http://today.reuters.com/news/newsarticle.aspx?type=businessNews&storyid=2006-03-10T164922Z_01_N10240586_RTRUKOC_0_US-FINANCING-BANKING-WALMART.xml&rpc=23


Lawmakers: Wal-Mart threatens US payment system

By Kristin Roberts
WASHINGTON (Reuters) - A group of lawmakers on Friday said an industrial bank owned by Wal-Mart (WMT.N: Quote, Profile, Research), the world's largest retailer, could threaten the stability of the U.S. financial system and drive community banks out of business.

In a highly critical letter to the acting chairman of the Federal Deposit Insurance Corp., obtained by Reuters, a group of more than 30 Congress members asked the bank regulator to reject Wal-Mart's application to open a bank in Utah.

"Wal-Mart's plan, to have its bank process hundreds of billions in transactions for its own stores, could threaten the stability of the nation's payments system," the lawmakers wrote.

"Given Wal-Mart's massive scope and international dealings, it is not possible to rule out a financial crisis within the company that could damage the bank and severely disrupt the flow of payments throughout the financial system."

The congressmen said the losses to the FDIC, which insures deposits at banks and thrift institutions, could be staggering if Wal-Mart begins to have financial troubles that bleed into its bank's business.

"Consider the consequences if Enron or WorldCom had owned a bank," the group said.

The group included Ohio Democrats Rep. Stephanie Tubbs Jones and Rep. Tim Ryan, Hawaii Democrat Rep. Neil Abercrombie and California Democrat Rep. Loretta Sanchez. A complete list of signatures was not immediately available.

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

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.

But as "industrial loan companies" owned by non-financial companies, they escape a level of federal bank regulation.

Wal-Mart's application has attracted heightened attention in Washington from some members of Congress, consumer groups and banks that fear competing with the retail giant

Some lobbyists and analysts, however, say the opposition is not surprising, given's Wal-Mart's size and the criticism it regularly receives from labor unions and other groups. Those sources say that if the FDIC follows statute, there is little reason why Wal-Mart's application should be denied when rival Target Corp. (TGT.N: Quote, Profile, Research) succeeded.

The Wal-Mart bid generated a record number of public comments and calls from Capitol Hill for the regulator to slow down its review. The FDIC, under Acting Chairman Martin Gruenberg, has agreed to hold public hearings on the application -- the agency's first formal public hearings on a bank application ever.

Wal-Mart has said it welcomes the public hearings.

Some groups, particularly banks, fear Wal-Mart will use its industrial bank as a base to offer a wider array of services in its branches.

Others who oppose Wal-Mart's application say the 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 (GE.N: Quote, Profile, Research) and General Motors (GM.N: Quote, Profile, Research).

© Reuters 2006. All Rights Reserved.

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Wow. As if anyone need more evidence of the role walmart plays in world economics.

THE SKY IS FALLING!

If Enron and Worldcom had owned a bank? Does no one remember the S&L scandal from the 80s?
I'm so sick of the WalMart bashing. GE and Target have banks, lets uncover all of their dirt too.

I don't get the uproar either. They are starting a bank to process their own payments so they don't have to pay fees to other banks. And the Enron argument is crazy because who's to say the same thing wouldn't happen at Citibank, Bank of America, Soveriegn etc. I'd say their is less risk of an Enron situation at Walmart than at BofA, Citibank or Sovereign.

There are lots of things to slam Wal*Mart for. I don't think this is one. Target, Best Buy, GM ... they all own banks, so people can finance stuff in their stores. No one's gpne bezerk on that practice. In fact, Congress passed laws to make it easier.

These lawmakers just want to find a way to keep the entire US economy from ebbing and flowing with Wal*Mart, which it nearly does. I don't have a problem with that, but w/o this bank issue, they just look like communists.

If the economy ebbed and flowed with WalMart, it would be in better shape.

Just because the economy moves with Wal*Mart's spread sheets, doesn't mean it moves in the same direction as Wal*Mart's spread sheets.

What if Walmart establish and industrial bank (which is fair), and then deicded to go into the commercial banking business. You don't think that would have a negative impact on economic stability?

Is there any model or evidence to make us think there would be?

If they could achieve even close to the dominance they have in the retail business, couldn't they leverage their banking power to prevent competition?

Would VISA/Mastercard lose money if WalMart opened an industrial bank?

Maybe. Aren't banks more regulated than retail?



Maybe. So what?

Regulated, yes. But that doesn't mean that they wouldn't act in the best interest of their corporate umbrella.



If you take out the middle man, you cost a lot of jobs. Maybe it's inevitable (like the blacksmiths)... but if smaller banks and financial institutions lose all those processing fees charged at the 'point of sale' in WalMart, they probably won't survive.