US lawmakers: Wal-Mart threatens US payment system
Staff and agencies
10 March, 2006
By Kristin Roberts
WASHINGTON - A group of lawmakers on Friday said an industrial bank owned by
Wal-Mart (NYSE:WMT - news), the world?s largest retailer, could threaten the
stability of the U.S. financial system and drive community banks out of
business.
In a highly critical letter to the acting chairman of the Federal Deposit
Insurance Corp., obtained by Reuters, a group of more than 30 Congress members
asked the bank regulator to reject Wal-Mart?s application to open a bank in
Utah.
"Wal-Mart?s plan, to have its bank process hundreds of billions in
transactions for its own stores, could threaten the stability of the nation?s
payments system," the lawmakers wrote.
"Given Wal-Mart?s massive scope and international dealings, it is not
possible to rule out a financial crisis within the company that could damage the
bank and severely disrupt the flow of payments throughout the financial system."
The congressmen said the losses to the FDIC, which insures deposits at banks
and thrift institutions, could be staggering if Wal-Mart begins to have
financial troubles that bleed into its bank?s business.
"Consider the consequences if Enron or WorldCom had owned a bank," the group
said.
The group included Ohio Democrats Rep. Stephanie Tubbs Jones (news, bio,
voting record) and Rep. Tim Ryan (news, bio, voting record), Hawaii Democrat
Rep. Neil Abercrombie (news, bio, voting record) and California Democrat Rep.
Loretta Sanchez (news, bio, voting record). A complete list of signatures was
not immediately available.
Wal-Mart is trying to open an industrial bank to handle electronic payment
processing.
Industrial banks are state-chartered and state-regulated, and fall under the
supervision of the FDIC. Commercial companies may own them because federal laws
that bar non-financial companies from engaging in banking activities do not
classify them as banks.
But as "industrial loan companies" owned by non-financial companies, they
escape a level of federal bank regulation.
Wal-Mart?s application has attracted heightened attention in Washington from
some members of Congress, consumer groups and banks that fear competing with the
retail giant.
Some lobbyists and analysts, however, say the opposition is not surprising,
given?s Wal-Mart?s size and the criticism it regularly receives from labor
unions and other groups. Those sources say that if the FDIC follows statute,
there is little reason why Wal-Mart?s application should be denied when rival
Target Corp. (NYSE:TGT - news) succeeded.
The Wal-Mart bid generated a record number of public comments and calls from
Capitol Hill for the regulator to slow down its review. The FDIC, under Acting
Chairman Martin Gruenberg, has agreed to hold public hearings on the application
-- the agency?s first formal public hearings on a bank application ever.
Some groups, particularly banks, fear Wal-Mart will use its industrial bank
as a base to offer a wider array of services in its branches.
Others who oppose Wal-Mart?s application say the bank would violate the
historic separation in the United States between banks and enterprises that do
not engage primarily in finance. Still, other corporations have already set up
industrial banks, such as General Electric (NYSE:GE - news) and General Motors
(NYSE:GM - news).