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An attempt by Wal-Mart Corp. to expand into banking drew a wave of opposition in April from interests ranging from the banking industry and unions to lawmakers and associations representing retailers and grocers. The Federal Deposit Insurance Corp. (FDIC) held hearings after receiving about 2,000 letters in opposition of the world’s largest retail conglomerate’s request to obtain federal insurance for a bank it would use to process its millions of credit, debit and electronic check transactions.
Although Wal-Mart says it has no plans to venture into community banking, critics say the company is notorious for broken promises and the likelihood of the retailer entering the full-fledged banking arena is nearly guaranteed. One of the bigger concerns, however, is risks a Wal-Mart bank poses to the country’s financial system and economy in general.
“A Wal-Mart bank would provide Wal-Mart with the capability to exert extraordinary influence on the payments system and would pose significant settlement and security risks, given Wal-Mart’s dominant role in the global economy,” said Terry J. Jorde, a banker and chairman of the Independent Community Bankers of America, in his testimony to the FDIC. “Without adequate oversight of the parent company, what would prevent Wal-Mart from requiring its suppliers to use its bank as a condition of doing business? The systemic risk, potential for conflicts of interest and undue market concentration are enormous.”
Critics also question the oversight over the bank, especially when it comes to such a big corporation. Wal-Mart would become the parent company of a so-called ILC, an industrial loan corporation allowed under a regulatory exemption. The ILCs do not have the same regulatory requirements like other banks that are overseen by the Federal Reserve. Supporters, however, say Wal-Mart’s request is not any different than other companies’ that operate their own ILCs, including rival Target as well as General Motors and General Electric.
Wal-Mart has tried a few other times to enter the banking arena, including through a unitary thrift holding company loophole. Congress enacted a law in 1999 that closed that loophole, which bankers say was a reaffirmation of the country’s long-standing policy that separates commerce and banking.
“The threat of Wal-Mart …really flies in the face of that,” says David Johnson, president and CEO of Westsound Bank. “I don’t think they have a good leg to stand on. Wal-Mart clearly has no business in the banking business… I guarantee, if we tried to go into the retail business, Wal-Mart would be all over Congress. “ |
