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Sen. Clinton urges caution on Wal-Mart bank bid

February 8, 2006

By Kristin Roberts

WASHINGTON (Reuters) – New York Democrat Sen. Hillary
Clinton has entered the debate over Wal-Mart’s controversial
bank application, telling regulators she has “serious
reservations” about allowing companies to enter financial
services by exploiting a “loophole” in U.S. law.

According to a February 3 letter obtained by Reuters on
Wednesday, Clinton, a former Wal-Mart board member, told the
Federal Deposit Insurance Corp. the retailer’s bid to open an
industrial loan company (ILC), if successful, could have a
significant impact on the financial sector.

“After hearing from very concerned constituents about
Wal-Mart’s application for federal insurance for their ILC, I
see this as a time to urge the FDIC to give serious and careful
review to the relevant issues before moving forward on any
application for federal insurance,” Clinton wrote to the FDIC’s
acting chairman.

“Indeed, I believe that any action by the FDIC that would
lessen or loosen the oversight for ILCs while granting it the
same privileges and functions of traditional commercial banks
would be a critical mistake and stand in stark contrast to the
fundamental principle of the separation of banking and
commerce.”

Clinton’s letter is the latest in a string of
correspondence from Capitol Hill to the FDIC urging the
regulatory agency to either oppose or move slowly and carefully
on the application from the world’s largest retailer to open an
industrial bank in Utah.

A spokesman for the FDIC said the agency’s acting chairman
had received Clinton’s letter but had not yet responded. He
declined further comment.

Industrial banks are state-chartered and state-regulated,
and fall under the supervision of the FDIC. Commercial
companies may own them because federal laws that bar
non-financial companies from engaging in banking activities do
not classify them as banks.

Wal-Mart is trying to open a bank to handle electronic
payment processing.

But some legislators have raised concerns that Wal-Mart
could use its bank as a base to offer a much wider array of
services. Banks also fear competing with Wal-Mart.

Others who oppose Wal-Mart’s application adopt the argument
used recently by Clinton and the National Association of
Realtors — that Wal-Mart’s bank would violate the historic
separation in the United States between banks and enterprises
that do not engage primarily in finance. Still, other
corporations have already set up industrial banks, such as
General Electric and General Motors.

Former Federal Reserve Chairman Alan Greenspan recently
said Congress should review a “loophole” in federal law that
allows companies to buy industrial banks in a handful of states
but avoid a level of supervision by bank regulators.

Clinton referenced Greenspan’s comments and said industrial
banks may pose a greater risk to the FDIC than other insured
depository institutions.

“With the dramatic expansion of ILCs over the last several
decades, I am particularly concerned that these financial
institutions do not have the same oversight and regulatory
structure that traditional, full-service commercial banks
have,” she wrote.

The FDIC, under a new acting chairman, has agreed to hold a
public hearing on Wal-Mart’s application. That would be the
agency’s first formal public hearing on a bank application
ever. A subcommittee in the House of Representatives also is
expected to hold a hearing on industrial banks this year.

Wal-Mart has said it welcomes the hearings. It was not
immediately available to comment on Clinton’s letter.


Source: reuters



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