Banker Update: Subcommittee Clears Reg Relief, Takes No Action on ILCs
The House Financial Services Subcommittee on Financial Institutions and Consumer Credit this week approved H.R. 1375, the Financial Services Regulatory Relief Act. However, no action was taken to modify or remove a controversial provision in the bill that could allow commercial firms like Wal-Mart to purchase an industrial loan company (ILC) or industrial bank and open branches providing deposit and loan services in all 50 states.
The bill was introduced by Rep. Shelley Moore Capito (R-WV) and contains a number of items requested by the banking agencies, as well as provisions helpful to thrifts and credit unions. There is little in the bill for community banks. One of the so-called "banking provisions" would remove the authority from the states to determine whether or not to allow de novo interstate branching, permitting institutions to open de novo branches across state lines irrespective of whether or not the laws of the host state allows it.
Unfortunately, this provision also would allow ILCs to branch de novo into new states, opening the door for a company like Wal-Mart to purchase an ILC and use this new authority to put branches in each of its retail locations nationwide. This would breach the banking and commerce wall, undermining the long-standing policy that prohibits mixing banking and commerce as reaffirmed in the Gramm-Leach Bliley Act.
In a letter to congressional leaders, ICBA President & CEO Ken Guenther wrote: "We believe states should be free to continue to make decisions regarding de novo interstate branching, because they know best what the banking structure in their state should be. This is even more critical in light of the threat to the separation of banking and commerce posed by the ILC charter." The ICBA Executive Committee voted to oppose the reg relief bill if the ILC issue is not addressed.
The next step for this bill is full committee markup, which will occur sometime after the April 14-25 Spring recess. House Members will be in their home districts during this period. Please use this opportunity to lobby your representative on this critical issue.
Wal-Mart on two separate occasions has tried to use "loopholes" to enter the financial services arena. Both times they were thwarted-once by a change in federal law and once by a change in state law. The ILC issue represents yet another loophole for Wal-Mart, and any other commercial firm, to exploit. It, too, must be closed.
Remind your representative what Wal-Mart did to local hardware, toy and grocery stores. Given the opportunity, they could do the same thing to community banks, diverting deposits and lendable funds out of local communities. If your representative is on the House Financial Services Committee, urge him/her to support any amendment to close this loophole by striking or amending Section 401 of the reg relief act. If your representative is not on the HFSC, alert him/her to watch for this issue on the House floor.
Members of Congress are much more accessible in their home districts than they are in Washington, where floor votes and committee meetings occupy much of their day. Please don't miss out on this opportunity. Call the district office nearest you and ask for an appointment. Grass roots helped produce the overwhelming 411-11 vote on deposit insurance reform. Grass roots can help produce victory on the ILC issue as well. Thank you in advance for your efforts.