Feds urged to reject Utah Wal-Mart bank

The Independent Community Bankers of America announced Thursday that it has asked the Federal Deposit Insurance Corp. to reject Wal-Mart's application to own and operate an industrial bank in Utah.

In a joint letter to the FDIC, the ICBA and the Sound Banking Coalition asked for a public hearing on the retailer's industrial bank application since "concerned taxpayers, consumers, small businesses and bankers should be entitled to present facts concerning the destructive impact that a Wal-Mart industrial bank would have on the convenience and needs of their communities."

According to a statement from the ICBA, the letter states that Wal-Mart's application should be denied because the retailer could "establish banks in its retail stores, causing competitive problems for local bankers in much the same way that it has for local retailers."

The ICBA called Wal-Mart Bank a risk to the Bank Insurance Fund and local communities, and cited "concerns about its legal and ethical problems and management character and fitness."

Industrial banks function much like commercial banks in that they can offer commercial and consumer loans, issue credit cards and offer financing for auto purchases. They are not regulated by the Federal Reserve, as are consumer banks, and are exempt from the Bank Holding Act that governs other banks and financial institutions. Industrial banks are regulated by state regulators and the Federal Deposit Insurance Corp.

Most industrial banks are owned by financial services companies or other corporations. As of Dec. 31, 2004, there were 29 chartered industrial banks in Utah with $120 billion in total assets.

Wal-Mart announced last month that it hoped to establish an industrial bank in Utah. According to Alan Whitchurch, who was named president of the would-be Wal-Mart Bank, the bank's sole function will be to process credit card, debit card and electronic check transactions from its retail locations. The bank does not intend to branch and has no intention to compete with local banks, Whitchurch told the Deseret Morning News when the application was filed.