General Motors Co. in Detroit and Ford Motor Co. in Dearborn have received Federal Deposit Insurance Corp. (FDIC) and the Utah Department of Financial Institutions approval to launch U.S. industrial banks in Salt Lake City.
The approvals allow the captive finance units to take FDIC-insured deposits, giving them access to a lower-cost funding source than wholesale markets and securitizations. This matters as auto demand decreases and manufacturers rely more heavily on financing income to support profitability.
An industrial bank is a specialized financial institution that allows the automakers to offer diverse banking services, most notably the ability to accept insured deposits to fund its operations. Industrial banks are regulated with the same rigor as traditional commercial banks and comply with all federal and state consumer protection laws.
“It’s another way of leveraging money,” says Timothy Nash, an economist and director of Northwood University’s McNair Center for the Advancement of Free Enterprise and Entrepreneurship in Midland. “If the economy is stable and strong, it’s not a bad thing. It puts them in direct competition with community banks and gives them, what some would say, an unfair advantage.”
Both automakers have up to 12 months to formally stand up and capitalize their industrial banks after receiving regulatory approval. Captive finance operations already contribute materially to group earnings, and access to deposit funding should provide additional flexibility on pricing, margins, and balance-sheet management as credit conditions tighten.
“We already operate two banks in Europe, and we will draw on their expertise and experience,” says Cathy O’Callaghan, president and CEO of Ford Credit.
“This is a long-term strategic initiative that will expand our capabilities, enabling us to offer additional savings options to customers, which will over time help lower our cost of funding as well as broaden our financing offerings,” says O’Callaghan.
Ford says its bank will start small and grow over time. It will take about a year to put the people, systems, and processes in place to begin taking deposits.
“In the months and years that follow, we will add products such as certificates of deposit and indirect auto financing through our dealers,” O’Callaghan says.
GM Financial Bank will provide automotive financing products across the nation through the purchase of retail installment sales contracts from GM Financial. Funding will come largely from retail savings accounts and time deposits offered through its website and mobile app.
The FDIC concludes that GM Financial Bank satisfied all statutory approval requirements, including maintaining a minimum tier 1 leverage ratio of 15 percent and a formal commitment from General Motors to support the bank’s capital and liquidity positions.
 and the Utah Department of Financial Institutions approval to launch U.S. industrial banks in Salt Lake City.){kind=link}