FDIC halts applications

When in doubt, hit "pause."

The Federal Deposit Insurance Corp. announced Friday it has imposed a six-month moratorium on industrial bank applications for deposit insurance, citing the need to "assess developments in the ILC (industrial loan corporation, or industrial bank) industry, to determine if any emerging safety and soundness or policy issues exist involving ILCs."

The moratorium is effective through Jan. 31, 2007, and affects new applications and applications for changes in bank control, which include two of the most high-profile cases — Wal-Mart Stores Inc. and Home Depot.

Wal-Mart submitted its application to the Utah Department of Financial Institutions and the FDIC for an industrial bank in July 2005, while Home Depot announced in May it had agreed to buy EnerBank USA, a Salt Lake-based industrial bank that provides home improvement loans to contractors.

Both applications have elicited the ire of big-box opponents, consumer and community groups, unions and legislators, who have expressed fear that granting banking charters to Wal-Mart and Home Depot breaches the barrier between banking and commerce.

For its part, Wal-Mart has said it does not intend to get into retail banking and wants to use its bank to save on fees it now pays to third parties to process credit-card, debit-card and check transactions. And Friday, it said it will continue with its application.

"We respect the FDIC's decision to consider these matters carefully," said Lee Culpepper, Wal-Mart's vice president of federal government relations. "The FDIC's action does not change our commitment to move forward with our application."

In its moratorium notice Friday, the FDIC stated that "the ILC industry has grown and evolved since its inception in 1910, and that growth and evolution appears to be continuing in ways that may not have been anticipated" at the time that various banking regulations were enacted, effectively granting ILCs the same powers as state commercial banks.

But, the Utah Department of Financial Institutions, which also must approve applications for industrial bank charters, holds that the state's industrial banks are well-regulated and safe. Department commissioner Edward Leary testified before Congress earlier this month that lawmakers should not "change, much less outlaw a proven successful regulatory structure because some groups have concerns about a particular applicant."

Earlier this month, U.S. Reps. Barney Frank, D-Mass., and Paul Gillmor, R-Ohio, introduced legislation barring retailers and other commercial firms from owning industrial banks.