Almost three-quarters of bankers (70 percent) say that their business would be hurt if Wal-Mart is allowed to enter the financial services industry, according to Grant Thornton’s 14th Annual Survey of Bank Executives. “When it comes to competition, the majority of bankers see Wal-Mart as a menace,” says John Ziegelbauer, Grant Thornton’s national managing partner of the financial institutions practice.
Legislators in five states and the House of Representatives, supporting the industry, have proposed bills that would limit the banking activities of companies engaged in commerce.
Two-thirds-of the respondents to the Grant Thornton survey, which was mailed to chief executive officers and senior officers of banks and savings institutions, reported assets of less than $500 million. One-third reported assets of more than $500 million.
Wal-Mart’s 2005 application for federal deposit insurance for an industrial loan corporation (ILC), the financial services entity that Wal-Mart is attempting to set up, will be reviewed by the Federal Deposit Insurance Corporation (FDIC) at its meeting on Wednesday. The FDIC had put a six-month moratorium on all applications for ILCs, because of the public outcry about the proposed Wal-Mart bank.
The House bill, sponsored by Barney Frank, (D-MA) and Paul Gillmor (R-OH), prohibits a company from owning an ILC unless at least 85 percent of its activities are financial in nature. “We are seeking to prevent the expansion of a historically small special niche into a full-fledged alternative banking system, which dissolves the line between banking and commerce,” Frank said, according to CNNMoney.
Bills that would exclude Wal-Mart and other ILC-chartered banks from establishing branches in stores have been filed in Colorado, Kansas, Maine, Nebraska and Texas, the Wall Street Journal reports. Five states passed similar legislation last year. Currently 22 states allow the industrial banks under the charter Wal-Mart has applied for.
Sponsors of the bill say that even if Wal-Mart wins approval from the FDIC and obtains a charter in Utah for an ILC, their application before the FDIC is becoming less valuable, as states enact these laws, the Journal says.
Cynthia Blankenship, president of a community bank in with eight branches in the Dallas/Fort Worth area, whose customers are primarily small businesses, knows the power of a Wal-Mart and wants them to stay out of her business, the Star-Telegram reports.
“Imagine if they get commercial banking power, and my small-business customer is selling to them, and they say, “Well, we’ll buy your product, but you need to establish a checking account with us so we can just transfer your payments internally, she told the Star Telegram. Blankenship is also vice -chairman of the Independent Community Bankers of America, a trade group.
Wal-Mart spokesman Kevin Gardner said that the purpose of Wal-Mart’s action was to sponsor debit and credit transactions. The company has said repeatedly, according to the Star-Telegram, that it would not extend small-business loans, home mortgages or other loans to consumers. The chain already leases space in its stores to more than 300 banks, which could limit Wal-Mart’s ability to get into retail banking.