Oh , Boy! The fun starts today.
The world's largest retailer will ask the Federal Deposit Insurance Corp. Monday for permission to open a bank that can process millions of checks and credit card payments each month. The company says it's not interested in running a consumer bank as well, but some of its opponents still fear such a step could hurt local banks much like mom-and-pop stores were hurt during Wal-Mart's rapid expansion.
This is Wal-Mart's fourth bid at running a bank - and its request unleashed an unprecedented flood of comments to the FDIC. In response, the FDIC scheduled its first public hearings ever on a bank application.
"It's a landmark battle in both U.S. business and financial-services history," said Jerry Comizio, a financial-services lawyer for Thacher Proffitt & Wood LLP in Washington, D.C., and a former senior attorney with the Securities and Exchange Commission and deputy general counsel of the U.S. Department of the Treasury's Office of Thrift Supervision.
Wal-Mart says consumers and retail banks have nothing to fear. It pledges to stay out of branch banking and says it will not provide consumer lending. About 300 institutions operate branches in 1,150 Wal-Mart stores and the company says it doesn't want to compete with them.
For opponents, those assurances ring hollow.
"There is reason to believe that these (Wal-Mart) plans could be expansive. Wal-Mart has attempted on several occasions to enter the full-service banking business," said Art Johnson, head of government relations for the American Bankers Association, in testimony prepared for Monday's hearing. "The ABA believes that banking is too important to the nation to try such a risky experiment."
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This time, Wal-Mart is applying for a state charter to open a special type of bank called an industrial loan corporation in Utah, where other companies including rival Target Corp. (TGT) already have one. Target uses its Utah industrial bank to issue credit cards for corporate customers and says it has no plans to expand that business.
The charter needs approval from the FDIC, which would supervise and insure its deposits. ILCs are not regulated by the Federal Reserve, which has oversight over traditional banks.
While the Federal Reserve supervises the entire range of a bank's business including its holding company, state and federal oversight over ILCs does not extend to the commercial companies that run them. Opponents say this means that an ILC's owner can take more business risks than a regular bank and potentially endanger deposits insured by the FDIC.
The first FDIC hearing will be held Monday and Tuesday in Arlington, Va., and a second one on April 25 in Overland Park, Kan.
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Concerns are twofold. One is the mixing of banking and commerce - parts of the economy that have traditionally been separate. The other is concern that a Wal-Mart bank could swallow local banks with its national presence and deep pockets, outcompeting even large institutions such as Bank of America (BAC), Chase and Wachovia (WB) that have also grown at the expense of local ownership.
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"The issue here is primarily the law and national policy on the mixing of banking and commerce. Depending on your point of view, Wal-Mart is using a valid legal means or the last remaining loophole in banking laws for a nonfinancial institution to obtain a banking charter," said Comizio, formerly with the SEC.
Comizio said federal policy for decades has kept banks under a separate and tougher regulatory framework to limit the risk of collapse in the financial sector, which could spread through the economy faster than the failure of a nonfinancial business.
The FDIC has not set a deadline for a decision. Acting Chairman Martin Gruenberg, who took over when Chairman Donald Powell became the administration's Gulf Coast reconstruction coordinator, has said he does not anticipate a decision until a new chairman is in place.
"My sense is, whatever happens, there's going to be a court challenge," said Bert Ely, a banking consultant in Alexandria, Va., and longtime FDIC observer. If the FDIC rejects the application, Wal-Mart likely would sue, and if it approves it, the bankers and other critics could sue, Ely said.
"There are lots of people itching to have a fight with Wal-Mart. They're a real lightning rod now," Ely said.
Yeah, yeah, cat fight! Everybody loves a cat fight.
Odd, no one mentioned the NAR. They've got a cynical oar in the water, too.
What's not to love about this one? All you'd need is sex and drugs, and maybe an exorcism or two, and we could make a daytime soap opera out of it.
Stay tuned.
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