Bank of Wal-Mart: What does it all mean?
So far, over 20,000 people have signed our petition asking the FDIC to block Wal-Mart's aggressive move into consumer banking.
Read and sign the petition here.This is a complex issue that most people don't understand. Yes, there are banks in most Wal-Mart stores already. Through partnerships with local banks, Wal-Mart provides check cashing, ATMs and other consumer banking services on-site, right beside the cash registers. But what they are trying to do in Utah (after being rejected in California, Oklahoma and in Canada) is to own the bank themselves. This is a huge growth opportunity for Wal-Mart and one that comes at great risks to Americans everywhere. Here's why:
What are Industrial Charter Banks?
ILCs are state-chartered and state-regulated banks whose primary federal regulator is the FDIC as opposed to all other banks that are regulated by the FED. Their owners include non-financial companies that cannot own a traditional bank (GE, Target, BMW, etc…). ILCs are an example of the tendency to combine the financing of a business with its operations, something that the American banking system and groups such as realtors have opposed at least since the Great Crash.
Where are they?
Seven states have charters for ILCs but Utah is the only state that has developed their charter to such a large extent. There are 59 ILCs with a total of $140 billion in assets, 31 are based in Utah. In most other states, traditional banks have fought against it, but in Utah up to 40% of state revenue may come from the fees generated by ILCs.
What are their operations?
ILCs can do what any other bank can do except they do not have consumer checking. Wal-Mart has asked for the ILC to process debit, credit and electronic transactions, a move it says would lower costs.
What’s the risk?
The academic problem with the ILC is that they are monitored by the FDIC and not the FED like every other bank. This means that they are not subject to the exact same regulatory demands. The more worrisome thing is that ILCs blur the lines between a corporation and a bank and thus the lines between what would be corporate activity and what would be banking activity. The real issue here is about the blending of banking and commerce.
An owner of a corporation could be called on to bail out a failing bank thus weakening the corporation and perhaps eliminating jobs. If the bank failed badly enough, the company could fail. Likewise, a bank could be used to bail out a corporation and potentially the FDIC could end up using its insurance to bail out Wal-Mart to save the deposits in the bank. There are supposed to be barriers against the crossing and/or loaning of funds but that depends on monitoring and enforcement and just like Enron – the rules may be followed when everything is flush but what happens if things turn sour, nobody knows.
Specifically with Wal-Mart’s application, the concern is that Wal-Mart could expand its bank to up to 22 other states that have reciprocal agreements and could include branching, business checking or other commercial bank activities. This could put local bankers out of business and further increase Wal-Mart’s influence over the economy.
