Footnote 1: Industrial loan companies and industrial banks are collectively referred to as ILCs, per Federal Deposit Insurance Corporation Supervisory Insights, Summer 2004.

Footnote 2: For purposes of applications for deposit insurance, DSC uses the term non-bank bank to refer to an insured depository institution that is a "bank" for purposes of the Federal Deposit Insurance (FDI) Act, but is not a "bank" for purposes of the BHCA. Such institutions include certain ILCs and credit card banks organized under the CEBA.

Footnote 3: An affiliate is defined under Section 2(k) of the BHCA as "any company that controls, is controlled by, or is under common control with another company."

Footnote 4: Although the FDIC does not have the statutory authority to directly supervise the parent companies of ILCs, the FDIC does have the authority under Section 10(b)(4) of the FDI Act, codified to 12 U.S.C. § 1820, in examining any insured depository institution, to make examinations of the affairs of any affiliate, including the parent holding company, as may be necessary to disclose fully the relationship between the institution and the affiliate, and to determine the effect of such relationship on the depository institution.

Footnote 5: The BHCA requires FRB to: (1) limit the focus and scope of its examinations to the BHC and any subsidiary that could have a materially adverse effect on the safety and soundness of any depository institution subsidiary of the holding company, and (2) use the reports and examinations of depository institutions made by the appropriate Federal and State depository institution supervisory authority to the fullest extent possible.

Footnote 6: DSC indicated that its cease and desist orders pursuant to Section 8(b) of the FDI Act routinely include language making the provisions applicable to all institution affiliated parties, which FDIC has interpreted to include ILC parents.

Footnote 7: In considering applications for deposit insurance for a proposed depository institution, the FDIC must evaluate each application in relation to seven factors prescribed in section 6 of the FDI Act
(12 U.S.C. § 1816).

Footnote 8: These issues are defined and discussed in detail in the Evaluations Results section of this report.

Footnote 9: P.L. 97-320.

Footnote 10: Effective July 7, 2004, the General Accounting Office's legal name became the Government Accountability Office.

Footnote 11: Dual-managers and dual-employees are those individuals that perform essentially the same duties for a banking entity and the affiliated organization. (Source: RDM 2004-010, Update to Manual of Examination Policies, Chapter 4.3 Related Organizations, dated March 12, 2004.)

Footnote 12: According to FDIC Manual of Examination Policies, the six key components used to assess an institution's financial condition and operations are: Capital adequacy, Asset quality, Management capability, Earnings quantity and quality, adequacy of Liquidity, and Sensitivity to market risk, which together form the CAMELS rating assigned to a bank. The rating scale ranges from 1 to 5, with a rating of 1 indicating the strongest performance and risk management practices relative to the institution's size, complexity, and risk profile and the level of least supervisory concern. A 5 rating indicates the most critically deficient level of performance; inadequate risk management practices relative to the institution's size, complexity, and risk profile; and the greatest supervisory concern.

Footnote 13: For purposes of this report, a full-scope onsite visitation to a non-bank parent holding company refers to the type of examination that the FDIC could perform if the Corporation exercised the authority granted under Section 10(b)(4) of the FDI Act, codified to 12 U.S.C. § 1820, which states that the FDIC, in examining any insured depository institution, has the authority to make examinations of the affairs of any affiliate, including the parent holding company, as may be necessary to disclose fully the relationship between the institution and the affiliate, and to determine the effect of such relationship on the depository institution.

Footnote 14: All commercial banks insured by the FDIC and all FDIC-supervised savings banks are required to submit quarterly Call Reports. The Call Report shows a bank's condition and income and is used for multiple purposes including assessing the financial health and risk of the institution.

Footnote 15: The FDIC CM Manual states that written LIDI products are used to inform FDIC senior management, the FDIC's Board of Directors, other regulators, and DSC staff about risk issues facing the largest exposures to the insurance funds as well as provide updates about the supervisory programs in place to respond to those issues.

Footnote 16: California law no longer makes a distinction between banks and industrial loan banks; currently both entities are subject to the California State Financial Code. The California DFI has authority to examine parent organizations through Chapter 21, Section 3700 (specifically Section 3704) of the California Financial Code and to require reports and information through Section 3703 of the California Financial Code. In the State of Nevada, holding companies are required to register with the Nevada Secretary of State. The Financial Institutions Department for the State of Nevada has authority to conduct examinations of parent organizations in Section 658.185.

Footnote 17: Republic Bancorp, the parent of one ILC in our sample, Republic Bank, was not subject to federal supervision. However, the Report of Examination for Republic Bank indicated that the ILC had no affiliate activity.

Footnote 18: Home Owners' Loan Act, Codified to 12 U.S.C. § 1464.

Footnote 19: The Basel Standards establish a common measurement system, a framework for supervision, and a minimum standard for capital adequacy for international banks in the G-10 countries.

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