An industrial bank is a financial institution with a limited scope of services. Industrial banks sell certificates that are labeled as investment shares and also accept customer deposits. They then invest the proceeds in installment loans for consumers and small businesses.

These banks are also known as Morris banks or industrial loan companies.

Breaking Down Industrial Bank

Industrial banks differ from commercial lenders in that they accept deposits. They also differ from commercial banks because they do not offer checking accounts (mainly if their assets are more than $100 million). Furthermore, a third party acting as a guarantor might secure industrial bank loans.

Major industrial banks globally include the Industrial Bank of China, Industrial Bank of Iraq, and Industrial Bank of Korea.

Industrial banks are not well known throughout the financial services industry, in contrast with investment banks or other Wall Street firms.

Warren Buffet’s Creation of an Industrial Bank in Utah

Many companies set up industrial banks to handle consumer loans. In recent history, examples have included General Electric, General Motors, Harley Davidson, BMW, and financial institutions Morgan Stanley, American Express, and Sallie Mae.

In 2017, famed investor and entrepreneur (as well as billionaire) Warren Buffet announced plans to control an industrial bank in Utah to handle his R.C. Willey Home Furnishing consumer loans.

Industrial banks only exist in a few states, with Utah leading the charge. In 2017, Utah noted 29 industrial banks with combined assets of more than $120 billion. The Utah Department of Financial Institutions noted that in 2015, Utah was the fourth-largest center for state-chartered banking in the nation, behind only New York, Massachusetts, and California.

In addition to the state of Utah, the lobbying firm Foxley & Pignanelli has been a significant supporter for this arm of the banking industry. They advocate that industrial banks, directly and indirectly, support thousands of jobs across Utah.

Brief History of Industrial Banks

The concept of today’s industrial bank originated In 1910 in Norfolk, Virginia. Many consider the attorney Arthur J. Morris to have opened the first one, Fidelity Savings and Trust Company, which made small loans to working residents. These “Morris Plan” banks proliferated into automotive financing and credit life insurance.

Many industrial banks succeeded as industrial workers continued to want to borrow money but came up against obstacles from traditional banks. The 1956 passage of the Bank Holding Company Act has made it trickier to form new industrial banks; however, Utah’s industrial banks were created before this and have been “grandfathered” in (meaning they are exempt).