Wal-Mart wants to enter banking

The Federal Deposit Insurance Corporation (FDIC) will soon have to make a big decision: whether to grant retail giant Wal-Mart a charter to enter the consumer banking business. Not surprisingly, the competition is not universally popular with . . . bankers, says the Wall Street Journal.

In particular, the Independent Community Bankers Association (ICBA) is trying to keep big bad Wal-Mart locked out of their game by rushing to pals in Congress and their regulators, in this case the FDIC, and pleading for them to squash competition that might lower the prices of banking services.

At issue is whether Wal-Mart should be granted the authority to establish an Industrial Loan Company (ILC) in Utah. ILCs are:

State-chartered, quasi-banks that were originally designed a century ago to help low-income workers get cheap loans.

They can provide most banking services, such as check cashing, lending, and credit card processing.

Target and General Electric have been granted ILCs with little controversy.

But because Wal-Mart has been portrayed as America's latest corporate villain, its political hurdles are much higher.

If the bankers succeed, the biggest losers will be consumers, particularly those in lower-income neighbourhoods where competition in retail banking is traditionally scarce, the authors say. Wal-Mart banking services in these areas might even solve the longstanding problems of red-lining and discriminatory lending practices. Wal-Mart already performs many bank-like functions that are especially popular in poor areas – including wire transfers, money orders, pay check cashing, and express bill payment services.

If Congressman Barney Frank of Massachusetts and other Capitol Hill liberals decide to regulate Wal-Mart out of the industry, the end result will be higher banking service costs for the poor constituents they claim to represent, says the Journal.

Source: Editorial, Banking Against Wal-Mart, Wall Street Journal, January 4, 2006.

For text (subscription required): http://online.wsj.com/article/SB113633902998337121.html

For more on Economy: http://www.ncpa.org/iss/eco/

FMF Policy Bulletin/ 17 January 2006