ICBA - Publications - Wal-Mart Banking and Commerce Fix Gains Traction

Wal-Mart Banking and Commerce Fix Gains Traction

MAY 23, 2003


Wal-Mart Banking and Commerce Fix Gains Traction

Responding to strong, hands-on lobbying by community bankers, the House Financial Services Committee took its first steps toward keeping Wal-Mart from owning a nationwide bank.

First steps are always encouraging. But these were tentative, and much remains to be done. At issue was a provision in the House regulatory relief bill (H.R. 1375) that, if left open, would permit Wal-Mart (and other commercial firms) to enter the banking business and branch nationwide.

The objectionable provision (Sec. 401) in H.R. 1375 would establish the right of banks and Industrial Loan Companies (ILCs) to de novo branch nationwide. Since ILCs can be owned by commercial firms, this would open the door to Wal-Mart and other commercial firms to acquire an ILC and open branches in each of their retail locations. Wal-Mart has 3,500 stores nationwide.

Several amendments were offered to address this issue. Rep. Paul Gillmor (R-OH) offered a well-intentioned but very narrow amendment that would have prohibited any ILC owned by a company that is engaged predominantly in activities that are not "financial in nature" from exercising the new de novo branching rights. The Gillmor amendment would grandfather ILCs in existence as of May 20, 2003, applying only to those created in the future. This would appear to leave the door open for Wal-Mart and others to acquire an existing ILC at some future date. Rep. Gillmor, who said he offered the amendment to generate discussion, later withdrew it.

Rep. James Leach (R-IA) offered a more far-reaching amendment that would have prohibited any ILC from gaining the new de novo interstate branching powers under the bill. He argued that granting ILCs de novo interstate branching powers would benefit five states (CA, NV, UT, CO and MN) that charter ILCs at the expense of the 45 states that do not. He added that it would be a serious breach of the wall separating banking and commerce, and called it "…an enormously risky jump." The Leach amendment was defeated by voice vote.

Rep. Spencer Bachus (R-AL), chairman of the committee's Financial Institutions and Consumer Credit Subcommittee, said he reluctantly opposed the Leach amendment, arguing that "if we adopted Mr. Leach's language, this bill would never have any chance of seeing the light of day in the Senate." Bachus favored the more targeted approach in Rep. Gillmor's amendment, adding that it was a good starting point for a compromise. Ranking minority member Barney Frank (D-MA) stated, "This issue has to be resolved in order to pass the bill."

The open debate has begun, and it has a long way to go. Fortunately, the highest levels of the Federal Reserve have also taken aim at the ambitions of the ILCs.