By Jessica Holzer - 05/10/07 07:57 PM EDT
Introduced by Sens. Sherrod BrownSherrod BrownOvernight Finance: McConnell offers 'clean' funding bill | Dems pan proposal | Flint aid, internet measure not included | More heat for Wells Fargo | New concerns on investor visas House votes to eliminate Olympic medal tax Senate Dems call for investigation into Wells Fargo's wage practices MORE (D-Ohio), Tim JohnsonTim JohnsonBank lobbyists counting down to Shelby’s exit Former GOP senator endorses Clinton after Orlando shooting Housing groups argue Freddie Mac's loss should spur finance reform MORE (D-S.D.) and Wayne Allard (R-Colo.), the legislation also would limit the growth of existing ILCs and beef up the power of the Federal Deposit Insurance Corporation (FDIC) to regulate them.
Allard said the legislation would close “one additional loophole” that allowed banking and commerce to mix.
The senators predicted their legislation would attract broad support among the members of the Banking Committee.
But a spokeswoman for Sen. Bob Bennett (R-Utah), a committee member, yesterday reiterated the senator’s opposition to legislation curbing ILCs, the bulk of which are chartered in Utah.
“This bill is a non-starter for Senator Bennett,” she wrote in an e-mail. “He believes strongly that the ILC industry fills a necessary niche in the marketplace and has done so with safety and soundness.”
Wal-Mart provoked a public outcry in 2005 when it took steps to set up a banking arm. The FDIC was flooded with thousands of comments, prompting the bank regulator to impose a six-month ban on any new ILC applications in 2006. Then, 107 members of Congress wrote a letter requesting the FDIC to extend the moratorium by one year. It is now set to expire in January 2008.
FDIC Chairman Sheila C. Bair responded to the senators’ announcement: “As I’ve said, it is important that the public policy questions stemming from the ILC debate be settled by Congress, and I remain hopeful that this can be achieved this year.”
Industrial banks have exploded in recent years, with ILC assets growing from less than $4 billion in 1987 to more than $140 billion in 2004. Dozens of large companies, from Target to American Express, operate them.
Critics, who include Federal Reserve Chairman Ben Bernanke and his predecessor, Alan Greenspan, regard ILCs as a dangerous loophole that extends the FDIC safety net to commercial companies.
Meanwhile, small retailers, community banks and unions have rallied against ILCs. A coalition of the National Grocers Association, the United Food and Commercial Workers International Union (UFCW), the Independent Community Bankers of America and the National Association of Convenience Stores has formed to push Congress to rein them in.
ILCs have the potential to concentrate too much economic power in the hands of retailing behemoths, UFCW Vice President Michael J. Wilson argued at yesterday’s press conference. “If a company like the size of Wal-Mart becomes a banker, in a lot of places we’re going to have a company town again,” he said.
Mom-and-pop stores in rural areas fear they no longer will be able to get credit on favorable terms if their bank is owned by a rival, the chief executive of a small West Virginia bank, William A. Loving, said.
A call to Wal-Mart’s government-relations office was not returned by press time.
The legislation is very similar to a House bill sponsored by Financial Services Chairman Barney Frank (D-Mass.) and Rep. Paul Gillmor (R-Ohio), the senators said. That bill passed the Financial Services panel on a voice vote on May 2. Frank said it could go to the floor in the next few weeks.
Both the House and Senate bills grandfather ILCs formed before Oct. 1, 2003 from restrictions on their activities, but bar them from being sold to commercial firms.
A potential sticking point between the House and Senate bills is the treatment of automakers that operate finance arms. Frank has hinted that the final House bill will exempt them.
Allard seemed firmly opposed to that possibility. “I hope we don’t get into exemptions. We’re trying to close the loophole, not expand it.”