Community Bankers Association of Illinois

Wal-Mart Utah Application Requires Urgent Attention

Washington, D.C. (August 3, 2005) -The Independent Community Bankers of America (ICBA), as a founding member of the Sound Banking Coalition, told Congress that speedy passage of the Gillmor-Frank compromise is a necessary first step toward closing the industrial loan company (ILC) loophole in the Banking Holding Company Act. In a letter to members of the House of Representatives, the Coalition said that Wal-Mart's application for an ILC charter in Utah makes the ILC loophole an urgent issue since it places many small businesses at risk and limits consumer choice in banking options.

"While the application itself has been narrowly written, if the ILC charter is approved nothing would prevent a later amendment to allow precisely the type of branching and retail banking activities that raise so many concerns," the letter warns. "Under current law, a Utah ILC can branch into more than 20 states that have reciprocal branching arrangements and that number may grow."

Should this occur, many local businesses will be at substantial risk. "This is particularly true of small community banks that are the economic bulwark of many communities - particularly in rural areas that are often the location of Wal-Mart stores," the letter continues. "When community banks are put out of business, other local businesses and consumers will have no choice where to bring their banking business. In fact, many small businesses may be effectively forced to hand their bank deposits over to, and apply for loans from, their biggest competitor's bank."

The Sound Banking Coalition, consisting of financial, retail and labor groups, has been working to close the ILC loophole to keep big-box stores, like Wal-Mart, out of the banking business. Since ILCs are exempt from the Banking Holding Company Act, they can be owned by commercial firms, violating the long-standing policy against the mixing of banking and commerce. Mixing banking and commerce would produce an excess concentration of economic power, jeopardize the impartial allocation of credit, and inappropriately extend the Federal safety net to commercial firms. It also would pose serious competitive issues for local merchants, including community banks.

The Gillmor-Frank compromise, authored by Rep. Paul Gillmor (R-OH) and Barney Frank (D-MA), prohibits ILCs owned by commercial firms (85% or more of revenue derived from non-financial sources) from exercising the new de novo branching powers. While the SB Coalition advocated this as an important first step, it emphasized that ultimately, the ILC loophole must be closed by bringing ILCs under the Bank Holding Company Act.

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