- The Washington Times - Friday, March 16, 2007

Wal-Mart Stores Inc. yesterday decided to withdraw its bid to establish a bank amid controversy over whether the retailer should be allowed to expand its empire by opening a financial institution.

The world’s largest retailer said it wanted to establish the industrial loan corporation (ILC) so it could process credit- and debit-card transactions itself, potentially saving customers money.

Banking and grocery groups lobbied against the application, saying the retailer wanted to eventually open its own branches in its stores.

“A Wal-Mart bank — owned by the world’s largest commercial retailer — is the poster child for what could go wrong and would pose significant risk to the safety and soundness of the Deposit Insurance Fund and to the stability of our financial and economic system,” said Camden R. Fine, president and chief executive officer of the Independent Community Bankers of America, a Washington trade group.

Wal-Mart’s ILC application “has been surrounded by manufactured controversy since it was submitted nearly two years ago,” Wal-Mart Financial Services President Jane Thompson said yesterday. “At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested — we simply sought to reduce credit- and debit-card transaction costs.”

The announcement occurred a day after the Wall Street Journal reported that the Bentonville, Ark., company was renegotiating leases with banks that already have branches in its stores. The leases said Wal-Mart has a right to offer consumer loans, mortgages and home-equity lines of credit, emboldening critics’ assertions that Wal-Mart wanted to expand the banks.

“Wal-Mart made a wise choice,” Federal Deposit Insurance Corp. Chairman Sheila C. Bair said. “This decision will remove the controversy surrounding their intentions.”

She said the retailer, which filed its application with the FDIC in mid-2005, can expand access to financial services by partnering with banks and other financial institutions.

The FDIC placed a moratorium on reviewing ILC applications last year to give Congress time to review the matter.

The House Financial Services Committee scheduled a March 22 hearing to examine a ban on commercial groups owning industrial banks.

Committee Chairman Rep. Barney Frank, Massachusetts Democrat, and Rep. Paul E. Gillmor, ranking member of the financial institutions subcommittee and Ohio Republican, introduced legislation in January designed to close what they call a loophole that allows companies to own banks.

A small number of retailers, including Target, operate ILCs and more are trying to do the same. Home Depot’s application for an ILC has been tied up in the FDIC’s moratorium.

“It doesn’t affect our plans at all,” said Tony Wilbert, spokesman for the Atlanta home improvement chain, said of Wal-Mart’s decision. “What we hope happens is Congress takes some kind of action and prompts the FDIC to resume reviews.”

Several states have drafted legislation banning commercial entities such as Wal-Mart from establishing banks. Maryland, Virginia and four other states passed similar laws last year.