Recent bids by Wal-Mart (WMT), Home Depot (HD), and other big retailers to open their own banks are a threat to the nation's banking system and will hurt small business, independent bankers told Congress on Wednesday.
"The financial system's safety and soundness, integrity, and ability to serve local communities and small businesses are all at great risk," Terry Jorde, chairman of the Independent Community Bankers of America, a Washington-based trade group, said during a hearing with the House Subcommittee on Financial Institutions and Consumer Credit.
The hearing was called to examine a recent surge in applications for so-called industrial loan charters, or ILCs, which allow retailers, auto companies, and other non-financial companies to operate state-chartered banks.
Jorde and other critics say industrial loan charters undermine a long-standing policy to keep commerce and banking apart, setting up a clear conflict of interest.
A bank owned by Home Depot, they say, could deny home-improvement loans to customers who buy hardware from other stores, while giving its own costumers favorable rates — putting unfair pressure on smaller competitors.
Retailers say banks operated by large retailers simply offer good customer service and are governed by the same strict regulations as any other financial institution.
A bipartisan House bill introduced earlier this week would sharply limit non-financial companies from entering the banking business.
About 60 commercial businesses, including Target, Volkswagon, and General Electric (GE), currently offer banking services through industrial loan charters, together managing some $155 billion in assets — compared to just $11 billion a decade ago, according to the Federal Deposit Insurance Corporation.
At least 14 other companies have pending applications with the agency.
Home Depot, which applied with the FIDC to acquire EnerBank, an industrial-loan bank in Salt Lake City in May, claims the move is aimed at boosting customer service by allowing contractors to offer home-improvement loans directly to clients.
The FDIC has yet to rule on the application.
"Affiliations between commerce and financial institutions have always existed," John Douglas, a lawyer representing the American Bankers Association, told members of the committee.
Douglas said industrial banks are subject to the same regulations as regular banks, and that the "existing framework is adequate."
On Tuesday, Reps. Barney Frank, D-Mass., and Paul Gillmor, R-Ohio, co-sponsored a bill that would prevent companies earning less than 85 percent of gross revenue from financial services from receiving deposit insurance, which states typically require before issuing an industrial loan charter.
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