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US: Wal-Mart bank battle escalates

Bloomberg News
August 29th, 2006

A battle over Wal-Mart Stores Inc.'s effort to get into financial services might derail the growth of company-owned banks, as well as Utah's ambitions to become to such lenders what Delaware is to corporations.

The fight matches Wal-Mart, the world's largest retailer, and other non-financial companies seeking to establish so-called industrial banks against community banks, locally owned and operated institutions concerned that they might be overwhelmed by new, deep-pocketed competitors.

The dispute has also sparked broader policy concerns among regulators about whether industrial banks could endanger the financial system. Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee last month he is concerned about the federal government's lack of authority to regulate companies that own the banks.

The Federal Deposit Insurance Corp., the government agency that guarantees deposits and oversees industrial banks, last month froze all applications to set up such new lenders for six months, saying it needed additional time to examine the banks' impact on the banking system.

"The moratorium is damaging," says George Sutton, a lawyer whose Salt Lake City firm represents about half of Utah's industrial banks, including Volkswagen Bank USA and one run by Target Corp. "It's creating uncertainty about the charter itself."

Utah is home to 33 of the nation's 61 state-chartered industrial banks, which perform limited services such as processing credit card transactions.

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