Wal-Mart to Pitch Banking Bid
Regulators to Hold Hearings on Retailer's Proposed Foray

By Kathleen Day
Washington Post Staff Writer
Friday, April 7, 2006

Executives at Wal-Mart Stores Inc., the world's largest retailer, will make one of the company's most important sales pitches Monday, hoping to persuade federal bank regulators to allow it to expand into banking.

Regulators at the Federal Deposit Insurance Corp., which insures bank deposits up to $250,000, will hold three days of public hearings starting Monday to help them decide whether to allow Wal-Mart to own a bank despite misgivings by labor unions, consumer groups and other bankers -- and over the objections of another key federal bank regulator, the Federal Reserve Board.

Proponents of Wal-Mart's banking bid say it is good for consumers because the company will lower prices in an industry historically known for poor customer service and little price competition.

Critics from the banking industry fear Wal-Mart would eventually dominate the industry by slashing prices for ATM use, check cashing and myriad other banking services, just as Wal-Mart has come to dominate the grocery and toy industries.

Consumer and union groups and some members of Congress say the company is already too big, with too much power over the U.S. economy, to the detriment of workers' pay and domestic jobs. They say its stores destroy Main Streets in towns across the country by putting local stores out of business.

The controversy has put Wal-Mart under so much pressure that several months ago, it scaled back its initial plan for a full-service bank to one that it says will be mostly used to process credit card purchases for its thousands of stores across the county. And last month, in a bid to quell some critics, it withdrew its request to be exempt from rules that require most banks to make some investment in underserved communities.

Because controversy generated by Wal-Mart's bid to own a bank has been so intense, the FDIC agreed to requests from dozens of members of Congress to hold hearings, the first ever for an insurance applicant in the agency's 73-year history. Thirty-six witnesses besides Wal-Mart are slated for the first day alone. Many, such as George Hood on behalf of the Salvation Army, are expected to support Wal-Mart. Others, such as former congressman Thomas J. Bliley Jr., are expected to oppose the company's bid to enter banking.

The criticism that could carry the most weight comes from some members of Congress and from the Federal Reserve officials, who say Wal-Mart -- and dozens of other non-banking companies, including Target Corp. and Harley-Davidson Inc. -- are using a loophole in banking laws in Utah and a few other states to circumvent a federal ban on commercial firms owning banks. They argue that letting commerce and banking mix would foster unfair concentrations of power, create conflicts of interest in how credit is granted and possibly pose risks to the FDIC insurance fund that could end up requiring a taxpayer bailout.

Technically, Wal-Mart is applying to the FDIC for deposit insurance for only a state-chartered bank in Utah. But because Utah granted the charter on the condition Wal-Mart win federal deposit insurance, the FDIC's decision will determine whether the company can fulfill its push over the past several years to enter banking.

The Utah legislature made Utah bank charters even more appealing last month. It passed, and the governor signed into law, a bill making it legal for financial firms headquartered in the state to require customers to settle disputes through arbitration rather than going to court and to agree to be banned from joining any class-action suits. State-chartered banks could export the bans to customers in other states, either through branches or through phone, mail and Internet sales.

Critics say once Wal-Mart is granted a bank, it can reapply to expand the services it offers through it. The FDIC hearings run Monday and Tuesday in Arlington and later this month in Kansas. The agency has not set a date for a final decision.