Feds Extend Moratorium on Nonfinancial Firms’ Entry into Banking
The Federal Deposit Insurance Corp. on Wednesday extended for one year a moratorium on considering nonfinancial companies’ applications to establish or acquire banks.
The decision puts on hold pending applications from companies including Wal-Mart Stores Inc., Home Depot Inc., DaimlerChrysler AG, and gives Congress time to consider legislation that would prohibit such companies from owning so-called industrial loan corporations, or ILCs.
Five applications that had been held up during the current six-month moratorium — from companies that appear to be financial in nature — will be reviewed on a case-by-case basis, according to FDIC officials.
The five-member board unanimously approved the extension, but urged Congress to make any necessary policy changes before it expires.
Critics say the growth of ILCs risks blurring the line between banking and commerce, concentrating assets in the hands of a few big companies and stifling competition, which hurts consumers.
A group of House lawmakers on Monday renewed a push for legislation that would block commercial companies from owning these special sorts of bank that have been proliferating in recent years.
The House bill is sponsored by Reps. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Paul Gillmor, an Ohio Republican. Similar legislation sailed through the House last year, but is stuck in the Senate.
Both lawmakers applauded the FDIC decision. Gillmor said he was optimistic about getting the bill to President Bush sometime this year.
In the Senate, Banking Committee Chairman Christopher Dodd, D-Conn., said the extended moratorium will allow the panel “time to carefully examine this issue, which we will do in a thoughtful and deliberative manner.”
Representatives from Home Depot and Wal-Mart said they were disappointed by the decision, but noted that no ruling was made on their merits of their applications.
John Kelly, Wal-Mart’s director of financial services, said Wal-Mart’s goal is to reduce costs and save customers money, by using its bank to handle the millions of credit card, debit card and electronic check payments it processes each year. Wal-Mart is the world’s largest retailer.
But union-backed Wal-Mart critic WakeUpWalMart.com disagreed, saying the decision gives lawmakers time to pass legislation preventing Wal-Mart “from further jeopardizing our nation’s economy.”
“A ‘Wal-Mart Bank’ would have been a dangerous concentration of capital in the hands of one single corporation,” Paul Blank, campaign director for WakeUpWalMart.com, said in a release.
There are now 58 ILCs with a total of about $177 billion in assets, according to the FDIC. Of those, 48 are based in Utah or California, two of only seven states that grant charters for such banks, and 15 are subsidiaries of commercial firms.
The FDIC imposed the six-month halt on new approvals last July after lawmakers from both parties asked the agency to give them a chance to debate the legislation.
Kelly said he was gratified that the FDIC meeting was not explicitly about Wal-Mart, but rather a “broader policy issue.”
However, of the 12,600 comments received since the FDIC published a request in August, 12,485 focused on Wal-Mart’s application to establish an ILC based in Utah, or the proposed acquisition of another ILC by Home Depot. Of that total, 82 percent generally were opposed to the ownership of ILCs by Wal-Mart or other commercial companies.
Shares of Wal-Mart added 41 cents to end at $47.69, while Home Depot gained 57 cents to $40.74, and DaimlerChrysler slid 24 cents to close at $62.49, all on the New York Stock Exchange.
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Federal Deposit Insurance Corp.: http://www.fdic.gov