Industrial Banks: A Unique Approach to Banking

Industrial banks, also known as industrial loan companies (ILCs), offer operational flexibility to non-financial companies. These state-chartered financial institutions provide services like auto loans and construction loans, operating under the supervision of the FDIC. Unlike traditional commercial banks, industrial banks can be owned by nonfinancial companies. A prime example is BMW Bank of North America, which offers financial services to BMW and BMW MINI Cooper customers.

The Origins and Growth of Industrial Banks

The roots of industrial banks can be traced back to 1910, originally established to provide banking services to industrial workers. Over the years, industrial banks have evolved to cater to a narrower customer base, focusing on specific products like auto loans. Utah has become a hub for industrial banks, with over 93% of such institutions headquartered in the state.

In recent years, the expansion of industrial banks has been impacted by regulatory changes. The Dodd-Frank Act in 2010 put a pause on the creation of new industrial banks, affecting their growth and market presence. Despite this, many industrial banks have transitioned into commercial lending, including major players like Goldman Sachs and American Express.

Industrial Banks vs. Commercial Banks: Understanding the Differences

Industrial banks offer unique services compared to traditional commercial banks. While industrial banks focus on specific product lines like auto loans, commercial banks provide a range of services including checking accounts, savings accounts, and money market accounts. Industrial banks generally have longer repayment periods, catering to niche customer needs, while commercial banks serve a broader customer base with a variety of financial products.