US Reps Introduce Bill That Would Stop Wal-Mart Bank January 29, 2007Posted by notapundit in Congress, Politics, US News.
WASHINGTON (Dow Jones)–House Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Paul Gillmor, R-Ohio, introduced a bill Monday that would prevent Wal-Mart Stores Inc. (WMT), Home Depot Inc. (HD) and other retailers from gaining entry into the banking business.
Their bill, supported by the banking industry, comes just two days before the board of the Federal Deposit Insurance Corp. meets to discuss the same issue. The agency is scheduled to consider changes to its existing policy that allows it to insure deposits for commercially owned industrial loan companies, or ILCs.
The way Frank and Gillmor wrote their legislation, final passage of the bill would prevent commercial ownership of ILCs from the day their bill was introduced. That means if the FDIC decided next week to insure the deposits of a Wal-Mart-owned ILC, eventual passage of the Frank/Gillmor bill would undo the FDIC’s move.
The ILC debate is currently one of the financial services industry’s most controversial public policy issues, and it became politically charged after Wal-Mart requested a banking charter in 2005.
The giant retailer has asked the FDIC to consider its bid using the same criteria government regulators used when they decided in 2004 to grant a similar charter to rival Target Corp (TGT).
But critics have alleged that giving Wal-Mart and Home Depot a foothold in banking allows a dangerous mixture of banking and commerce that should be kept separate.
“FDIC insurance was not created to underwrite commercial firms, but to protect the depositors of regulated banks,” said Camden R. Fine, president of the Independent Community Bankers of America trade group.
There are currently close to 60 ILCs that control more than $150 billion of assets. Although many of the ILCs are owned by commercial parent companies, most of the industry’s assets are controlled by financial-related companies, such as Merrill Lynch (MER), Morgan Stanley (MS), and American Express (AMX).
New Bill Very Similar To 2006 House-passed version
Aside from the provision that would prohibit commercial ownership of an ILC effective the day the bill was introduced, the Frank/Gillmor bill is nearly identical to language they introduced last year. That language passed as part of a broader financial services package in the House.
Specifically, the bill would prevent a commercial parent company from owning an ILC. The bill defines a “commercial” parent as one that does not make at least 85% of its annual gross revenues from financial activities.
The bill would not cancel the existing banking charters at companies such as Target, but it would create new prohibitions, such as one that would stop the company from establishing branches in certain states.
The bill is expected to have close to 30 co-sponsors.
Such a measure has never passed in the Senate, in part because Sen. Bob Bennett, R-Utah, has strongly opposed such measures. More than half of the existing ILCs are based in his state.
Bennett recently met with Frank and Gillmor to discuss their positions.
FDIC ILC Moratorium Ends Wednesday.
In July, the FDIC announced that it was placing a six-month freeze on the pending applications while it studied the unique risks associated with commercial ownership of ILCs, among other things. That moratorium ends Wednesday.
The agency is considering a vote that would extend its moratorium for commercial-ownership of ILCs an additional 12 months, giving Congress time to create a new federal policy.
Such a move by the FDIC would need approval from the majority of its five-member board.
Bennett said last week that a legislative solution was likely sometime this year.
“Of course, the legislative process plays itself out this year,” he told reporters. “Absolutely.”
Frank and Gillmor had asked for a six-month extension of the moratorium.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said last week that he would support an extension of the moratorium if the FDIC felt it needed more time to consider its policy.
An FDIC spokesman had no comment for this story.
By Damian Paletta, Dow Jones Newswires