Automakers want to start banks, hoping to benefit from lighter-touch rules

Last summer, General Motors got bad news in its years-long push to start a new bank. Federal officials were preparing to reject the idea, pointing in part to the Detroit automaker’s experience during the 2008 financial crisis, when a bank it had previously owned nearly collapsed and required a massive taxpayer-funded bailout.

Now, as the Trump administration pledges to ease business restrictions, GM is taking another shot with hopes of a more receptive audience.

GM’s financing arm filed fresh paperwork in late January with the Federal Deposit Insurance Corp., followed by a similar request from Stellantis last month. Ford, the third major U.S. carmaker, already has a pending application.

The issue of whether commercial firms like the Big Three automakers should be allowed to own banks has long been one of the most divisive financial policy questions in Washington. It pits powerful banks and consumer advocates against retailers and other large nonfinancial businesses that increasingly want to offer their customers loans and other banking services.

The type of lenders in question are called industrial banks. They are chartered by states but must have federal deposit insurance to protect against runs, which means their applications must be green-lit by the FDIC.

While the Biden administration was reluctant to allow nonfinancial companies to own banks, that separation could erode over the next four years. What the Trump administration decides for the Big Three automakers will probably set a precedent for retailers, technology firms and other companies that have expressed interest in jumping into banking or already offer financial services such as handling consumer payments.

“This has the clear potential to transform the nature of our banking system in ways that would be very harmful to consumers and very threatening to our economy,” said Arthur Wilmarth, a professor emeritus of law at George Washington University. “If federal regulators approve the automakers’ applications, how could they turn down similar requests from a Big Tech firm like Apple, Google, Amazon or Facebook?”

Such a move would magnify risks already inherent in the financial system, which exist when banks deemed very big or very important on the verge of collapse receive taxpayer-financed bailouts. It could also “give Big Tech firms access to information about every aspect of your life, from your financial dealings to your spending patterns,” he added.

In addition to the three U.S. carmakers, several other nonfinancial businesses are interested in seeking regulatory permission to launch their own banks, say banking lawyers who spoke on the condition of anonymity to describe private discussions.

If the automakers get their way, they would be allowed to accept deposits and expand their financial offerings to consumers, dealerships and employees. Having a bank to finance these services would be a big advantage because deposits provide a stable, cheaper source of funding loans than issuing debt in the financial markets.

Critics deride industrial banks as being a result of a legal loophole, since the parent company can benefit from its bank’s access to a federal safety net—such as emergency loans from the Federal Reserve—without facing federal regulatory supervision of the entire enterprise, including the parent company.

Community banks, a powerful constituency with members in every congressional district, have long opposed new industrial banks. They fear any weakening of the separation between banking and commerce could lead a large retailer to obtain a bank and compete directly with smaller banks.

“When a bank is owned by a commercial company, it is incentivized to lend to customers of its commercial parent to drive sales, and this inevitably leads to riskier loans getting made, which puts the institution at risk of failure,” said Mickey Marshall, regulatory counsel at the Independent Community Bankers of America, a community bank lobbying group.

Nearly 20 years ago, retail giants Walmart and Home Depot sought to obtain industrial banks only to abandon the efforts amid fierce opposition from incumbent banks. Now, the banking landscape is even more fractured as financial technology firms and Big Tech seek to get a foothold in the traditional activities of banks, such as making loans and payments. The trend is also notable in certain cryptocurrencies, as policymakers consider imposing new guardrails but may not require the companies involved to be regulated as banks.

Democrats on Capitol Hill have urged the FDIC to block the applications for industrial banks, citing the risks to taxpayers. “If the FDIC faithfully applies the law, these applications will be denied and taxpayers will avoid future 11-figure bailouts of big corporations,” said Sen. Elizabeth Warren (D-Massachusetts).

Sen. Tim Scott (R-South Carolina), the chairman of the Senate Banking Committee, said it would be wrong for Congress to weigh in on individual banking applications. But he said the FDIC must evaluate applications “in a timely manner.”

At present, automakers use their existing lending arms to offer customers deals on loans and leases. They also use them for floor-room financing, or the loans dealers use to obtain the fleets of vehicles. Toyota and BMW already own industrial banks, giving the U.S. automakers a precedent to point toward.

A GM spokesman declined to comment beyond a January news release that said the proposed bank “will focus on auto lending and deposits, complementing the company’s core business capabilities to drive value for our customers and dealers.” The financing arm initially applied for a bank in 2020 but withdrew in June “to address feedback provided by the FDIC,” the company said in the release.

Stellantis, which produces Jeep, Ram, Dodge and Chrysler brands in North America, said in an FDIC filing that its bank would offer loans and deposit products to auto dealers as well as “essential banking products and services to retail consumers.”

Ford, which applied in 2022, has said its bank would “create innovative and simplified banking solutions that enable electric vehicles to be accessible to all Americans.”

GM’s primary lending arm before the financial crisis was through GMAC, which operated as an industrial bank. During the crisis, the company cratered over its exposure to soured mortgages and required a $17.2 billion taxpayer bailout. It later transitioned to a bank overseen by the Federal Reserve and changed its name to Ally Financial.

GM’s current application says its bank would focus “solely on auto lending.”

In preparing to block GM’s application last year, Democrats who ran the FDIC at the time signaled they were about to reject the application, and GM withdrew before any formal vote. At least one official said publicly that he viewed the would-be bank as a risk to the multibillion-dollar deposit insurance fund overseen by the agency. He also said that the firm’s client base would be too limited by only aiming to serve the clients of its parent company and not a broad community. And he characterized GM’s track record of owning a bank as spotty.

“The specific details of the agency’s supervisory history with the banks owned by GM remains confidential, but it raised a host of concerns,” said Rohit Chopra, the former head of the Consumer Financial Protection Bureau who also served on the FDIC board.