U.S. News

FDIC Extends Delay on Retailers Owning Banks


The Federal Deposit Insurance Corporation voted on Wednesday to extend for one year
a moratorium on bank applications by commercial companies, such as Wal-Mart Stores and Home Depot.

The action would give Congress more time to debate legislation that would ban retailers and commercial companies from owning a specialty bank known as an industrial loan company.

A moratorium has been in place for the past six months, affecting nine pending ILC applications.

At an FDIC board meeting, agency staff also recommended that the agency take public comments on the conditions for ILC ownership by financial firms.

"Let us be clear that the current law allows commercial companies to own industrial banks," FDIC Chairman Sheila Bair said at the meeting. "For commercial companies, I'm afraid the
answer is that you have to wait a little longer (due to the moratorium)."

Wal-Mart said it wants to open an ILC so it can save money by internalizing credit card and check transactions. Home Depot wants to buy an existing ILC, CMS Energy's EnerBank, to provide home improvement loans.

Banks in smaller communities fear they will be undermined if a retail heavyweight like Wal-Mart enters the business. Larger banks see more competition from Home Depot, which wants
to provide home improvement loans to contractors.

Earlier this week, lawmakers in the U.S. House of Representatives introduced a bipartisan bill that would ban retailers and other nonfinancial companies from owning an
industrial bank.

The bill would also give the FDIC authority to regulate companies that opened or acquired an ILC on or after Oct. 1, 2003, unless they are already regulated by the Federal Reserve
or the Office of Thrift Supervision.

The House bill faces opposition in the Senate led by Republican Robert Bennett of Utah, where many of the ILCs are based.

Comptroller of the Currency John Dugan, who is also on the FDIC board, said the agency's moratorium means Congress must act within a year to amend banking laws. If no legislation is
passed, the FDIC will resume approving ILC applications by commercial companies if they meet other requirements.

ILCs are chartered by states and fall under the supervision of the FDIC because the agency provides deposit insurance. ILCs offer a range of products and services, including checking and savings accounts, credit cards, real estate lending and syndicated and bridge financing.