Wal-Mart Critics Urge FDIC To Reject Application For Bank.

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Author: Posner, Michael

Finance

Critics of Wal-Mart's bank application asked bank regulators today to dismiss the retailer's request to open a bank to process credit card applications as the FDIC wound up its first-ever public hearing. At the close of two days of testimony debating the bank application by the world's largest retailer, an FDIC official said no date has been scheduled for a vote on Wal-Mart's banking bid. A public hearing is scheduled April 25 in Overland Park, Kan. Wal-Mart has applied to establish an "industrial loan company," a bank that would be chartered through Utah, but first it needs FDIC approval for federal insurance. Opponents took issue with Jane Thompson, president of Wal-Mart Financial Services, who testified Monday the company intends to limit its banking to mainly credit card processing to save outside bank fees and does not plan to create branches.

Nine community, industry and labor groups opposing the bank charter outnumbered three witnesses today who either favored a Wal-Mart bank or did not oppose one. National Association of Realtors' Thomas Stevens said the stability of the banking system would be at risk with a Wal-Mart bank. He said it "will establish a dangerous precedent leading inevitably to an erosion of the national policy against mixing of banking and commerce, and have serious consequences for the continued stability and growth of the nation's" financial system.

"As we know from the collapse of Enron and WorldCom, circumstances can spin out of control of management," Stevens said. He also asked Congress to outlaw the so-called industrial loan loophole allowing private companies to own banks. About 60 ILC's now have been approved for loan insurance, none approaching the size of Wal-Mart. But New York University professor Lawrence White urged FDIC approval, and American Enterprise Institute fellow Peter Wallison argued that since Congress allowed banks to get into insurance and securities, policy reasons for separating banking and commerce no longer apply. Rashmi Rangan, representing the Delaware Community Reinvestment Action Council and California-based Greenlining Institute, said small banks could be driven out of business. "The transaction would open the door to an attempt to monopolize the business of banking in the United States," she said. Former House Minority Whip David Bonior, D-Mich., chairman of American Rights at Work, said Wal-Mart violates the good character of management requirement for FDIC insurance. "Given Wal-Mart's track record of violating federal labor law, we have great concerns about Wal-Mart entering the risky, largely unregulated world of industrial loan companies," he said.

Similar opposition came from the U.S. Public Interest Research Group and Economic Policy Institute. Americans for Democratic Action's Jack Blum said Wal-Mart has had a "goal of dominating markets, working to control competition."

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By Michael Posner