Ford and GM get FDIC approval to open their own banks

The Federal Deposit Insurance Corporation recently announced that it accepted applications to set up deposit insurance for new banks created by automakers Ford and GM.

Ford Credit Bank and GM Financial Bank are planning to start offering online savings accounts, along with auto loans.

Banks that are owned and operated by corporations — also known as industrial banks — aren’t all that common in the U.S. There are currently about a couple dozen of them, according to the FDIC.

Industrial banks operate basically the same way as traditional banks: “They take deposits and make loans,” said Karen Petrou, managing partner at Federal Financial Analytics.

She said industrial banks are also eligible for FDIC insurance, which backs deposits up to $250,000.

Petrou said when a bank can provide that safety, it doesn’t have to pay as much interest to its depositors.

“And the lower you can drive your funding costs, the lower you can drive your lending costs, and the more competitive you get,” she said.

Auto companies have plenty of reasons to offer competitive loans right now.

David Whiston, an auto analyst with Morningstar, sticker prices are being pressured by rising input costs and tariffs.

And right now, wealthy people are making up an outsized share of the market — buying expensive cars with fancy trims.

“People who are not at that price point and nowhere near that price point, and just want a car, they frankly can’t afford a new one, and an average new one right now for the whole industry is just under $50,000,” Whiston said.

He said that’s why auto manufacturers are trying to give customers some relief without having to lower the sticker price.

“And then instead, you give your customers help on the loan or leasing side,” he said.

The FDIC hasn’t always been enthusiastic about industrial banks, said Julie Hill, dean of the University of Wyoming College of Law.

One concern is whether industrial banks  are taking business away from smaller, community banks, “Who are trying to do lending in this space, but aren’t solely focused on the type of lending that the industrial banks are doing,” Hill said.

Traditional banks, and their holding companies, are also subject to more regulation than the corporations that own industrial banks, she said.

But Hill said whether the FDIC is OK with that depends on the administration.

“And I think you’re seeing an uptick now in applications for them, because we think the current administration is more likely to approve them,” she said.

That’s why Hill said other companies could start launching their own banks in the coming years.