Dodd, Senate Banking Committee Seek To Limit Commercial Banks

According to the Dow Jones Wire, Senator Christopher Dodd, Chair of the Senate Banking Committee and 2008 Democratic Presidential hopeful, has circulated a draft of legislation that would narrowly limit the types of commercial companies that could own federally insured banks.

Wal-Mart’s banking application, along with Home Depot’s, created so much controversy when filed that the FDIC instituted an ongoing moratorium, freezing all pending applications until it received further guidance from Congress.

Dodd’s plan comes just two months before the moratorium is scheduled to expire. Wal-Mart, under heavy pressure from several sides, withdrew its application earlier this year, though Home Depot’s is still pending. After the filing, Ohio Congressman Paul Gillmor called for investigations into Wal-Mart’s attempt to enter the industry, concerned with the combining of commerce and banking:

Wal-Mart has previously attempted to enter the banking industry three times and in each instance, was rejected due to concerns regarding the mixing of banking and commerce.  I would urge Chairman Powell to hold public hearings and proceed with caution when evaluating the merits of Wal-Mart’s application”, Gillmor said.

US Sen Dodd’s Plan Would Limit Commercial Ownership Of Banks [Dow Jones NewsWires, via SmartMoney]

WASHINGTON -(Dow Jones)- U.S. Senate Banking Committee Chairman Christopher Dodd, D-Conn., Thursday circulated a draft of legislation that would narrowly limit the types of commercial companies that could own federally insured banks.

Dodd’s move comes at a crucial time, as the Senate has just two months to pass a bill before a moratorium expires at the Federal Deposit Insurance Corp. The FDIC put the moratorium in place in mid-2006 to freeze pending applications while it sought more direction from Congress over how to proceed.

The draft would ban almost all commercial and retail companies from acquiring industrial bank charters, an aide with the Senate Banking Committee said. One of three exceptions would be extended to automotive firms. Several automotive firms, such as Harley-Davidson Inc. (HOG) and Toyota Motor Corp. (TM), already own these charters, but other domestic automotive companies have shown an interest in these charters.

Also, the bill would allow commercial firms that owned an industrial bank charter prior to Oct. 1, 2007, to keep the charter under a grandfathering provision. But these banks wouldn’t be allowed to engage in any activities outside of their charter without regulatory approval.

Also, commercially owned industrial banks wouldn’t be allowed to branch across state lines.

There are roughly 60 industrial banks, but only 15 or so are owned by commercial firms, such as Target Corp. (TGT). Combined, industrial banks hold $225 billion of assets and $152 billion of deposits as of June.

The House of Representatives has already passed legislation that would prohibit commercial firms from owning federally insured banks, but the Senate has been slower to act. One reason for that is Senate rules that make it harder to pass legislation without near unanimous consent.

“Bills that pass this committee on party line, that’s it, they either die a slow or quick death,” the Senate Banking Committee aide said.

Sen. Robert Bennett, R-Utah, has long been critical of legislative attempts to block commercial ownership of industrial banks, as roughly half of the existing industrial banks are based in Utah.

Bennett was traveling outside of the country Thursday and was unavailable for immediate comment.

Commercial firms have been allowed to own banks for decades, but recent applications from Wal-Mart Stores Inc. (WMT) and Home Depot Inc. (HD) caused so much controversy that the FDIC asked Congress to clarify exactly what types of companies should be allowed to engage in banking.

Wal-Mart withdrew its application earlier this year, but Home Depot’s is still pending. FDIC Chairman Sheila Bair said Wednesday that she wouldn’t extend the moratorium beyond January and would start reviewing the pending applications once the moratorium expires.

Staff and lawmakers on the Senate panel are expected to begin reviewing it immediately and could see a vote on the bill soon.

Posted by Corey Himrod on Friday, November 30, 2007

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