Wal-Mart Argues for Industrial Bank at FDIC Hearing

by Lance Turner  on Tuesday, Apr. 11, 2006 12:00 am  

Wal-Mart Stores Inc. of Bentonville on Monday testified at the first of two Federal Deposit Insurance Corp. hearings on the retailer's industrial bank application.

According to the FDIC's summary of Wal-Mart Financial Services President Jane J. Thompson's statement, "Wal-Mart is absolutely and unequivocally committed not to engage in branch banking. In fact and in practice, Wal-Mart is clearly committed to supporting community banking, not undermining it."

Thompson told regulators that the purpose of the proposed Wal-Mart Bank would be to sponsor credit card, debit card and electronic check transactions — nothing more.

The FDIC will hold another hearing on Wal-Mart's industrial bank application from 9 a.m.-5:30 p.m. April 25-26 in Kansas City, Mo. It is the first time in the FDIC's history that it has held public hearings on a bank application.

Wal-Mart has applied to open an industrial loan company to handle electronic payment processing. The bank would be headquartered in Salt Lake City.

Critics of Wal-Mart's application have said Wal-Mart could use the bank to offer other financial services. They also say the Wal-Mart bank would cross the line between banks and other businesses that primarily offer financial services. But other companies, including Target, GE Capital, Merrill Lynch and Pitney Bowes, have been granted permission to set up similar banks.

On Tuesday, Wal-Mart said it was grateful to the FDIC for allowing it to testify.

"Today's hearing made it clear that regulators can choose between approving a routine application or yielding to unfounded speculation and heated rhetoric about topics unrelated to our application," the retailer said.

"Our application and testimony should convince regulators that we will continue to support and expand upon the over 1,150 independent bank branches already in our stores, and that our goal is to save money on transaction costs and then pass on those savings to working families who shop in our stores. We've made it clear to regulators that the scope of our plan is limited and specific and that anyone who suggests otherwise is simply wrong."

Poole: ILCs an Issue in 2006

This week's FDIC hearing gave regulators a chance to hear from several parties on all sides of the industrial bank issue, including members of Wal-Mart watchdog groups, unions and bankers associations and Realtors.

In the April edition of "The Regional Economist," a monthly report by the Federal Reserve Bank of St. Louis, William Poole writes that the issue of industrial loan corporations, or ILCs, "promises to be one of the more interesting banking issues of 2006."

Poole, the president and CEO of the Federal Reserve Bank of St. Louis, talks about the Wal-Mart case and says that if ILCs were small, the matter wouldn't receive as much attention.

"But the more than 50 FDIC-insured ILCs are now among some of the nation's largest and more complex financial institutions, according to the Government Accountability Office," he writes. "Assets topped $140 billion in 2004. The Merrill Lynch ILC by itself has more than $50 billion in deposits."

Poole also notes that former Federal Reserve Chairman Alan Greenspan has agreed with bankers who fear that the wall between banking and commerce will crumble. He said that before retiring, Greenspan urged Congress to open public hearings on protecting the "safety and soundness" of the bank system. And he said that in his first address to Congress, new Fed Chairman Ben Bernanke backed a measure to put industrial loan companies under Fed oversight.

Click here for more on Wal-Mart's FDIC hearing.



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