The Wal-Mart of banking

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Wal-Mart is trying to storm the last bastion of Main Street-the community bank.

The retail giant's fourth attempt to gain a bank charter, this time in Utah, is being met with fierce opposition by everyone from community banks to labor unions and legislators on both sides of the political aisle. Even Federal Reserve Chairman Alan Greenspan has weighed in on the issue, urging lawmakers to determine "whether broader mixings of banking and commerce should be allowed."

The 8,000-strong community-bank association, or ICBA, is arguing that if Wal-Mart does get into banking, the last local storefront open on most Main Streets will be forced to close, too. Wal-Mart, meanwhile, argues it has downscaled its banking ambitions and only wants a charter for the "narrow purpose" of processing its own credit-card transactions, which could save the retailer "millions upon millions" a year.

"There are a lot of bankers' groups that have leveled many charges against us that are trying to second guess our intentions," said Wal-Mart spokesman Marty Heires. "There are also the other groups, labor unions, for instance, who are keeping up a steady drumbeat of attacks on every issue imaginable that have entered into this discussion."

ICBA CEO Cam Fine scoffed at Wal-Mart's newly touted intentions, though, and said the threat of a Wal-Mart bank must be taken seriously. "I bet that that 15 years ago a Wal-Mart executive would have said they had no intention of controlling 50% of the grocery market," he said. "Once they get into the banking business ... what, or who, is to stop them from going the whole way? Why would they want to stop?"

The ICBA isn't alone in its opposition. The Federal Deposit Insurance Corp., the independent government agency that insures deposits and regulates banks, and will decide whether to grant Wal-Mart an ILC, or Industrial Loan Corporation charter, in Utah within the next 300 days, has been inundated by letters of comment on the retailer's application. "We've never seen this kind of response," said spokesman David Barr.

Initially, about 150 comment letters were filed. But after the FDIC extended the comment period by a month to Sept. 23, an additional 1,135 poured in, the majority against the application. Even after the close date, another 200 comments were filed. The number of comments on a bank application typically received by the FDIC is "about half a dozen," Mr. Barr said.

"There is no doubt that Wal-Mart's application has a lot of people concerned," said Richard Melville, managing editor at American Banker, even though he feels success is unlikely. "I don't think Wal-Mart, as Wal-Mart, would have an easy time finding its way around the regulatory process," Mr. Melville said.

Arguments in favor

Other industry experts said the regulatory environment isn't entirely against Wal-Mart, and there are many rational economic arguments in favor of the retailer's entrance into financial services. "The logic of where you draw the line on who can run a bank has been eroded," said Anil Kashyap, professor of economics and finance in the Graduate School of Business at the University of Chicago. "It's much harder to see what the risk to people would be of a retailer like Wal-Mart running a bank."

The mixing of retail and financial services is already under way. After all, at warehouse clubs, including category leader Costco, members can apply for a car loan. Sam's Club, though, isn't providing loans, but simply offering a member discount via a partnership with E-Loans. The same deal with health-care plans applies to Sam's Club members-a partnership with Answer Financial, an insurance broker.

Mr. Kashyap also argued the rural-banking market is not being serviced well by national banks: "The largest banks in this country have made a decision it is just not worth opening branches in every little town in all parts of this country."


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