Reps Offer Bill to Block Wal-Mart Bank

I’m not sure what questions, exactly, were on Grant Thornton LLP’s 14th Annual Survey of Bank Executives – one would imagine such questions as “One olive, or two?” and “Least convenient tee-off time?” – except for one: How scared are you of Wal-Mart?

Pretty scared, it turns out.  Almost three-quarters (70 percent) of bankers agreed: the entry of Wal-Mart into the financial services business would be a threat to their banks’ business.

“When it comes to competition, the majority of bankers see Wal-Mart as a menace,” said John Ziegelbauer, Grant Thornton’s national managing partner of the financial institutions practice, in a press release about the survey.

So, what’s to be done?  Who’s going to smooth the furrowed brow of bankers across the nation?

The House of Representatives.  That’s who.

The top Democrat and Republican on the House Financial Services Committee on Monday introduced a bill that would ban Wal-Mart – and, collaterally, other commercial companies — from owning a type of bank known as an industrial loan company (ILC).  The bill was co-sponsored bipartisanly by Barney Frank of Massachusetts, a Democrat who is chairman of the panel, and Paul Gillmor of Ohio, the ranking Republican.

"We are seeking to prevent the expansion of a historically small special niche into a full-fledged alternative banking system, which dissolves the line between banking and commerce," Frank said in a statement.

Love for Wal-Mart has been, well— there hasn’t been exactly a lot of love for the commercial giant.  Back in early 2006, Wal-Mart made noises about owning its own ILC, ostensibly to process credit card payments.  Wal-Mart claimed – and, perhaps, rightly – that it was spending a lot of money unnecessarily to have others process its credit card payments.  Wal-Mart assumed everyone would recognize them as being efficient – not plotting the destruction of the banking industry as we know it.

Of course, Wal-Mart forgot that the rest of the country knew it for what it was: a behemoth destroying the very fabric of small-town life as it consumed retail space and left behind shattered hopes and dreams in its wake.  Or something like that.

The legislation came just two days before the Federal Deposit Insurance Corporation holds a meeting to decide whether to extend a six-month moratorium on ILC applications. Banking experts generally expect the FDIC to keep the freeze in place for applications by commercial firms while Congress debates legislation.

H.R. 698, called the Industrial Bank Holding Company Act of 2007, prohibits a company from owning an ILC unless it generates at least 85 percent of its revenue from activities that are financial in nature.  Which, here’s a helpful hint from us, Wal-Mart doesn’t.

The bill has been referred to the House Committee on Financial Services.