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Old March 20th, 2006, 10:59 AM   #1
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Default explain this walmart thing to me

Wal-Mart bank draws more congressional fire
Reuters News 03/20/06
by Kristin Roberts
(C) Reuters Limited 2006.


WASHINGTON (Reuters) - A bipartisan group of U.S. congressmen will this week ask regulators to deny Wal-Mart's bank application, the latest push from some on Capitol Hill to oppose the bid as public hearings near.

The House members, in a letter to the U.S. Federal Deposit Insurance Corp. obtained by Reuters say that due to Wal-Mart's (WMT.N: Quote, Profile, Research) scope and international dealings, financial problems within the company might damage the bank and disrupt the U.S. payments system.

The letter strikes similar chords as previous congressional correspondence on the retail giant's application, raising concerns about the lack of full bank regulatory oversight and the risk of loss to the federal deposit insurance fund.

Without proper regulatory oversight, an industrial bank owner may put the solvency of both the bank and parent at risk, writes the group of more than 20 congressmen, including Ohio Republican Reps. Paul Gillmor and Steven LaTourette and Democratic Rep. Luis Gutierrez of Illinois.

Gillmor, LaTourette and Gutierrez were not immediately available to comment.

Wal-Mart, the world's largest retailer, has applied to open an industrial bank, known as an industrial loan company, to handle its electronic payment processing.

According to the application filings, the Wal-Mart Bank would not offer processing services to other retailers, offer services to the public or establish bank branches.

Still, it has generated intense opposition from some in Congress and banks that fear competing with the retail powerhouse, as well as groups that regularly criticize Wal-Mart, such as labor and environmental groups.

Recent criticism has focused not so much on Wal-Mart as on industrial loan companies overall.

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

But after the Federal Reserve raised concerns that commercial owners of industrial banks escape a level of federal bank supervision, those opposing Wal-Mart's bid began questioning whether that lack of full oversight could allow troubles within the company to bleed into the bank's business and disrupt the payments system.

Other opposition has focused on the historic separation of banking and commerce in the United States. Some say Wal-Mart could drive community banks out of business.

Wal-Mart, however, is not the only commercial firm or retailer to seek to set up an industrial loan company. Rival Target Corp. (TGT.N: Quote, Profile, Research) succeeded in its industrial bank application, and General Electric (GE.N: Quote, Profile, Research) and General Motors (GM.N: Quote, Profile, Research) also have industrial banks.

Wal-Mart has looked ahead to public hearings set for April, saying it wants to explain the functions its proposed bank would perform.

The FDIC on Monday is set to release a list of people scheduled to testify at the hearings -- the agency's first formal public hearings ever on a bank application.

While lobbying has intensified against the bid, some analysts say that if the FDIC follows statute, there is little reason Wal-Mart's application should be denied if Target's succeeded.

So far, dozens of lawmakers have signed letters to the FDIC asking the agency either to reject the application or exercise caution in its review. Those members have included Democratic Sen. Hillary Clinton of New York, a former Wal-Mart board member, and Rep. Barney Frank of Massachusetts, the top Democrat on the House Financial Services Committee.


How exactly is Walmart's bank going to hurt the US economy? Some big boys not wanting to play well with others?
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