Wal-Mart banking plan causing an uproar

WASHINGTON — Wal-Mart entered the grocery business in 1988 to compete with established names such as Kroger, Safeway and Albertsons, which had dominated food retailing for decades.

Today Wal-Mart is America's biggest grocer, with 16 percent of the U.S. retail food market, and its sales continue to climb, even as dozens of grocery chains struggle.

Wal-Mart Stores Inc.'s decision to jump full-force into toys about 15 years ago has had similar results. Its sales overtook leader Toys R Us Inc. — the inventor of selling toys in big-box discount stores — in 1998. Wal-Mart now has 28 percent of that market. And it's not just food and toys: Owners of religious bookstores worry about being outpriced by the retailing behemoth. The list of Wal-Mart's effects on businesses goes on and on.

Congressional lawmakers and federal regulators now face a tough question: Should they permit Wal-Mart to use a legal loophole to enter banking and potentially do in that arena what it has done to nearly every other consumer product and service it has touched?

The question rattles bankers from Maine to California, even though the retailer no longer wants a full-service bank, only a limited-purpose one. It has whipped up longtime Wal-Mart critics, including labor unions, consumer groups and some congressmen on both sides of the aisle, who say the company is already too big, with too much power over the American economy, sometimes to the detriment of workers' pay and domestic jobs.

Charles Fishman, author of a new book, "The Wal-Mart Effect," chronicling how the company's growth and low-price philosophy influences the U.S. economy, is undecided: "I don't know if Wal-Mart would be good or bad for banking in the long run. But I'll bet ATM fees would come down pretty quick."

At issue is the possibility that Wal-Mart and a dozen other nonfinancial firms would be allowed to erode and possibly jettison a prohibition that's been in place for most of America's 230-year history barring commercial firms from owning full-service retail banks, and vice versa. Supporters of the ban say letting commerce and banking mix would foster unfair concentrations of power, create conflicts of interest in how credit is granted and perhaps one day burden taxpayers should the failure of a bank and its affiliate put at risk the Federal Deposit Insurance Corp., the federal fund that insures consumers' bank deposits.