Is the Bank of Wal-Mart Back?

Wal-Mart SHOULD be able to provide services to people as they wish.  In our free marekt system it is then up to the market to decide if it wishes to purchase services from Wal-Mart.  The only people that would oppose something like this are protectionists Bankers who have pludered the country (and world) into the problems we are having in the financial markets today.

Live free or Die!

Well,Johh Q. that’s one opinion.Now,for another point of view form Randall Dodd,from the Economic Policy Institute:

What is more, the safety and soundness problems posed by cross-ownership and control of banking and commercial firms are all the greater in this case because the Competitive Equality in Banking Act of 1987 exempts industrial loan banks from consolidated supervision and regulation under the Banking Holding Company Act.  Cross-ownership would not only expose our economy to various economic dangers, it would do so without the prudential regulatory framework that applies to other banks – namely consolidated supervision and regulation of the whole enterprise.  In today’s world of large and complex corporations, the only hope of prudential regulation is with consolidated regulation and supervision.  Disregarding this wisdom is a reckless policy at a time when the nation’s need to attract ever increasing amounts of foreign capital depends crucially on the perceived safety and soundness of our financial system.

The loophole in prudential bank supervision and regulation created by industrial loan banks is a bad policy for the U.S. economy.  It threatens the safety and soundness of our financial system and further undermines its economic efficiency by creating an uneven playing field of competition.

Expanding the scale of this policy by allowing the creation of a Wal-Mart bank with government insured deposits is a giant step in the wrong direction.  Just because policy mistakes have been previously made in granting such charters and deposit insurance to GM and Toyota, it does not justify making an even bigger policy mistake by expanding the scale of the loophole – a regulatory loophole the size of a Wal-Mart.

In conclusion, let me state first what it is not…

• It is not about lowering the cost of banking services.  Wal-Mart does not even claim to be trying to lower ATM fees and the price of other consumer banking services.  They say they want to raise funds cheaply and have direct access to the nation’s Fed wire and automated clearing house.  Besides, the US banking sector already includes nearly 9,000 banks and another 9,000 credit unions – why should one more bank change the competitiveness of the market.
• If lowering consumer costs were the goal, Wal-Mart could contract with existing financial institution to provide these services to its customers at lower costs – after all Wal-Mart is famous for driving down the prices paid to its suppliers and vendors.
• It is not about fairness to Wal-Mart.  It is about unfairness to competing financial institutions that are – and should be – subject to holding company oversight.
• The issue is not about Wal-Mart per se.  Their controversial public image just brings these issues to the fore.  The agency’s decision need not be viewed as arbitrarily or capriciously reflecting any such prejudice.

What it does mean, and what it is about, is whether the safety, soundness and efficiency of the U.S. financial system is best preserved by granting deposit insurance for a bank chartered by a commercial or industrial holding company that would lack the normal prudential oversight of consolidated regulation.

Industrial loan banks are an unproductive and unnecessary loophole in the country’s regulatory framework of financial institutions.  As such, there is no economic rationale for expanding the loophole, and a larger expansion would be a worse policy than a smaller expansion.  A firm the size of Wal-Mart would certainly amount to a large expansion.  And this is all the more important given Congressional consideration of new laws that would expand the authority of industrial loan banks to offer additional types of checking accounts and to expand interstate by opening new or “de novo” branches – effectively expanding the scope of the loophole.  Extending another charter, especially to such a major commercial behemoth as Wal-Mart, would expand the scale of the loophole and amount to a taking major step in the wrong direction.

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Randall Dodd is the director of the Financial Policy Forum in Washington, D.C.

Opinion pieces and speeches by EPI staff and associates.

[ THIS TESTIMONY WAS GIVEN BEFORE THE FEDERAL DEPOSIT INSURANCE CORPORATION ON APRIL 11, 2006. ]

Testimony before the Federal Deposit Insurance Corporation

By Randall Dodd