What about Target Industrial Bank?

by Shawn Halladay

The Wal-Mart bank battle continues to heat up as more and more parties join the fray. The big retailer continues to hang in there, even with new developments and changes occurring almost every day. For instance, Iowa's Governor signed legislation yesterday that prohibits commercially-owned industrial loan companies (ILCs) from opening branches in stores located in Iowa. I wonder if he had anyone in particular in mind. California and Colorado already restrict ILC activities and seven other states are considering restrictions. While these actions address the specific issue raised by Wal-Mart, thought must be given to the effect on other economic issues. For instance, if one state starts limiting the commercial activities of out of state entities, there may be retaliatory measures taken. The regulatory environment may be effected, also.

The Dow Jones Newswires reported last Friday that, although not targeting Wal-Mart specifically, Federal Reserve Governor Bies made comments indicating that the Fed should have oversight authority over ILCs rather than the Federal Deposit Insurance Corp. As Ms. Bies commented, if ILCs "…have a charter that allows them to do everything a bank does, why should they have different supervisory oversight?" One concern, apparently, is the impact of ‘banks outside of the banking system' on the economy that are. The Congress also has weighed in the issue.

Developments are not just occurring around Wal-Mart – it also is being proactive by making changes to its application. These changes are in addition to the changes I mentioned in a previous post regarding the Community Reinvestment Act. Responding to an FDIC request, Wal-Mart has pledged to raise the proposed bank's capital from $12 million to $125 million, and to hire a chief risk officer. (As a side note, a recent study has indicated that the number of bank failures is down significantly, primarily due to the risk practices and policies banks have adopted, so this step makes a lot of sense.) Wal-Mart also promised to introduce other financial safeguards and policies.

What really baffles me is the marked absence of Target in all these discussions. They are a ‘big box' retailer, they have an ILC, and they could open up bank branches in their stores. Why just Wal-Mart? Is there more to this than just the regulatory issues? It seems that public perception and Wal-Mart's market reputation are driving many of these actions. And on it goes.

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