ICBA - Publications - CSBS, Where Art Thou? Do You Really Want a Full Service Bank in Every Wal-Mart Store?

CSBS, Where Art Thou? Do You Really Want a Full Service Bank in Every Wal-Mart Store?

APRIL 18, 2003


Banker Update: CSBS, Where Art Thou?
Do You Really Want a Full Service Bank in Every Wal-Mart Store?

CSBS is a highly regarded, venerable organization representing the 50 state banking supervisors. The group obviously has to be sensitive to the concerns of all 50 state commissioners. This is not to say that the interests of one commissioner-especially if they happen to be territorial and provincial-are in the best interests of our remarkably diverse financial system, whose foundation is the dual banking system.

We question whether the position of the Utah commissioner on industrial loan companies is worthy of CSBS acquiescence, given the impact this issue could have on the dual banking system.

Some Facts. Late last year, with the support of the California banking commissioner, Wal-Mart sought to acquire an industrial loan company (ILC) which, under federal law, can be owned by a commercial company under an exception to the Bank Holding Company Act. Fortunately, the California legislature passed a bill nixing this and the governor signed it into law.

In March of this year, legislation was pending before the U.S. House Financial Services Committee lifting the prohibition on the payment of interest on business checking accounts. Utah Democratic Rep. David Matheson, joined by California Republican Rep. Ed Royce, sought to amend the bill to give industrial loan companies business NOW account authority. On March 10, G. Edward Leary, the commissioner of the Utah Department of Financial Institutions, wrote House Financial Services Committee Chairman Mike Oxley (R-OH), telling him to go for the Matheson amendment-that the "ILC charter serves to foster increased competition in a well regulated environment to the benefit of consumers."

Leary, in a September 6, 2002, speech, linked ILCs with Utah's brilliant hosting of the Olympics, gushing that "Utah ILCs have fostered improvements and diversification of financial products and services to a nationwide audience."

Federal Reserve Chairman Greenspan sees the world very differently, and urged the committee not to accord this power to ILCs, which would significantly breach the separation of banking and commerce while avoiding "the prudential framework that Congress has deemed essential for the enhancement of financial stability and the protection of the taxpayer."

ILC lobbying muscle, which now includes Wal-Mart, Toyota, Merrill Lynch, American Express, Morgan Stanley and others, flexed behind the Matheson amendment and gained the support of Chairman Oxley. The business checking bill containing the ILC provision has passed the House of Representatives.

In April 2003, the House Financial Services Committee considered a regulatory relief bill that included another provision that would give ILCs full de novo branching powers-the laws of individual states be damned, so to speak.

Federal Reserve Governor Mark Olson warns that "the bill as currently drafted would allow large retail companies to establish an ILC and then open a branch of the bank in each of the company's retail stores nationwide." Olson indicated that the ILC issue "raises significant safety and soundness concerns and creates an unlevel competitive playing field." Did the House Financial Institutions subcommittee listen? No. Did CSBS listen? Apparently not.

Community bankers must raise this issue with their commissioners. It must be discussed at the upcoming annual meeting of CSBS. We have raised it with CSBS' distinguished president and CEO (who is aware that this Banker Update is being penned).

CSBS, does opening the doors to permitting Wal-Mart to have a full service branch in every one of its stores strengthen the dual banking system?