A group of House lawmakers on Monday renewed a push for legislation that would block commercial companies like Wal-Mart and Home Depot from owning a special sort of bank that has been proliferating in recent years.
The Federal Deposit Insurance Corp.’s six-month halt on new approvals of companies’ applications to establish or acquire the banks known as industrial loan corporations ends Wednesday, and the agency’s directors are meeting that day to consider whether to extend it, lift it or take other action. Extending the moratorium — at least for ownership by commercial, rather than financial, companies — would give the new Congress a chance to consider the legislation.
The House bill is sponsored by Reps. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Paul Gillmor, an Ohio Republican. Similar legislation passed the House overwhelmingly last year, but has stalled in the Senate.
This year, with Democrats in the controlling majority in the Senate as well as the House, proponents believe prospects for congressional passage are stronger for legislation to close what they see as a loophole in banking regulation. Current laws prohibit the mixing of banking and commerce, but an exception is made for the industrial loan corporations, or ILCs, allowing commercial companies to own a federally insured bank.
There are now 61 ILCs with a total of about $141 billion in assets and $98 billion in deposits. Thirty-three are based in Utah, one of only seven states that grant charters for such banks.
“What had once been a minor exception is threatening to foster an unequal, parallel banking system with hundreds of billions of dollars in ... deposits,” Gillmor said in a statement Monday.
Last July, the FDIC imposed the six-month halt on new approvals after nearly 100 members of Congress from both parties asked the agency to give lawmakers a chance to debate the legislation. Under the moratorium, the FDIC has not made any final decisions on applications for ILCs or for changes in control of existing ones and has not accepted new applications — giving it time to consider whether changes in law or regulations are needed with respect to the banks.
Critics say the growth of ILCs dangerously blurs the line between banking and commerce, concentrating assets in the hands of a few big companies, stifling competition and hurting consumers.
Consumers don’t see outward signs of the banks. They are allowed to issue credit cards, take deposits and make loans; they cannot offer standard checking accounts if their assets exceed $100 million.
The application of Wal-Mart Stores Inc., the world’s largest retailer, to establish an ILC based in Utah spurred opposition from banks, unions, lawmakers, and consumer and community organizations. In April, groups representing those interests argued against granting Wal-Mart’s request at two public hearings, the first ever held by the FDIC on such an application.
Wal-Mart has pledged to the FDIC to stay out of branch banking and consumer lending. Rather, its newly chartered bank would be used to handle the 140 million credit card, debit card and electronic check payments it processes each year, the company says.
Some 300 banks operate branches in 1,150 Wal-Mart stores, and the company says it doesn’t want to compete with them.
In addition to Wal-Mart and The Home Depot Inc., companies awaiting FDIC approval to establish ILCs or acquire existing ones include Warren Buffett’s Berkshire Hathaway Inc., The Blue Cross and Blue Shield Association, automakers Ford Motor Co. and DaimlerChrysler AG, and information services provider Ceridian Corp.