With Wal-Mart and Home Depot among a record number of companies awaiting federal approval to open banks, legislation to block this special kind of bank is gaining momentum, a senior House lawmaker said.
Thirteen companies, a record number, have joined Wal-Mart Stores Inc. in the pipeline for approval from the Federal Deposit Insurance Corp. to establish what is called an industrial loan corporation, agency records show. The Home Depot Inc., Warren Buffett’s Berkshire Hathaway Inc. and the others are seeking permission to set up the industrial banks, which are products of a regulatory loophole that allows commercial companies to own a bank.
“I think pressure is building for something to happen,” said Rep. Barney Frank of Massachusetts, the senior Democrat on the House Financial Services Committee.
Frank said that he and Rep. Paul Gillmor, R-Ohio, plan to propose legislation soon that would close the ILC loophole.
There is strong bipartisan support among House members for the proposal, likely sufficient for it to pass. Nearly 100 lawmakers from both parties in early June asked the FDIC to halt any new approvals of industrial banks to give Congress a chance to consider such legislation. Prospects in the Senate are clouded, however.
If the FDIC begins granting new ILC charters, “then the pressure is going to increase very significantly” for congressional action, Frank said in a telephone interview.
The FDIC has not commented on the issue. Sheila Bair, a former Treasury Department official who recently became FDIC chairman, was not asked during her Senate confirmation hearing for her views on Wal-Mart’s bank application nor on the broader issue of whether commercial companies should be allowed to own banks.
There are now 61 industrial loan corporations in the country with a total of around $141 billion in assets and $98 billion in deposits. Thirty-three are based in Utah, one of only seven states that grant charters for them.
The ILCs are allowed to issue credit cards, take deposits and make loans. What they cannot do is offer standard checking accounts if their assets exceed $100 million.
Wal-Mart’s bid to own one, which has been before the FDIC for more than a year, sparked a wave of opposition from banks, unions, lawmakers, and consumer and community organizations. The world’s largest retailer insists that it has no plans to compete with community banks and has pledged to the FDIC to stay out of branch banking and consumer lending.
Rather, the newly chartered bank would be used to handle the 140 million credit, debit card and electronic check payments it processes each year, Wal-Mart says.
The 14 companies with industrial banking applications before the FDIC represent the largest number ever pending at the same time, an examination of agency records shows. The precedent was first reported Thursday by Dow Jones Newswires. Of the applicants, four have been awaiting approval for at least 11 months, which is longer than any company has waited since the agency began approving ILCs in 1984.
The hopefuls also include The Blue Cross and Blue Shield Association, automakers Ford Motor Co. and DaimlerChrysler AG, and information services provider Ceridian Corp.
The ILCs are federally insured, with deposits in individual accounts guaranteed up to $100,000 if any of them failed. The FDIC insurance fund, standing at some $49.2 billion currently, is financed by premiums paid by banks.
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