Wal-Mart Defends Its Bid to Enter Banking

George Hood of the Salvation Army, left, speaks in support of Wal-Mart Stores Inc.'s application with the FDIC to enter the banking industry.
George Hood of the Salvation Army, left, speaks in support of Wal-Mart Stores Inc.'s application with the FDIC to enter the banking industry. (By J. Carrier -- Bloomberg News)
By Kathleen Day
Washington Post Staff Writer
Tuesday, April 11, 2006

Wal-Mart Stores Inc., the world's largest retailer, is a "good corporate citizen" that should be allowed to own a bank just as other retailers, including Target Corp. and Harley-Davidson Inc., have been, a top Wal-Mart executive told federal bank regulators yesterday.

"Wal-Mart would be profoundly disappointed, and its customers and communities would be ill-served if Wal-Mart is treated differently than the many commercial and retail firms that now engage in more extensive banking activities than proposed for our bank," Jane J. Thompson, president of Wal-Mart's financial services division, told regulators at the Federal Deposit Insurance Corp.

Thompson defended Wal-Mart's record against criticism from consumer and labor groups, the traditional banking industry, and some members of Congress, who say the company is already too big and wields too much power over the U.S. economy, to the detriment of workers' pay and domestic jobs.

She repeated the company's stance that it has vastly scaled back its goal of only a few years ago to own a full-service bank with branches at its thousands of stores across the country.

Now, she said, Wal-Mart wants to use its proposed bank for the limited purpose of lowering the costs of its backroom processing of check and credit card transactions and to offer high-interest certificates of deposit. Wal-Mart would not open branches of the bank, she said, but instead has adopted a strategy of partnering with existing banks, renting them space to open their own branches within Wal-Marts "to give customers another reason to come into the store."

Wal-Mart critics who also spoke at the hearing told regulators that they are skeptical Wal-Mart will be content to stick to its business plan.

Rep. Stephanie Tubbs Jones (D-Ohio), who said she spoke on behalf of 100 members of Congress, said Wal-Mart should "be denied federal deposit insurance." If the FDIC does grant it, she said, the agency should "stipulate that if the Wal-Mart bank seeks to expand its activities outside the scope of that plan, it will lose its deposit insurance."

Wal-Mart's Thompson was the first person to speak in three days of hearings the FDIC is holding to decide whether to allow Wal-Mart to own a bank. The hearings are the first of their type in the FDIC's 73-year history. Wal-Mart needs approval from the FDIC -- which insures bank deposits from $100,000 to $250,000, depending on the type of account -- to win final approval from Utah regulators to open a special kind of state-chartered bank called an industrial loan corporation, or ILC.

In general, federal law bars commercial, nonfinancial firms such as Wal-Mart from owning banks, and Congress has several times over the past two decades closed loopholes that companies such as Sears, Roebuck and Co. and others have used to try to circumvent the ban. The one exemption has been state-chartered ILCs, which Utah, Nevada and a few other states are using to carve out a special, alluring niche in the financial services arena.

The Federal Reserve Board and some members of Congress have criticized the ILCs, saying that allowing commerce and banking to mix could 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.

Thompson promised that a Wal-Mart bank "will not lend to any affiliate under any circumstance" and pointed out that if other retailers can own banks -- and they do -- then Wal-Mart shouldn't be denied the same benefit.

Executives from banks across the country have inundated the FDIC with comment letters protesting Wal-Mart's application for a bank, fearing the retailer will come to dominate financial services the way it has dominated the toy and grocery businesses.

Thompson said a Wal-Mart bank would be good for consumers because the company will lower prices in an industry historically known for poor customer service and little price competition.

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