The Wal-Mart Bank Hype
WASHINGTON, April 28 – Wal-Mart submitted a bank charter application on July 18, 2005, intending to open a bank on the sixth floor of an office building in Salt Lake City, Utah.
One week later the Federal Deposit Insurance Corp., the agency that grants bank charters, started to receive the first of almost 2,000 letters opposing the Wal-Mart request.
“Most new bank applications receive little to no interest,” said FDIC spokesman David Barr in a telephone interview. “Typically if we get a half a dozen or more comments that’s considered a lot…. So to receive more than 1,900 comments is highly unusual and is the most we’ve ever received on a new bank application.”
According to the Wal-Mart application, the bank would be solely used to process credit card, debit card and electronic check transactions, which the company says would save it hundreds of millions of dollars each year. Wal-Mart insists it has no plans to open branch banks which would provide consumer banking services in its stores.
But despite what the Wal-Mart application says, many people fear that approval would open the door for hundreds of Wal-Mart banks to be opened in stores around the country.
As a result of the outpouring of opposition, the FDIC recently held several public hearings on Wal-Mart’s application. The first hearings, held on April 10 and 11 at the FDIC headquarters in Arlington, Va., drew both angry opponents from across the country as well as supporters of the application.
Andrew Grossman, executive director of Wal-Mart Watch, a consumer group that monitors Wal-Mart’s activities, said in his testimony at the hearing, “This mammoth corporation’s historic patterns of disregarding legal accountability, the potential size of their charter, and the troubling lack of transparency in its application all contribute to our strong belief that this application could threaten the deposit insurance system and endanger America’s fiscal security.”
Jack Blum, counsel to Americans for Democratic Action, a liberal activist organization, voiced strong objections to Wal-Mart’s request. “Should a charter be granted, we believe the world’s largest retailer would quickly move to use its position in the marketplace and its control of prime real estate to become one of the largest banks in the United States,” Blum said.
Blum also raised concerns at the hearing about what might happen if Wal-Mart were to experience financial problems in the future and Wal-Mart’s bank were to fail.
Jane J. Thompson, Wal-Mart Financial Services president, testified that “Wal-Mart would be profoundly disappointed and its customers and communities would be ill-served if Wal-Mart is treated differently than the many commercial and retail firms that now engage in more extensive banking activities than proposed for our bank.”
This type of bank charter request is not unusual from large stores – both Target and Nordstrom went through the same process with little opposition, according to the FDIC
The difference is that Wal-Mart is not just any company, according to Marty Heires, its senior communications manager.
“I think there are a lot of critics of the company these days, most of them are driven by the labor unions, and they oppose us at every turn,” said Heires in a telephone interview. “I think that it was not terribly surprising that there would be some opposition, but I think we would tell you that we’re a little surprised at the level here.”
Many Wal-Marts now have branches of local banks in their stores. Heires said that Wal-Mart leases out the space to third parties and that more than 300 financial institutions operate more than 1,150 branches in the stores with plans to open an additional 250 branches.
In New Hampshire, several of the state’s 26 Wal-Mart stores have branch banks. Citizens Bank has a branch in the Amherst Wal-Mart Super Center. The bank has 18 branches in stores throughout New Hampshire but the branch in the Amherst Wal-mart is the only one located in a Wal-Mart, according to Kathleen Reardon of Citizens Bank.
“Citizens is a leading in-store bank because it provides convenience to our customers,” Reardon said.
Wal-Mart’s Heires maintains that allowing banks to have branches in Wal-Mart stores is as far as the chain would go with public banking.
“All we’re doing is leasing them space because our customers tell us that they like the convenience of having a bank,” Heires said. “It really would have no impact at all [on smaller communities]. The average consumer will not even know this bank exists.”
But the ADA’s Blum is not convinced. He said at the hearing that “Wal-Mart’s application for a charter to enter the banking business is fraught with risk—risk which, in the end, will be guaranteed by the American taxpayer,” Blum said. A Washington attorney, Blum said that he spent much of his life studying banks and has seen retailers forced into bankruptcy because of sudden changes in the commercial environment.
The FDIC “is not and should not be in the business of understanding the risks of large-scale retailing,” said Blum. “It should not have to worry about the safety and soundness of a global retail business dependent on complex global supply systems.”
At least one person not connected with Wal-Mart spoke in favor of the application. Lawrence White, an economics professor at New York University said that it is important for Wal-Mart to be treated like any other store requesting a banking charter. As long as the bank is adequately capitalized and competently managed, and the relationships and transactions between the bank and owner are closely monitored, then it should be allowed a charter, said White.
“The doomsday scenarios of Wal-Mart’s rivals seem far-fetched and unrealistic,” said White. “Such scenarios ought not to be guiding bank regulatory policy.”
A charter is rarely rejected, not because every application deserves a bank, but because the FDIC works closely with the applicant until they come to an agreement on how the bank is to be opened and run, said FDIC spokesman Barr.
Barr said it is somewhat rare for the FDIC to reject a banking application but often applicants are made very aware of FDIC concerns, and a charter is withdrawn before it has the chance to be rejected.
A decision on the application could take up to six months for FDIC consideration, Barr said.
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