Wal-Mart to Withdraw its Application for a Bank

by Christopher Menkin

While I am more a Target shopper, I still like Wal-Mart. I mean where else can I go to work part-time after I retire? They even have a wine section. Look for Charlie Lester and I on aisle #12.

Leasing News has been writing about the growing trend of state industrial banks, particularly in the State of Utah. When Wal-Mart filed to start an industrial bank, it hit a discord with the new Federal Reserve Chairman Ben Bernanke.

The growing campaign resulted in two FDIC hearings, one April 10 and 11 in Arlington, Virginia; the second will take place on April 25 near Kansas City, Kansas. Last week Rep. John Gleason of Michigan proposed a bill Friday that would bar industrial banks like one Wal-Mart is seeking to start. State Delegate Brian Moe in Maryland, also proposed one in his state.

In the latest development, Wal-Mart told Reuters it would withdraw its proposed exemption from the Community Reinvestment Act, a U.S. law that places requirements on banks and savings institutions to help meet credit needs of low- and moderate-income neighborhoods.

While Wal-Mart said its activities and investments already support surrounding communities, and that it had been advised its bank would be exempt from the law, the retailer has decided to withdraw its proposed CRA exemption Over 45 Congressman have joined the vigilante group to get Wal-Mart. It evidently is safe politics to go after the store that every one supposedly hates. It really cracks me up, supposedly everyone hates Wal-Mart coming to their town, but on the other hand, the shoppers welcome them by buying up everything they have in stock.

Wal-Mart is bad for us, and Wal-Mart Bank would even be worse, according to these congressman. Why? They are threatening the U.S. banking system, according to these politicians up for re-election.

"Without proper regulatory oversight, an industrial bank owner may put the solvency of both the bank and parent at risk," writes the group in their opposition.

The press releases are really flying now. It appears “safe” for Congress to be concerned about commercial owners of industrial banks, who they fear escape a level of federal bank supervision.

They finally found a safe platform.

The criticism originally came from those opposing the Wal-Mart bid. They began the talk that lack of full federal oversight could allow troubles within the company to bleed into the bank's business and disrupt the payments system. Mean their bank could put the retail side out of business. The same applies to the other industrial bands such as General Electric, Merrill Lynch, and perhaps even Lehman Brothers ( Oh, no, Mr. Bill! No Lehman Brothers!!!)

Industrial banks are state-chartered and state-regulated; however, they also are under the supervision of the Federal Deposit Insurance Corp. (FDIC). Commercial companies may own them because federal laws that bar non-financial companies from engaging in banking activities do not classify industrial banks as banks.

The question facing regulators is whether Wal-Mart, by far the nation's largest retailer and its biggest private employer, can open a bank in Utah that would process credit and debit card transactions for its 3,500 American stores. Dozens of companies, including Target, Toyota and BMW, operate similar banks.

Wal-Mart argues that a bank would save money for itself and its shoppers by avoiding the charges imposed on credit card purchases by other financial institutions, which amount to at least $5 million a year. Opponents argue that the bank, even with its narrow focus, would allow Wal-Mart eventually to open retail banking branches that could wipe out competitors, an ambition Wal-Mart denies harboring.

COMMUNITY REINVESTMENT ACT

In its application, Wal-Mart said its bank would be a "special purpose bank" and would not be subject to the Community Reinvestment Act, a law enacted in 1977 to encourage banks and savings institutions to help meet the credit needs of low- and moderate-income neighborhoods.

The law provides a framework for depository institutions and community organizations to boost the availability of credit and other banking services to underserved communities. According to bank regulators, the law has led banks and thrifts to open new branches, provide expanded services and adopt more flexible underwriting standards.

"The CRA exemption was only one of several troubling parts of Wal-Mart's ILC application," said Nu Wexler, a spokesman for a group called Wal-Mart Watch, which is part of The Center for Community & Corporate Ethics and its advocacy arm.

"This change does not address our concerns and our allies' concerns about other critical issues -- like the separation of banking and commerce The Congressmen say the fear is coming from their constitutes who are small banks, who fear Wal-Mart could drive community banks out of business, just as the large retailer has driven small retailers out of business in towns where they have opened.

No mention of competition from the larger banks, savings and loans, or mergers in the last ten years. Congress now wants to protect small banks.

One of the problems to be heard at the two hearings is the barn door has been left open too long. Target, Fry's Electronics and others such as General Electric, Merrill-Lynch, to name a few, have an industrial bank.

The Salvation Army, by contrast, plans to speak in support of Wal-Mart, trumpeting the company's steady financial support for the charity's Red Kettle Christmas Campaign and Wal-Mart's rapid response to aid victims of Hurricane Katrina.

"We are not bankers and we don't pretend to be," said Maj. George Hood, in charge of national community relations at the Salvation Army. "Our focus is to be a character witness for Wal-Mart and their support for communities."

Wal-Mart keeps repeating its purpose is to have better control of their credit card marketing and accounts, telling those who ask they will again explain the functions its proposed bank would perform.

In all fairness, it does appear to be an unfair trade restriction to allow a competitor, such as Target, have the ability to process its own credit cards, while denying another.

Why the vigilante group? And the screaming, “Let's hang Wal-Mart Bank!” Perhaps the controversy is considered to be a somewhat safe issue, especially compared to huge deficits, the war, Katrina, Homeland security, Medicare, campaign contributions...

It looks again like one of those Congressional "friendly lynching" where no one gets actually hanged, but everyone can scream and holler, act like they are getting something done, then go home as if they accomplished something.