Industrial loan companies (ILCs), also known as industrial banks, got their start in the early 1900s as local consumer finance companies for industrial workers. Their creator, a young law school graduate from the University of Virginia who had studied economics and moral philosophy, found a way to fill a banking niche for his clients who had no collateral for loans. Chartered first in Virginia and then by other states, these institutions were restricted in their operations, although the restrictions varied by charter and were modified through the years. The loan companies survived the Great Depression and, indeed, increased their lending throughout the period—a role they reprised during the most recent severe financial crisis, when other financial institutions were unable or unwilling to do so.

Like banks, ILCs are federally insured these days, making them subject to Federal Deposit Insurance Corporation (FDIC) regulation, as well as the banking regulations in the states in which they are chartered. Data show that they perform very favorably compared to all other FDIC-insured institutions (5,865 in all) in terms of such performance indicators as return on assets, return on equity, capital-to-asset ratios, the soundness of their loan portfolios, and the efficiency of their operations. In fact, as this report will show, more than half of the active ILCs rank in the top 10% of all FDIC-insured institutions for return on assets; and nearly half ranked in the top 10% in terms of capital-asset ratios.