Wal-Mart Faces Bank Plan Foes
Wal-Mart Stores Inc. defended its bid to open a limited-purpose bank and took aim Monday at one of the most regularly voiced concerns about its proposal, saying it had no plans to open branches and it was committed to keeping independent banks in its stores.
At the first of three days of public hearings on Wal-Mart’s widely watched bank application, the company confronted concerns raised by its aggressive opposition, including some members of Congress and community banks, as well as those who regularly criticize the company, such as labor and environmental groups.
Jane Thompson, president of Wal-Mart Financial Services, said the retailer had abandoned previously contemplated plans to move into retail banking and wanted to start financial operations solely to process some of its stores’ electronic payments.
“We have absolutely no plans to open bank branches,” she said at the hearing presented by the Federal Deposit Insurance Corp., the regulatory agency reviewing the retail giant’s bank application.
But critics said they didn’t buy it.
“Wal-Mart does nothing on a small scale,” Terry Jorde, chairman of the Independent Community Bankers of America, told the FDIC panel holding the hearing. “We respectfully suggest that Wal-Mart’s recent history belies the assertions made in its narrow application, justifying our skepticism that Wal-Mart will honor the business plan as filed for very long.”
Opponents say Wal-Mart already has the structure to ramp up operations if it decides, and if regulators allow it, to open retail branches one day in its 3,800 stores across the country.
That could threaten community banks, according to trade groups that say Wal-Mart has the size and resources to lower prices long enough to drive small banks out and then raise prices once it dominates the market.
A Wal-Mart bank could pose a risk to the country’s financial system, and potentially to taxpayers, critics say.
“Given Wal-Mart’s massive scope and international dealings, it is not possible to rule out a financial crisis within the company that could damage the bank and severely disrupt the flow of payments throughout the financial system,” said Rep. Stephanie Tubbs Jones (D-Ohio), who heads a group of lawmakers who oppose the company’s application. “The potential losses to the FDIC are staggering.”
The bid has generated an unprecedented level of opposition to a bank application -- so much, in fact, that the hearing was held in the Washington suburb of Arlington, Va., to accommodate large numbers of attendees and possible protests. Neither materialized.
Wal-Mart’s bank, known as an industrial loan corporation, would process electronic payments from its stores -- transmitting payment requests from shoppers to credit card issuers and then transferring payments back to Wal-Mart.
Bringing this function in-house would reduce what Wal-Mart says is the inefficiency of paying a third party to pass information between stores and customers’ banks.
Industrial banks are state-chartered and state-regulated and fall under the FDIC’s supervision. Commercial companies may own them because federal laws that bar nonfinancial companies from engaging in banking do not classify industrial loan corporations as banks.
