FT: US regulators to extend block on Wal-Mart bank

From the Financial Times:

Federal regulators are expected to agree today to extend a moratorium that has blocked controversial bids by Wal-Mart and Home Depot, the largest US retailers, to establish their own banks.

The Federal Deposit Insurance Corporation, which is responsible for supervising about 60 state-chartered industrial banks, announced a six-month freeze on approving new licences last July, citing the need for more debate over the issue.

It is now expected to extend the freeze on licence applications from commercial companies by a further 12 months, giving the new Democrat-led Congress an opportunity to pass legislation that would tighten restrictions on ownership of the banks.

Wal-Mart’s application to open an industrial bank in Utah in 2005 sparked bitter opposition from the banking industry and from the retailer’s political opponents who argue that such banks undermine federal laws that seek to separate banking and commerce.

The application also drew attention to the continuing rapid expansion of state industrial loan corporations (ILCs), which fall outside the provisions of the federal bank holding company law and the supervision of the Federal Reserve.

Wal-Mart has said it wants the bank to reduce the costs of handling credit card and electronic payments, and that it has no plans to expand into retail banking, as claimed by opponents.

Last year, Home Depot, the second-largest US retailer, also sought approval from the FDIC for its purchase of Enerbank, another Utah-based industrial bank. Home Depot said it wanted the bank to provide financing packages for small contractors who use its stores.

The FDIC’s initial moratorium deferred a decision on the bank applications until after November’s elections, which led to the Democrats taking control of both houses of Congress.

Barney Frank, a Democratic opponent of the Wal-Mart bank bid who now heads the House banking committee, and Paul Gillmor, a Republican, this week introduced a new bill aimed at preventing commercial companies from owning industrial banks.