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ICBA Asks FDIC to Deny Wal-Mart Federal Deposit Insurance

Washington, D.C. (April 10, 2006)—The Independent Community Bankers of America (ICBA) today asked the Federal Deposit Insurance Corporation (FDIC) to deny Wal-Mart's application for federal deposit insurance for an industrial loan corporation (ILC) because of the risks such a bank poses to America's financial system and its communities. ICBA warned that the impact of a Wal-Mart Bank on our nation's payments system is by itself reason enough to deny the application.

"A Wal-Mart bank would provide Wal-Mart with the capability to exert extraordinary influence on the payments system and would pose significant settlement and security risks given Wal-Mart's dominant role in the global economy," said Terry J. Jorde, ICBA chairman, and president and CEO of CountryBank USA, Cando, N.D., during the first of an historic series of FDIC hearings on Wal-Mart's application. "Without adequate oversight of the parent company, what would prevent Wal-Mart from requiring its suppliers to use its bank as a condition of doing business? The systemic risk, potential for conflicts of interest and undue market concentration are enormous."

For years, ICBA has led the banking industry's efforts to maintain our nation's long-standing separation of banking and commerce, including keeping Wal-Mart out of banking. In her testimony for ICBA, Jorde said that:

  • Allowing Wal-Mart to own a bank would destabilize local communities by driving local companies and local banks out of business, creating a funding and investment vacuum that deprives the community of capital for local lending and economic development. Given the broad ability to collect deposits, the Wal-Mart bank will export deposits and capital from local communities.

  • Impartial credit decisions would be lost as Wal-Mart Bank would decline to lend to businesses that compete with its parent company.

As the world's largest corporation, Wal-Mart poses a severe risk to the bank insurance fund and presents very real risks to the economy. "Wal-Mart faces risks that other banks, even other commercial firms, do not face," said Jorde. "The size and global reach of Wal-Mart pose extraordinary risk to the deposit insurance fund and to the banking system that outweigh the value such an institution would bring to the marketplace."

In addition, Jorde said that Wal-Mart, as the parent company of an ILC, would not be subject to Federal Reserve supervision as are owners of other banks under federal law. Although the bank would be subject to FDIC oversight, the FDIC does not have the same powers as the Federal Reserve to oversee the consolidated entity.

For the complete testimony, please go to www.icba.org/pressroom.