Federal Reserve Chairman Ben Bernanke is raising concerns about a legal provision that lets companies own a certain kind of bank, including one Wal-Mart Stores Inc. wants to operate in Utah.
The Fed chief's comments were aimed at an exemption in federal law that allows companies to own such banks, called industrial loan companies.
"The question of whether, or to what extent, the mixing of banking and commerce should be permitted is an important issue and one that we believe should be made by Congress," Bernanke said. "The decision has important ramifications for the structure of the American financial system and the economy, particularly because any widespread combinations of banking and commerce likely would be irreversible."
Bernanke's comment came in a written response to questions on that and other issues raised by Rep. Brad Sherman, D-Calif., during a February hearing. Bernanke's response, dated Monday, was released to The Associated Press on Tuesday.
"It is for these reasons that the (Fed) board has encouraged Congress to review the exemption in current law," Bernanke wrote.
The Fed chief addressed the matter in broad terms. He didn't mention Wal-Mart specifically.
Wal-Mart, the nation's largest retailer, has filed an application to operate an industrial loan company in Utah. The Bentonville, Ark.-based retailer is seeking to set up such a bank so it could process credit card, debit card and electronic check transactions from its retail locations.
Former Fed Chairman Alan Greenspan, who retired at the end of January, had urged Congress to close the legal loophole. Bernanke took the helm of the central bank Feb. 1.
On other matters, Bernanke again urged Congress to trim the budget deficit, especially in light of the need for the government to prepare for the retirement of the baby boom generation. "I believe that reducing the federal deficit is very important," he said. "I urge the Congress to proceed on that effort in a timely manner."
Bernanke also said that although the country's massive trade deficits — which set record highs four years in a row — "cannot continue to widen forever," these deficits need not trigger a "precipitous decline" in the value of the U.S. dollar. Were such a decline in the dollar to occur, it wouldn't necessarily disrupt financial markets, production or employment, he said.
"The dollar fell sharply in the mid-1980s without triggering substantial economic dislocations," he said. "However, the possibility of a future disruptive correction of the U.S. trade deficit cannot be ruled out."