with non-traditional business models.