Efforts by major retailers like Wal-Mart and Home Depot to open up their own banks have bounced — at least for now. The Federal Deposit Insurance Corp. decided at the end of January to extend for one year a moratorium on “nonfinancial” companies’ applications to establish or acquire banks. This means no transaction for Wal-Mart and Home Depot. It also means that opponents of retailer-banks can lobby Congress to push for legislation prohibiting retailers from owning what are known as “industrial loan corporations”, or ILCs. The Chairman of the FDIC said its moratorium would “allow Congress a reasonable interval to determine whether and on what terms commercial companies” can move into banking. The banking industry has been sour on the idea of companies like Home Depot and Wal-Mart owning banks, arguing that it would put too many assets into too few companies, and hurt competition in the banking industry. Massachusetts Congressman Barney Frank, chairman of the House Financial Services Committee, has refiled legislation that would prevent retailers from owning ILCs. Frank said his bill “gives us the ability to legislate and maintain the historical and necessary separation between banking and commerce.” The bill passed the House last year, but died in the Senate. Wal-Mart told the Associated Press that its goal is to lower banking costs and save customers money, using its bank to handle the millions of credit-card, debit- card and electronic-check payments it processes each year. According to the FDIC, there are 58 ILCs in the country, most of them located in Utah or California.
In 1987, Congress allowed commercial companies to own”limited-service” industrial loan companies. ILCs chartered at the state level were exempted from most federal regulation so they could focus on helping low-income industrial workers get small loans. But today, large commercial companies, like GM, Target Corp. and American Express Co., have been opening ILCs. Two years ago, Wal-Mart tried to open up an ILC in Utah. The FDIC decided at the time to impose a 6 month moratorium, which ran out at the end of January, 2007. Now the FDIC has extended it once again. The Independent Community Bankers of America (ICBA), said the FDIC took an “important step toward ensuring the continued safety and soundness of our financial system.” Home Depot said it was “disappointed by the decision,” which set back its plans to buy an existing bank, EnerBank USA, so the retailer could offer home improvement loans. Chief opponent of Congressman Frank’s bill is U.S. Senator Robert Bennett of Utah, who says ILCs give consumers more banking choices. Wal-Mart founder Sam Walton bought a bank before he started his retail empire. Walton bought the Bank of Bentonville, which over the years became part of a much larger banking empire, known as Arvest Bank. Arvest is headed by Walton’s son, Jim. So the Walton family is already up to its ears in banking. Many of these retailers have made arrangements with regional banking chains to have banking outlets in their stores, but Wal-Mart and Home Depot want their own logo on those banks so they can control the entire banking operation as part of their business. For earlier stories, search Newsflash by “bank”.
