Letter to FDIC Chair re: Rakuten Application

The Hon. Jelena McWilliams
Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Dear Chairman McWilliams:

The American Bankers Association thanks the Federal Deposit Insurance Corporation for the December 2019 publication of its handbooks for submitting and processing deposit insurance applications. These materials are a significant milestone in FDIC’s goal to increase transparency and inform the banking industry and the public, not only about the deposit insurance application process, but also about FDIC’s comprehensive approach to safeguarding the Deposit Insurance Fund and protecting the banking system and the economy from undue risk.

ABA notes particularly that FDIC has highlighted special considerations for deposit insurance applications from entities that, though offering insured deposits, will not be “banks” under the Bank Holding Company Act of 1956, as amended (and which will be dependent on non-financial affiliates). FDIC rightly notes that:

Risk to the [Deposit Insurance Fund] increases as the degree of dependence on the parent company or affiliates expands, particularly with respect to the primary business functions of the proposed institution. Further, parent company and affiliate relationships [with “non-banks”] may present additional risks beyond those considered in the financial history and condition factor, particularly in situations where the proposed institution does not present a viable business model on a standalone basis.

ABA urged FDIC to address exactly these concerns in its review of the deposit insurance application of Rakuten Bank America. In ABA’s view, the Rakuten Bank America application, which describes in detail the expected relationship between the insured depository institution and its parent and affiliates, presents a clear example of the potential risks to the Deposit Insurance Fund of an institution business plan dependent on the success of non-financial affiliates. The lack of a depository institution-focused business plan means that adverse business events in the parent and non-bank affiliates could be transmitted to the bank, which would then lack a viable plan for mitigation and recovery. Rakuten Bank America’s application makes clear that the proposed insured depository institution’s business would be closely integrated with and dependent on the parent’s “ecosystem.” In Rakuten Bank America’s case, the potential risks would be heightened by the highly competitive and rapidly evolving e-commerce market in which its parent operates. Our joint comment letter (a copy of which is attached) concluded that, because of these and other concerns raised by the Rakuten Bank application, the application fails to meet the standards for approval under the Federal Deposit Insurance Act.

ABA continues to stress the important, precedent-setting nature of the Rakuten Bank application. We appreciate FDIC’s consideration of our concerns and would welcome the chance to address any additional questions.

Very truly yours,

Hugh Carney
Senior Vice President