Show 1 y s r rf f 1 A pi The list of Wal-Mart's Wal effects on businesses goes on and on Now lawmakers and federal regulators face a tough question Should they permit Wal Mart Wal-Mart Mart Stores Inc to use a legal loophole to enter banking Wal-Mart Wal watch Kathleen Day The Washington Post Wal-Mart Wal entered the grocery grocery grocery gro gro- gro- gro cery business in 1988 to compete compete compete com com- pete with established names such as Kroger Safeway and Albertsons Albertson which had dominated dominated dominated domi domi- food retailing for decades Today Wal-Mart Wal is Americas America's biggest grocer with 16 percent of the US U.S. retail food market and its sales continue to climb even as dozens of df grocery chains struggle Wal-Mart Wal Stores decision decision decision deci deci- sion to jump full-force full into toys about 15 years ago has had similar similar similar sim sim- ilar results Its sales overtook leader Toys R Us Inc the the inventor of selling toys in big- big box discount stores stores in in 1998 Wal-Mart Wal now has 28 percent of Df that market And its it's not just food and toys Owners of religious religious religious reli reli- bookstores worry about being by the retailing behemoth The list of Wal- Wal Marts Mart's effects on businesses goes on and on Congressional lawmakers and federal regulators now face facea a tough question Should they permit Wal-Mart Wal to use a legall legal l loophole p o e to o enter ente b banking g gp and potentially p c i do 4 id f i li B what it has done Clone to nearly every other cor consumer r product r d t and iid mart Wai-mart Cont on Page 5 J. J mart Wal-mart Cont from front service it it has touched The question rattles bankers fro from m Maine Mauie to California even though th the e retailer no longer wants a service full-service e bank only a purpose limited-purpose one It h has as whipped up longtime Wal-Mart Wal critics including labor unions consumer consume r groups and some congressmen on both sides of the aisle who say the company compan y is already too big with too much power over the American economy sometimes sometimes some some- times to the detriment of workers' workers pay and domestic jobs Charles Fishman author of a new book The Wal-Mart Wal Effect chronicling chronicling chronicling chroni chroni- cling how the company's growth and price low-price philosophy influences the US U.S. economy is undecided I dont don't know if Wal-Mart Wal would be good or bad for banking in the long run But Ill I'll bet ATM fees would come down pretty quick At issue is the possibility that Wal- Wal Mart and a dozen other firms finns would be allowed to erode and possibly jettison a prohibition that's been in place for most of Americas America's year history barring commercial firms from owning service full-service retail banks and vice versa Supporters of theban the theban theban 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' consumers bank deposits tv ual reallY ai at issue is me the nature of the American economy says Rep Jim Leach R-Iowa R who for two dec decades des has fo fought efforts by industry to lift the ban If If such concentrations are allowed you could have our largest banks combined with our largest retail companies and tech high-tech companies and create questions about how credit is allocated It has enormous consequences consequences conse- conse consequences for competition and I think America would become less competitive tive in the world But others say low pricing is king Wal Mart sees banking as an opportunity opportunity opportunity to give the customer a better deal says Howard Davidowitz founder and chairman of Davidowitz Associates Inc a New York retail consulting and investment banking what Wal Wal Marts Mart's why about demolished the food and toy industries If its it's better for the customers then that's the way it ought to be Sparking the current uproar is Wal- Wal Marts Mart's application to obtain federal deposit insurance which is required before it can open a state-chartered state bank in Utah known as an industrial loan corporation or ILC Congress overlooked the ILC loophole loophole loophole loop- loop hole in 1999 when it passed laws to deregulate financial services by allowing allowing allowing allow allow- ing bankers securities brokers and insurers to enter one another's businesses business- business es and sell such products under one roof But despite overlooking Congress specifically addressed the issue of commerce and banking It voted to maintain the ban on mixing the two by closing another loophole that allowed firms such as Wal-Mart Wal to own a savings and loan a specialty bank A handful of states including California and Nevada but most of all Utah grant charters for Sixty- Sixty one have been granted since 1984 nearly half of them after the 1999 financial deregulation bill passed and six applications including Wal-Mart's Wal are pending The advantage of an ILC ILC- aside from the fact that commercial firms ms are prohibited from owning a traditional traditional tra tra- tra- tra is bank that it allows its owner owne r rs to bypass regulation by this country's country s main bank regulator the Federal Federa 1 Reserve Board Instead are supervised by the their ir state regulator and at the federal level the which in addition to insuring all banks has for decades regulated regulate d some state banks The has said i ihas it t has the capability to provide sufficient t federal oversight of these state banks Leach and others disagree as did th the e j Government Accountability Office th the e research arm of Congress in a report last fall The majority of are owne owned b by y r financial companies such as securities s firms Merrill Lynch Co an and d j Goldman Sachs Group Inc that and under er r deregulation could own a traditional tradition al 1 bank but dont don't want to because that at t would require they be regulated by the he I The fie Fed as bank holding companies compani Fed requires holding companies t to o 3 maintain certain amounts of cash cas h against potential losses and that's a an n expense these firms want to avoid The e dozen or or so om companies an es s BMW of No North rth Ij that own Volvo and the like do doso do 0 America Am enca of their cars an and j d so to finance purchases motorcycles Controversy has bas surrounded Cs ls debate h has as for seve several 1 years but the been mostly among lawmakers and reg- reg Not until Wal-Mart Wal applied to the did the issue attract widespread widespread wide- wide spread public attention Partly its it's Wal-Mart's Wal sheer size But its it's also because of Marts Wal-Mart's employment employment employ- employ ment and pricing practices For years labor unions employees in dozens of lawsuits across the country and even state legislators have criticized the company for low pay and health bene- bene beneI fits Critics also the say low prices the company uses to dominate industries industries- while they may make consumers smile at the checkout have checkout have put many smaller companies out of business and shipped jobs to cheaper overseas labor markets The has received 1500 comment comment com com- ment letters on Wal-Mart's Wal application the most its it's received on an issue Many support Wal-Mart's Wal bid to own a bank but most are from banks and lob bank groups across the country opposing opposing ing it Three dozen members of Congress evenly divided between Republicans and Democrats have written the expressing concern about Wal-Mart's Wal application five Twenty members of the House Financial Services Committee including Leach and three senators asked the to hold hearings hear hear- hearings ings before making a decision which it has said it will do in the next few months Spencer Bachus R chairman of the House financial institutions and consumer credit subcommittee has announced plans to hold hearings on And Alan Greenspan while Federal Reserve Board chairman at least twice told members of Congress that espe especially if given authority to open branches nationwide nationwide threaten n H ri tn to n und undermine l e sound banking oversight by creating a second parallel system These are crucial decisions that s should be made in the public interest after full deliberation by the Congress Greenspan said in a recent letter to I Leach They should not be made l through the expansion and exploitation c of a loophole that is available to only c one type of institution chartered by a handful of states By contrast the with little f fanfare and no headlines granted retail c discounter Target Corps application f for insurance for a Utah-chartered Utah ILC J 18 months ago Target is using it to c offer a credit card to its small-business small c customers Wal-Mart Wal uses Target to F press its case in its lobbying of Congress saying its it's unfair to let its rival own bank a-bank doesn't Mart Wal-Mart officials in letters to Congress in the company's a application and in interviews say it too v would use the Utah bank for limited F purposes namely to accept large c deposits brokered through third parties z and by removing the middleman to 1 lower costs of room back-room operations by t tens of millions of dollars a year in the I processing of 25 billion credit and debit-card debit transactions That's a change in plan from a few years ago when the company said it wanted to enter service full-service retail banking banking banking bank bank- ing because that's what its customers want A spokesman for the company in 2003 for example said that because Wal-Mart Wal could not find enough banks willing to open branches in its stores it wanted to do it on its own At about the same time Wal-Mart Wal chief executive Lee Scott said in an interview with the Los Angeles Times that the company wanted to be ho gung-ho into financial services including mort mort- gages Since then Wal-Mart Wal has changed its approach says Jane Thompson president president president dent of Wal-Mart Wal Financial Services The company has read the tea leaves she said The store in-store banks will now be outside partners Thompson says the company already works with banks that operate branches in its stores and has embarked on an aggressive campaign to recruit more Wal-Mart Wal has 1980 super- super centers 1150 of them with service full-service bank branches And Wal-Mart Wal has contracts contracts contracts con- con tracts for an additional branches in its stores Thompson as proof of Wal-Mart's Wal new direction points paints out that its contracts contracts contracts con con- tracts with outside banks are term long-term lasting 15 years if a bank wants And partnering with outside firms finns is something something something some- some thing Wal-Mart Wal is used to she said Wal-Mart Wal credit cards are offered through GE Money Bank and wire transfers around the world go through Payment Systems Inc People are not looking at the facts Thompson said of the vocal opposition We have no aspirations to have our own branch in our stores Weve We've said publicly that we have no intent to branch Were We're heading the other way Critics remain skeptical that Wal- Wal Marts Mart's ultimate goal has changed Why should we believe them asked Tracy Sell SeO spokesman for Wal- Wal Mart Watch a coalition of organized labor community groups environmentalists and others critical of the retailers retailer's business practices Nothing would prevent Wal-Mart Wal once its it's granted a bank charter from coming back to the 1 and a d asking to do more with it Even some Wal-Mart Wal supporters I think the company's entry into banking would inevitably change the industry Typically when Wal-Mart Wal enters anew anew a anew i new product category all of a sudden I the world goes topsy says Britt 1 Beemer founder and chairman of Americas Research Group in Charleston SC a research consumer-research I firm that interviews as many as consumers a week for corporate clients It forces the marketplace to charge 1 less for the categories It would I be a good thing in banking because instead of banks talking about customer service they would actually have to offer it it The must weigh objective measures such as Wal-Mart's Wal financial soundness but it also must consider the general character and fitness of management management management man man- which could provide room for disagreement Wal-Mart Wal officials say they look forward to and congressional congressional con con- congressional gressional hearings as a chance to set the record straight And customers do love having a bank in the stores It works for me said Darlene Thornhill shopping at the Wal-Mart Wal in hi Culpeper Va She strolled up with her yet empty shopping cart to one of two tellers manning manning manning man man- ning the stores store's branch She said the branch is open longer than the other one on the other side of town Does she buy more at Wal-Mart Wal because she can bank there It probably probably proba proba- bly helps she said I usually think Oh well while Im I'm here I 1 might as well pick up such and |