WASHINGTON - The FDIC dealt a near-fatal blow last week to the effort by Wal-Mart Stores for a bank charter when it voted to extend its moratorium for industrial loan companies owned by commercial entities for another 12 months.
The move left the two-year-old application for deposit insurance for the retail giant's ILC in limbo, as Congress begins its own deliberations on the ownership of banks by commercial entities like Wal-Mart, Home Depot and CMS Energy, all of which are trying to enter the market through ILCs, so-called back-door banks.
In voting to extend the current six-month moratorium for another year the five members of the FDIC Board agreed to wait until Congress leads the way on the historic mix of banking and commerce. "The industrial bank applicants-whether they are commercial companies or financial companies-deserve an answer, said FDIC Chairwoman Sheila Bair. "For commercial companies, I'm afraid, the answer is that they will have to wait a little longer."
While the application from Wal-Mart and the others are for Utah-chartered ILCs, they must all obtain federal deposit insurance from the FDIC, thus the necessity for FDIC approval. As part of last week's vote, the FDIC did, however, lift the six-month moratorium on new ILC charters owned by financial entities.
Wal-Mart officials could not be reached last week but indicated they would continue to press forward with their bank bid, which would provide access to the Federal Reserve payments system and enable the company to save millions of dollars on processing fees, and save it and consumers millions more on cards interchange fees. Throughout the contentious process, which has been fought vigorously by the banks who fear competition from the famous discount-retailer, Wal-Mart has insisted it has no plans to create its own branches and displace the 300 credit unions and banks that operate 1,300 in-store branches in Wal-Marts across the country.
The FDIC delay came two days after leading members of the House Financial Services Committee introduced legislation to permanently bar commercial entities like Wal-Mart from banking through ILCs. Under a bill introduced by Massachusetts Democrat Barney Frank, new chairman of the financial services panel, and Ohio Republican Paul Gilmor, an entity must conduct 85% of its business in financial services in order to obtain an ILC charter.
The main issue among lawmakers and many in the financial community is the traditional separation between commerce and banking, even though several other commercial entities-like Wal-Mart's chief competitor Target-have already done so through the ILC charter. In pending applications, Home Depot said it wants an ILC charter to enable it to make home improvement loans. And Michigan-based CMS Energy said it wants to make energy saving loans to its customers.
During last week's debate at the FDIC, members of the five-person Board indicated concern that commercial entities like Wal-Mart are not subject to the rigorous banking supervision and examination and thus, pose a potential risk to the FDIC Insurance Fund.
Even without the bank charter Wal-Mart has penetrated deep into the banking market with a variety of consumer loan products, credit cards and its own growing network of ATMs. The company also recently obtained a banking charter just south of the border, in Mexico.
(c) 2007
