Lawmakers: Wal-Mart threatens US payment system
Fri Mar 10, 2006 11:49 AM ET
By Kristin Roberts
WASHINGTON (Reuters) - A group of lawmakers on Friday said an
industrial bank owned by Wal-Mart (WMT.N: Quote, Profile, Research),
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 and Rep.
Tim Ryan, Hawaii Democrat Rep. Neil Abercrombie and California
Democrat Rep. Loretta Sanchez. 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. (TGT.N: Quote,
Profile, Research) 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.
Wal-Mart has said it welcomes the public hearings.
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 (GE.N: Quote, Profile, Research) and General Motors (GM.N:
Quote, Profile, Research).
--
"The president and I cannot prevent certain politicians from losing
their memory, or their backbone, but we're not going to sit by and
let them rewrite history." -- ***** Cheney 11/16/2005
"War is God's way of teaching Americans geography" -- Ambrose Bierce
"America is a vast conspiracy to make you happy." -- John Updike
"Long term commitment in relationships is only necessary because it takes
so damn long to raise children. Marriage may well be some kind of trick
to keep the males around beyond sexual satiation." -- Captain Compassion
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMverizon.net
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