Nevada Development Authority Encouraged by Milken Institute Study on Stability, Economic Implications of Industrial Loan Companies

LAS VEGAS, May 16, 2011 /PRNewswire/ -- A recent Milken Institute study, "Industrial Loan Companies: Supporting America's Financial System," lays out a clear and unquestionable case for the removal of regulatory barriers which impede the expansion of one of the most stable and profitable segments of the banking industry. As Nevada is one of only two states that can charter industrial loan companies (ILCs), the Nevada Development Authority plans to pursue the growth of this type of financial banking institution in the state.

"By bringing in or expanding ILC businesses, many quality jobs can be created in Nevada and the financial industry can show major strength in this area," said NDA President & CEO Somer Hollingsworth.  

Industrial loan companies are state-chartered but federally-insured financial institutions that historically have operated in narrow niches, such as issuing credit cards or offering automobile loans. The Dodd-Frank Wall Street Reform and Consumer Protection Act extended a moratorium on new charters for commercially-owned ILCs that had initially been put in place for all ILCs in 2006. It also directed the Government Accountability Office (GAO) to study whether industrial banks pose any special threat to the stability of the financial system.

Commenting on the study, Ray Specht, Vice Chairman of Toyota Financial Services, an Industrial Bank owned by the Toyota auto company, said, "This is a timely study which illustrates the huge benefit commercial companies bring to bank ownership. Viable parent companies not only allow ILCs to access significant capital but they also make them less susceptible to systemic failure. There's no doubt that the time has come for the U.S. to align its banking sector with those in other developed countries."

The Milken Institute study shows that ILCs are consistently more profitable than the banking industry as a whole, with significantly higher ratios of capital to assets and significantly lower percentages of troubled assets. It also notes that ILCs are safer and resistant to systemic failure, as illustrated by their strong performance during the recent financial crisis and subsequent recession. The report suggests that barriers should not be erected that impede the ongoing existence and expansion of commercially-owned ILCs – and the credit they bring to the market through the capital provided by their parent companies.

Nevada has a prime economic opportunity to encourage ILCs to relocate and expand operations in the state. ILCs are magnets for processing, call centers and other related activities. ILCs would encourage economic and job diversification in Nevada. The study shows that Utah, the only other state allowed to charter ILCs, employed more than 30,000 in the ILC industry and its affiliates at its peak.

"ILCs will bring high-paying, white-collar jobs to Nevada once the moratorium is lifted under the Dodd-Frank Act," said Hollingsworth. "Senator Reid has always been a great supporter of the ILC industry and job growth in Nevada."

The Milken Institute study indicates that ILCs are a "safe, sound and well-capitalized segment of the banking industry" and notes a moratorium "limits the ability of the U.S. banking industry to enlarge its capital base and thereby maintain its role as a major player in the competitive global banking industry." ILCs are subject essentially to all of the same restrictions and requirements, regulatory oversight, compliance, and safety and soundness exams as any other kind of bank.

The Economic Development Corporation of Utah and the NDA funded the Milken Institute study.

About NDA

The Nevada Development Authority is Southern Nevada's premier economic development agency.  For 55 years, the NDA has continued to diversify and improve the economy of Southern Nevada. For more information call 702-791-0000, or visit www.nevadadevelopment.org or www.move2vegas.biz.

About the Milken Institute

The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It is based in Santa Monica, CA. For more information, visit www.milkeninstitute.org.

SOURCE Nevada Development Authority