Last Friday the FDIC approved a deposit insurance application submitted by Thrivent Financial for Lutherans in relation to a proposed Utah industrial bank, Thrivent Bank. The FDIC also approved a related merger application that will permit Thrivent to merge the operations of its existing credit union into the newly formed Thrivent Bank.
The FDIC’s approval of Thrivent’s deposit insurance application represents the first deposit insurance approval for an industrial bank since 2020, when the FDIC approved applications from Square Financial Services and Nelnet Bank.
An industrial bank charter is attractive to some companies because an industrial bank often does not count as a bank for purposes of the Bank Holding Company Act, even though an industrial bank can do most of the same things an ordinary commercial bank can do.1 A key implication of this is that under U.S. banking law a company that owns an industrial bank, unlike a company that owns an ordinary bank, is allowed to engage in non-financial activities, such as manufacturing luxury cars or operating a global shipping and mailing company.
Thrivent does not present exactly this set of facts. Thrivent is a financial services company and most of its activities could be conducted by a bank holding company or a savings and loan holding company. As a result, opposition to Thrivent’s application to charter an industrial bank has been relatively more limited than, for example, opposition to Walmart’s application in the mid-2000s, or Rakuten’s more recent effort.2
Even so, Thrivent’s story is interesting in its own right, not least for what it illustrates about changes in U.S. bank regulation over the past 25 years.
Thrivent’s Activities and Membership Requirements
Insurance, and More
Thrivent was formed in 2002 as the result of a merger of the Aid Association for Lutherans and Lutheran Brotherhood.
The Aid Association for Lutherans was founded in 1902 as a mutual aid society to which its 500 founding members committed $5 each. Lutheran Brotherhood was founded in 1917 as a similar mutual aid society. Over time, financial services offered to members by Thrivent’s predecessor organizations steadily expanded to include products such as loans (1931), annuities (1958), health insurance (1962), mutual funds (1970) and long-term care products (1987).3
Today, Thrivent has approximately 2.4 million members and $179 billion in assets under management. It describes itself as “a Fortune 500 diversified financial services organization, providing advice, investments, insurance, banking and generosity programs and solutions so people can make the most of all they’ve been given.”
In its most recent annual report, Thrivent reported total consolidated assets of approximately $113.5 billion.4 2023 net income was $513 million on approximately $9.9 billion in revenue.
A Fraternal Benefit Society
Thrivent is organized as a fraternal benefit society, a type of tax exempt organization. To qualify as a fraternal benefit society an organization must, among other things, (1) have a membership that shares a common bond or pursuit of a common object, (2) engage in fraternal activities5 and (3) provide for the payment to its members, or their dependents, of life, sick, accident or other benefits. Other examples of fraternal benefit societies include the Knights of Columbus and the Modern Woodmen of America.
For most of its history, Thrivent satisfied the common bond requirement by limiting its membership to Lutherans. In 2012, however, Thrivent proposed to amend its articles of incorporation to expand its common bond and open membership to all Christians. The amended articles of incorporation were approved by members in 2013, with 72 percent of those who voted supporting the proposal.
A History of Charter Changes
Throughout its history Thrivent and its predecessor organizations have offered banking and other financial services to their customers through a variety of entities. Many times the choice of entity type has been driven, at least in part, by broader changes in the U.S. financial regulatory landscape.
Pre-1998: Credit Unions
The Aid Association for Lutherans established AAL Credit Union as a state credit union in 1935 and established AAL Member Credit Union in 1986.
1998-2001: Credit Unions Alongside a Trust Company
In 1998, the Aid Association for Lutherans organized AAL Trust Company, FSB. For the first few years of its operations AAL Trust Company operated as a trust-only institution alongside the AAL credit unions mentioned above.
2001-2012: A Full Service Thrift
In April 2001, the Office of Thrift Supervision approved an application by AAL Trust Company, FSB to become a full service thrift. The thrift, which changed its name to AAL Bank and Trust, FSB, also acquired the assets of the two AAL credit unions mentioned above and the credit unions ceased to exist.
The next year, the Aid Association for Lutherans and Lutheran Brotherhood merged to form the company that is now Thrivent. Lutheran Brotherhood had just recently acquired its own bank subsidiary, LB Community Bank & Trust, so Thrivent merged LB Community Bank & Trust into AAL Bank and Trust to create a single bank, which it later renamed Thrivent Financial Bank.6
The choice to move into full-service banking was part of a broader trend among fraternal benefit societies and other insurance organizations following the passage of the Gramm-Leach-Blilely Act, which permitted insurance companies to become affiliated with full service banks. An S&P Global article from 2018, written in the context of a later unwinding of this trend, mentions a few of the prominent examples from the early 2000s.
The core business of Rock Island, Ill.-based Modern Woodmen is the sale of traditional individual life insurance and annuities to a base of nearly 760,000 members. The society expanded its menu of products into nonproprietary mutual funds, equity securities and variable products in 2001 with the launch of broker/dealer subsidiary MWA Financial Services Inc. It applied the same year to launch [MWA Bank] for the broad purpose of offering convenient and affordable banking products and services, including checking and savings accounts and mortgage loans, as part of an overall life financial plan to its membership base and the general public.
A number of prominent insurance companies joined Modern Woodmen-formed or acquired banking businesses between 1998 and 2003, a list that includes the likes of Allstate Corp., American International Group Inc., MetLife Inc., Nationwide Mutual Insurance Co., Principal Financial Group Inc. and State Farm Mutual Automobile Insurance Co. . . .
Fraternal society Everence Association Inc., which operated at the time as the Mennonite Mutual Aid Association, applied in 2000 for federal deposit insurance. Its subsidiary, first known as MMA Trust Co. and currently as Everence Trust Co., was formed for the purpose of providing trust services to the fraternal society's members. Polish National Alliance of the United States of North America, another fraternal society, established a banking business on a de novo basis in 1999, then later expanded its presence through a 2001 acquisition.
Thrivent Financial Bank would continue to operate as a full-service thrift for the next decade or so.
2012-2024: A Trust Company and a Credit Union
The Dodd-Frank Act made changes to the regulation of insurance companies and fraternal benefit societies, like Thrivent, that owned full-service thrifts. The changes did not outright prohibit insurers or fraternal benefit societies from owning full-service thrifts, but they did mean that Thrivent would become subject to regulation by the Federal Reserve Board as a savings and loan holding company, including, potentially, more bank-like capital requirements.
To avoid these potential consequences, Thrivent proposed a reorganization of its banking operations that would return it to a model similar to the one it had from 1998-2001. Under the reorganization:
Thrivent Financial Bank would split its operations into two.
All of Thrivent Financial Bank’s deposits and virtually all of its other liabilities and assets would be transferred to a newly formed credit union, Thrivent Federal Credit Union, which would conduct Thrivent’s retail banking operations.
Thrivent Financial Bank would then limit its operations to those of a trust company, and would change its name to Thrivent Trust Co.
The President and CEO of Thrivent Financial Bank stated that though there was a time that “a thrift bank charter gave us the most flexible model to serve members,” now, “driven mostly by the Dodd-Frank legislation, there are new costs, restrictions and the introduction to the Federal Reserve as a regulator, which has caused us to rethink our model.” He told another publication, “We actually think the credit union model will serve our members better than the current bank charter.”
The reorganization ultimately secured the relevant regulatory approvals, including from the NCUA and the OCC. The Federal Reserve Board then permitted Thrivent to deregister as a savings and loan holding company.
2024-??: Back to (Almost) Full-Service Banking
In 2021, Thrivent again changed course, proposing to charter a Utah industrial bank, and to then merge the credit union it established in 2012 into the new industrial bank.
Thrivent explained this latest change by saying that owning an industrial bank will allow it to “leverage our existing experience providing banking products and solutions that reflect our purposeful approach to finances, integrating them into modern, digital and holistic client experiences and channels that meet the needs of a broad range of consumers seeking financial clarity.”
All reasonable things to say, but unstated and also important is that from a regulatory perspective the industrial bank charter gives a company like Thrivent something close to (from its perspective) the best of both worlds. It allows Thrivent Bank to operate mostly like an ordinary bank without being subject to the restrictive7 field of membership requirements that apply to credit unions and without requiring Thrivent Financial to be regulated by the Federal Reserve Board as a savings and loan holding company.8
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According to the FDIC’s press release announcing approval of the applications, “Thrivent Bank will not operate physical branch office locations and intends to deliver all bank products and services exclusively online, offering a diversified loan portfolio centered in consumer loans and funded primarily by core deposits, following a traditional bank business model.” The existing Thrivent Trust Company will continue to operate as a separate entity.9
The FDIC’s press release also notes that, notwithstanding the fraternal membership requirements of Thrivent Bank’s parent company, the new industrial bank will “offer products and services without regard to religious affiliation.”
Acting Comptroller of the Currency Hsu said in a statement in support of the FDIC’s decision that this new charter will therefore “broaden Thrivent Financial’s reach within the general population and attract new clients beyond the credit union’s restricted field of membership and capital growth limitations.”
In many ways, as Acting Comptroller Hsu noted, this will make Thrivent Bank “look a lot like a community bank.”
Acting Comptroller Hsu no doubt meant that as a compliment, but some community banks will not see it that way.
An industrial bank does not count as a bank for purposes of the Bank Holding Company Act if any of the following is true: (i) the industrial bank does not accept demand deposits that the depositor may withdraw by check or similar means for payment to third parties, (ii) the industrial bank has total assets of less than $100 million or (iii) the industrial bank has existed since August 10, 1987 and has not undergone a change in control since then.
Most industrial banks don’t meet the criteria in (ii) or (iii) above, and so to take advantage of the BHC Act exclusion must choose not to accept demand deposits, even if they would otherwise be permitted to do so under state law. Note though that because there are other types of deposit accounts that as a practical matter work the same way as a demand deposit account, this limitation — at least for some customers — may not be as meaningful as it looks at first glance.
Opposition was quieter, but certainly not completely silent. See the ICBA statement linked at the end of this post.
The dates in this paragraph come from an overview of Thrivent’s history on its website.
Technically the financial statements refer to admitted assets, one of several insurance accounting concepts I confess I do not fully understand. But Chair Gruenberg’s statement gives the same $113.5 billion figure for total consolidated assets, so I take it that, at least here, there is no meaningful difference between Thrivent’s admitted assets and its total assets.
In Thrivent’s case, “Thrivent conducts fraternal activities primarily through a lodge system where members participate in locally sponsored fraternal activities. Lodge activities are designed to create an opportunity for impact via social, intellectual, educational, charitable, benevolent, moral, fraternal, patriotic or religious purposes for the benefit of members and the public and are supported through a variety of lodge programs and services.” See page 10 of the company’s most recent financial statements.
The facts in this paragraph and the preceding one are drawn from the description of Thrivent Financial Bank in a 2003 CRA evaluation of the bank.
Or not so restrictive, depending on who you ask.
Thrivent Financial will not be totally free from supervision. Under FDIC rules, it will need to enter into a written agreement with the FDIC under which Thrivent Financial will “consent to certain examination, reporting, recordkeeping, and other safeguards.” Thrivent Financial will also be required to enter into agreements with Thrivent Bank to “contribute additional resources to the Bank, if necessary, to maintain minimum levels of capital and liquidity.”
The quotes here come from Chair Gruenberg’s description of the relevant agreements on Friday. The agreements themselves should eventually become public, as they did for Square and Nelnet, but they are not on the FDIC’s website yet.
One of the conditions to the FDIC’s deposit insurance approval is that “The Bank and TFL's subsidiary Thrivent Trust Company . . . will operate as wholly separate and distinct entities.”