Washington, DC, February 1, 2007--Wal Mart, Home Depot and other large retailers seeking to run their own banks faced a tougher road Wednesday when federal regulators voted to extend a moratorium on such moves for a year, according to USA Today
The Federal Deposit Insurance Corp., which initially imposed the temporary ban in July, acted to give Congress more time to debate legislation that could bar retailers and commercial firms from buying or chartering industrial loan companies, as the banks are known, and restricting expansion of some institutions.
FDIC Chairman Sheila Bair called the extension prudent, given recent changes in the industry, as well as safety and soundness concerns regarding commercial ownership of the specialty banks. But she emphasized that firms with pending applications deserved an answer.
"The FDIC cannot defer action on these matters indefinitely without, at some point, creating risks of exposure to litigation and complaints that it is abdicating its regulatory responsibilities," Bair said.
The additional one-year delay affects Wal-Mart, Home Depot, DaimlerChrysler and an application involving Cargill for American Pioneer Bank. The FDIC also has five applications pending from what may be considered primarily financial firms, which it will decide on a case-by-case basis.
House Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Paul Gillmor, R-Ohio, on Monday reintroduced a bill to rein in commercial acquisition of industrial loan companies. A similar measure passed the House in the last session of Congress. Senate Banking Committee Chair Chris Dodd, D-Conn., said he will carefully consider the issue.
Industrial loan companies (ILC) are a special type of state-charted institution that crosses traditional lines separating banking and commerce. Created at the turn of the century to help industrial workers, ILCs are a $177 billion industry.
Camden Fine, president of the Independent Community Bankers of America, called Wednesday's FDIC move "fair and measured."
Wal-Mart's 2005 application to set up a Utah-based ILC sparked opposition from Congress, banks and consumer groups, who said regulators had less ability to police the parent companies that own the ILCs. There is concern that Wal-Mart would use the specialty banks to compete with existing institutions.
Wal-Mart spokesman Kevin Gardner calls the retailer's critics wrong: Their plan is not to get into branch banking but to "drive unnecessary cost out of business" by cutting fees paid for debit and credit card transactions. Wal-Mart already leases space to more than 300 financial institutions, he notes.
Retailers are trying to get the same treatment that 60 other businesses got when they sought to set up ILCs, says the National Retail Federation's Steve Pfister.
Home Depot spokesman Anthony Wilbert says the chain is disappointed in the FDIC decision, while adding, "We still believe we have a strong application, and we look forward to a final determination on the specific merits of our application."
