News

Wal-Mart bid causes rift between community banks

April 25, 2006

OVERLAND PARK, Kan. - Wal-Mart Stores Inc.'s application for a bank charter is quaking America's community banks, and the growing rift was evident April 25 during the second round of Federal Deposit and Insurance Corp. public hearings.

Representatives from community banks in Iowa, North Dakota, Kansas, Missouri and Minnesota said they fear the retail giant will infringe upon the financial services they currently provide in Wal-Mart locations. Others, like Michael Richmond of Texas-based Woodforest National Bank, said Wal-Mart's bid for a charter could benefit banks.

Richmond, whose bank operates branches in 145 Wal-Mart stores in Texas, North Carolina and Virginia - roughly 10 percent of Wal-Mart's in-stores branches - said he doesn't expect a Wal-Mart bank charter to hurt Woodforest's relationship with the retailer.

Wal-Mart claims its interest in a charter relates only to processing the $2.6 billion transactions that flow through its stores each month. (Read also, Banks fight Wal-Mart's application for bank charter.)

"It is not much of a stretch to conclude that somewhere down the road Wal-Mart will be expanding its business plan to offer a full array of banking services," said James Sower, the chairman of Bayfield, Colo.-based Pine River Valley Bank and president of the Independent Bankers of Colorado.

And Wal-Mart's announcement that it is working with First Data Corp.'s Money Network to offer no-fee paycard check-cashing services at 3,000 of its stores, which will directly compete with community banks and other money services, only fueled concerns. (Read also, Money Network, Wal-Mart launch no-fee option for check-cashing.)

The FDIC will now review the Wal-Mart application, the testimony it collected during three days of hearings, and nearly 4,000 submitted comments.

Wal-Mart already obtained a valid industrial-loan company charter in Utah, but the charter must be approved by the FDIC for federal deposit insurance coverage.

Application criteria

David Barr, a spokesman for FDIC, said the application will be judged on seven required criteria. They are: whether the proposal meets the needs of the community; whether the capital plan is adequate; the financial history of the company; the company's earnings prospects; the integrity of the company's management; risk to the FDIC insurance fund; and whether the corporate powers are consistent in their compliance with the Federal Deposit Insurance Act.

A negative finding in just one criterion could doom the application, Barr said.

In the first set of hearings, Wal-Mart's Jane Thompson sought to allay the fears of community banks and insisted the company has no plans to create its own in-store branches.

"You will not see a Wal-Mart Bank in a Wal-Mart store," she said.

Wal-Mart is willing to have the prohibition on branching written into its application, she said.

But that may not be enough to win approval, observers say. That's because the issue has become a political as well as regulatory. As many as 100 members of Congress have signed to block the controversial application, and several key lawmakers are pushing legislation that would prohibit the ownership of a bank charter by a non-financial service company, like Wal-Mart.

A numbers game also could play a role.

The nominally five-member FDIC board is down to four, and any application requires a majority vote. A two-two vote won't do, Barr said.