FDIC Greenlights Deposit Insurance for Ford Credit and GM Financial Banks in Utah
The Federal Deposit Insurance Corporation (FDIC) has recently approved applications for deposit insurance from two major automotive companies: Ford Motor Company and General Motors Company. Both companies are set to establish their own financial institutions in Utah, named Ford Credit Bank and GM Financial Bank, respectively.
Approval of Deposit Insurance Applications
The approval allows these companies to enter the banking sector as Utah-chartered industrial banks. The FDIC evaluated the applications based on several key factors:
- Financial history of the institution
- Capital structure adequacy
- Future earnings prospects
- Management character and fitness
- Risk to the Deposit Insurance Fund
- Community convenience and needs
- Consistency with the Federal Deposit Insurance Act
Ford Credit Bank’s Business Model
Ford Credit Bank will primarily focus on automotive financing products. It plans to purchase retail installment sales contracts from independent Ford dealers across the country. Funding will come from retail savings accounts and time deposits through the bank’s online platforms.
The FDIC has set conditions for Ford Credit Bank’s operation. The bank must maintain a minimum tier 1 leverage ratio of 15 percent. Additionally, Ford Motor Company is required to back the bank’s capital and liquidity positions.
GM Financial Bank’s Operations
GM Financial Bank shares a similar business model, focusing on automotive financing products, particularly through retail installment sales contracts from its dealerships. Like Ford Credit Bank, GM Financial Bank will utilize savings accounts and time deposits to fund its operations through digital platforms.
The FDIC also specified conditions for GM Financial Bank. It must uphold a 15 percent tier 1 leverage ratio, with General Motors Company obligated to support its capital and liquidity.
Regulatory Conditions and Timeframe
Both banks’ FDIC approval orders have a 12-month limit for establishment, unless an extension is granted. This timeline emphasizes the FDIC’s regulatory oversight in ensuring these new financial institutions meet industry standards before commencing operations.
The introduction of Ford Credit Bank and GM Financial Bank may enhance access to automotive financing for consumers, reflecting a significant step for these automotive giants into the financial services sector.
