Fed Wants Banking, Commerce Separate

A “loophole” in U.S. law that allows commercial firms to buy industrial banks undercuts efforts to keep banking and commerce separate and should be closed, Federal Reserve Chairman Ben S. Bernanke said Wednesday.

Speaking during the annual conference of the Independent Community Bankers of America, Bernanke said the growth of industrial loan companies raised “very significant public policy issues” that the U.S. central bank would like to see addressed.

“If Congress wants to revisit banking and commerce, that’s their prerogative, but it doesn’t seem to be a good approach to allow a loophole to be the way in which that distinction breaks down,” he said.

Industrial banks are chartered and regulated by the states and fall under the supervision of the Federal Deposit Insurance Corp. Commercial companies may own them because federal laws that bar nonfinancial companies from engaging in banking activities do not classify them as banks.

Wal-Mart Stores Inc., the world’s largest retailer, has applied to open an industrial bank in Utah, a bid that faces opposition from some lawmakers.

The Fed chief said there was a question of “equity and parity” in the current regulatory framework, which subjects bank holding companies to greater scrutiny than commercial firms that own industrial banks.

“It would be a good idea to move toward policies that eliminate that problem and make sure that, if there is ownership of an [industrial loan company], that there be consolidated supervision so that the owner, as well as the ILC itself, fall under the ... supervisory requirements that other owners of banks face,” Bernanke said.

Bernanke’s comments expanded on remarks he made in congressional testimony last month in which he declined to comment directly on Wal-Mart’s bid.