The Marketplace Report: Wal-Mart's Banking Bid

Wal-Mart, the world's largest retailer, wants to expand its business into banking. On Monday, the Federal Deposit Insurance Corporation (FDIC) is holding hearings on Wal-Mart's bank application. Madeleine Brand talks to Bob Moon of Marketplace about the public response to Wal-Mart's application.

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

Wal-Mart has plans to get into the banking business. The world's largest retailer wants to save money by avoiding the costly fees associated with credit card transactions. But the banking industry and many consumer advocates are hoping to block the move, and they've lined up to testify at two days of hearings before the FDIC in Washington.

Marketplace New York Bureau Chief Bob Moon joins us with more on this. And Bob, what kind of banking does Wal-Mart want to offer?

Mr. BOB MOON (Marketplace, New York): Well, Madeleine, Wal-Mart is insisting that it has no plans to enter the retail banking arena, the thing that most of us are familiar with. If they hold to that, we're never really going to see, let's say, the Bank of Wal-Mart. But there's a whole array of opponents that fear that Wal-Mart, being the powerhouse that it is, might have something up its sleeve. They essentially want to nip this in the bud.

Wal-Mart is asking for permission to set up its own bank, permission from the Federal Deposit Insurance Corporation, the FDIC, as you mentioned, which of course, guarantees loans with taxpayer money. But this isn't a bank in the way that most of us think of them. This is something called an industrial loan company.

Wal-Mart wants to get around all the fees that it's charged on the processing of all those credit and debit card transactions that it makes with millions of customers, and it sees this as the way to do that; pay themselves, essentially, pay their own bank to process all those card slips. The bank says that it can save, or the company says it can save money that way, with this bank, and those savings will end up being passed along to customers.

BRAND: And why is there so much opposition?

Mr. MOON: Well, consumer groups are warning that the very size of Wal-Mart could threaten the banking system, the financial system. If there is ever a default, taxpayers would be on the hook if that happens under the protections of the FDIC. You might say, well, Wal-Mart is so big, how could that ever happen? But the critics say a lot of people felt the same way about General Motors; look at the troubles that that company has run into. The say the bigger they are, the harder they fall.

They also say that industrial loan companies are relatively new, and they don't fall under the same regulations that typical banks do. Regulators can't require the parent company, for example, to be accountable for, say, using the ILC as their own private piggy bank.

BRAND: And is there anyone in Wal-Mart's fairly large corner testifying in favor?

Mr. MOON: Well, some groups that you might consider surprising. The Salvation Army is one of the groups that's testifying in favor of Wal-Mart in the next couple of days. One of the officials of the Salvation Army says that it really doesn't know much about banking, but it plans to be something of a character witness for Wal-Mart for all the support that they give communities and all the disaster relief aid that they give.

Today in the Marketplace newsroom we'll be following these hearings to see what the outcome might be.

BRAND: Bob Moon of Public Radio's daily business show, Marketplace, and Marketplace is produced by American Public Media.

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