S. 3734

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 3734 Introduced in Senate (IS)]

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119th CONGRESS
2d Session
S. 3734

To address applications for deposit insurance submitted by industrial 
banks to the Federal Deposit Insurance Corporation, and for other 
purposes.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

January 29, 2026

Mr. Kennedy (for himself and Mr. Kim) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
and Urban Affairs

_______________________________________________________________________

A BILL

To address applications for deposit insurance submitted by industrial 
banks to the Federal Deposit Insurance Corporation, and for other 
purposes.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Close the Shadow Banking Loophole 
Act''.

SEC. 2. INDUSTRIAL BANKS.

(a) Definitions.--In this section:
(1) Appropriate federal banking agency.--The term 
``appropriate Federal banking agency'' has the meaning given 
the term in section 3(q) of the Federal Deposit Insurance Act 
(12 U.S.C. 1813(q)).
(2) Corporation.--The term ``Corporation'' means the 
Federal Deposit Insurance Corporation.
(3) Industrial bank.--The term ``industrial bank'' means an 
entity described in section 2(c)(2)(H) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)), as in effect on 
the day before the date of enactment of this Act.
(b) Exception From Definition of Bank.--Section 2(c)(2)(H) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended, 
in the matter preceding clause (i), by inserting after ``similar 
institution'' the following: ``which has been approved to receive 
deposit insurance from the Federal Deposit Insurance Corporation on or 
before September 23, 2021 (or, with respect to such an entity to which 
section 2(c) of the Close the Shadow Banking Loophole Act applies, 
which is in compliance with such section 2(c)), and''.
(c) Treatment of Deposit Insurance Applications Pending on 
September 23, 2021.--
(1) In general.--With respect to an industrial bank that, 
on the date of enactment of this Act, has an application to 
receive deposit insurance pending before the Corporation that 
was submitted on or before September 23, 2021, the 
Corporation--
(A) shall provide for a 90-day public comment 
period and a public hearing with respect to that 
application; and
(B) may only approve that application by a \2/3\ 
vote of the members of the Board of Directors of the 
Corporation.
(2) Deadline for approving application.--If the Corporation 
does not approve an application described in paragraph (1) 
before September 30, 2026, that application shall be deemed to 
have been denied.
(3) Rule of construction.--Except to the extent explicitly 
provided in this subsection, this subsection may not be 
construed to affect the authority of the Corporation to 
consider deposit insurance applications under sections 5 and 6 
of the Federal Deposit Insurance Act (12 U.S.C. 1815, 1816).
(d) Authority With Respect To Deposit Insurance Applications 
Granted After September 23, 2021.--
(1) Definitions.--In this subsection:
(A) Bank; depository institution.--The terms 
``bank'' and ``depository institution'' have the 
meanings given those terms in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), as 
amended by this section.
(B) Covered industrial loan company.--The term 
``covered industrial loan company'' means an industrial 
bank that has an application to receive deposit 
insurance from the Corporation approved after September 
23, 2021.
(C) Parent company.--The term ``parent company'' 
means an entity that has control over a covered 
industrial loan company.
(D) Primary financial regulatory agency.--With 
respect to a parent company, the term ``primary 
financial regulatory agency''--
(i) has the meaning given the term in 
section 2 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (12 U.S.C. 5301); 
and
(ii) with respect to a parent company for 
which clause (i) does not apply, means the 
Corporation.
(2) Authority.--The primary financial regulatory agency 
with respect to a parent company may take any of the following 
actions with respect to the parent company:
(A) Conduct such examinations of, and obtain 
reports from, the parent company or any subsidiary of 
the parent company (other than a bank) as the agency 
determines necessary or appropriate to assess each of 
the following:
(i) The financial condition of the parent 
company or subsidiary.
(ii) The systems of the parent company or 
subsidiary for maintaining and controlling 
financial and operating risks.
(iii) The transactions of the parent 
company or subsidiary with depository 
institution subsidiaries of the parent company.
(B) Impose any conditions or restrictions on the 
parent company or any subsidiary of the parent company 
(other than a bank), including restricting or 
prohibiting transactions between the parent company or 
subsidiary and any depository institution subsidiary of 
the parent company, if those conditions or restrictions 
would promote the safety and soundness of the parent 
company or any of its depository institution 
subsidiaries.
(e) Change of Control.--
(1) In general.--Except as provided in paragraph (2), the 
appropriate Federal banking agency shall disapprove a change in 
control, as provided in section 7(j) of the Federal Deposit 
Insurance Act (12 U.S.C. 1817(j)), of an industrial bank.
(2) Exceptions.--Paragraph (1) shall not apply to a change 
in control of an industrial bank--
(A) that--
(i) is in danger of default, as determined 
by the appropriate Federal banking agency, 
provided that the entity acquiring control of 
the industrial bank is an entity described in 
clause (iii);
(ii) results from the acquisition of voting 
shares of an issuer that controls the 
industrial bank and the securities of which are 
listed on a national securities exchange, if, 
after the acquisition, the acquiring 
shareholder (or group of shareholders acting in 
concert) holds less than 25 percent of any 
class of the voting shares of, and does not 
otherwise exercise control over, that issuer; 
or
(iii) will be controlled, directly or 
indirectly, by an entity subject to 
consolidated supervision by the Board of 
Governors of the Federal Reserve System as a--
(I) bank holding company;
(II) savings and loan holding 
company; or
(III) foreign bank that is treated, 
as of July 1, 2020, as a bank holding 
company under the International Banking 
Act of 1978 (12 U.S.C. 3101 et seq.); 
and
(B) that has obtained all regulatory approvals 
otherwise required with respect to the change in 
control under any applicable Federal or State law, 
including section 7(j) of the Federal Deposit Insurance 
Act (12 U.S.C. 1817(j)).

SEC. 3. SUPERVISION OF PARENT COMPANIES OF INDUSTRIAL LOAN COMPANIES.

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is 
amended by inserting after section 5 (12 U.S.C. 1844) the following:

``SEC. 6. SUPERVISION OF PARENT COMPANIES OF INDUSTRIAL LOAN COMPANIES.

``(a) Definitions.--In this section:
``(1) Corporation.--The term `Corporation' means the 
Federal Deposit Insurance Corporation.
``(2) Parent company of an industrial loan company.--The 
term `parent company of an industrial loan company' means a 
company--
``(A) that is not directly or indirectly subject to 
a primary financial regulatory agency (as defined in 
section 2 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (12 U.S.C. 5301)); and
``(B) that has control over an entity that--
``(i) is an industrial loan company, 
industrial bank, or other similar institution;
``(ii) is not a bank; and
``(iii) is not a person regulated by a 
State insurance regulator, as that term is 
defined in section 1002 of the Consumer 
Financial Protection Act of 2010 (12 U.S.C. 
5481).
``(b) Authority Relating to a Parent Company of an Industrial Loan 
Company.--
``(1) In general.--Subject to paragraph (2), the 
Corporation shall have the same authority to require a parent 
company of an industrial loan company (or a subsidiary of such 
a parent company) to make reports and submit to examinations as 
the Board has with respect to a bank holding company or a 
subsidiary of a bank holding company.
``(2) Conditions.--In carrying out the report and 
examination authority described in paragraph (1) and with 
respect to the parent company of an industrial loan company 
that has been approved to receive deposit insurance from the 
Corporation on or before September 23, 2021, the Corporation 
shall tailor any requirements to the size, complexity, and 
nature of the business of that parent company.
``(3) Enforcement.--The Corporation may, using the 
authorities under section 8 of the Federal Deposit Insurance 
Act (12 U.S.C. 1818), enforce the report and examination 
authority under this section with respect to a parent company 
of an industrial loan company (or a subsidiary of such a parent 
company) to the same extent as the Board may enforce the report 
and examination authority of the Board with respect to a bank 
holding company or a subsidiary of a bank holding company.
``(c) Rule of Construction.--Nothing in this section may be 
construed as a reduction of the authority of the Corporation, as in 
effect on the date of enactment of this section.
``(d) Rulemaking.--The Corporation may issue rules to implement 
this section.''.

SEC. 4. APPLICATION WITH RESPECT TO CONTRACTS AND OTHER AGREEMENTS.

(a) Definition.--In this section, the term ``industrial loan 
company'' means an industrial loan company, industrial bank, or other 
similar institution.
(b) Application.--This Act, and the amendments made by this Act, 
may not be construed to affect or impair--
(1) the authority of the Federal Deposit Insurance 
Corporation to enter into any agreement with a parent company 
of an industrial loan company (as defined in section 6 of the 
Bank Holding Company Act of 1956, as added by section 3 of this 
Act) or an industrial loan company, or to impose any condition 
in connection with the approval by the Corporation of an 
application; or
(2) the validity of any agreement described in paragraph 
(1) entered into before the date of enactment of this Act.
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