Last week, the Federal Deposit Insurance Corporation (FDIC) approved deposit insurance applications from Ford Motor Company and General Motors Company, paving the way for the automakers to establish their own industrial banks.
Ford Credit Bank and GM Financial Bank, both to be chartered in Utah, will focus on auto lending. Ford will lend through indirect retail installment and lease contracts originated by auto dealers, while GM will fund retail installment contracts through GM Financial.
Ford Credit Bank’s funding will mainly come from retail savings accounts and time deposits obtained via the bank’s website and mobile app; and GM Financial Bank’s will mainly come from savings accounts and time deposits via the bank’s website and a mobile app.
“There’s only one way for these banks to succeed,” said IBAT President and CEO Christopher Williston. “That’s to offer high yield savings rates to flighty depositors to fund risky loans.”
“The extension of FDIC insurance to these institutions underscores our belief that it is exactly the wrong time to enact FDIC deposit insurance reform,” Williston added.
Both automakers must stand up their respective banks within 12 months. After that, they must maintain a minimum 15 percent tier 1 leverage ratio.
