Ford & GM Sidestep Banking Rules, Launch FDIC-Insured Auto Loan Banks

WASHINGTON – In a move that smells of backroom deals and regulatory capture, the Federal Deposit Insurance Corporation (FDIC) has approved applications from Ford Motor Company and General Motors Company to establish national banks – Ford Credit Bank and GM Financial Bank, respectively – both chartered in Utah. The approvals, quietly announced today, raise serious questions about the FDIC’s willingness to bend the rules for corporate giants, potentially exposing the Deposit Insurance Fund to unnecessary risk.

The FDIC claims its decision followed a rigorous review of seven statutory factors, including financial history, capital adequacy, and management character. But sources inside the agency whisper of intense lobbying from both automakers and a desire to avoid a protracted fight. Both banks will operate as industrial banks, a somewhat archaic structure that allows non-financial corporations to own banks, historically used to sidestep certain regulations. The banks’ primary business model? Funding auto loans sourced directly from dealerships – a captive finance scheme dressed up as a legitimate banking operation.

Ford Credit Bank plans to vacuum up retail installment sales contracts from independent Ford dealers nationwide, funding its operations through online savings accounts and time deposits. GM Financial Bank will do the same, but focusing on contracts from its own GMF network. Both banks are required to maintain a minimum 15 percent tier 1 leverage ratio – a seemingly strict condition – but the real safety net lies in the explicit commitment from Ford and General Motors to prop up their banks’ capital and liquidity positions. Essentially, taxpayers are insuring loans backed by the fortunes of two companies already plagued by supply chain issues and shifting consumer preferences.

The FDIC’s approval isn’t a blank check. The orders issued to both banks include conditions and written agreements designed to mitigate risk. However, critics argue these are merely cosmetic, failing to address the fundamental problem: allowing automakers to directly control the financing of their own products creates an inherent conflict of interest and incentivizes predatory lending practices. The agency insists it evaluated the “convenience and needs of the community” – a laughable claim when the primary beneficiaries are two multinational corporations.

What’s particularly disturbing is the time limit attached to these approvals. Ford Credit Bank and GM Financial Bank have just 12 months to become operational, or the FDIC’s blessing expires. This rushed timeline suggests a pre-determined outcome, pushing through the applications before any significant public scrutiny can occur. The FDIC’s MediaRequests@fdic.gov contact will likely be flooded with queries, but don’t expect straight answers. This smells less like prudent banking oversight and more like a favor to two powerful Detroit players.

The FDIC’s decision sets a dangerous precedent, potentially opening the floodgates for other non-financial corporations seeking to establish their own banks. It’s a clear signal that in Washington, money still talks, and regulatory agencies are all too willing to listen – even if it means putting the financial system at risk. Grimy Times will continue to investigate the full extent of the backroom dealings surrounding these approvals and the potential consequences for consumers and the Deposit Insurance Fund.