BLOOMINGTON - If Wal-Mart gets federal permission to enter the banking business, Central Illinois bankers believe the move could jeopardize stability of the entire industry.
"The rhetoric is that they want to do card processing only for themselves. As large as Wal-Mart is, would they get in the lending business and then give preference to the companies doing business with them? The real damage comes back to the philosophical question of whether commerce and banking mix? I think the answer should be not to allow it," said Ed Vogelsinger, chief executive officer of People's Bank.
Last week during federal hearings on the matter, Wal-Mart officials said they want to create an industrial limited bank, which would only process debit and credit card transactions.
The move would save the company millions of dollars processing more than 140 million payment transactions monthly, officials added. The retailer now enlists existing banks to perform that job.
Industrial limited banks aren't plentiful, but GM and Target do have their own versions. Unlike Wal-Mart, the car maker and retailer use their banks to finance products they need to buy over time.
In addition, Wal-Mart officials, speaking at the Federal Deposit Insurance Corp. hearings, said they have no interest in opening bank branches inside retail stores.
In the last eight years, Wal-Mart has tried twice to buy a bank. They were thwarted by laws restricting commercial companies from bank ownership.
But Jim Shafer, president of First National Bank of Tremont, said those past bank ownership attempts by Wal-Mart point to broader, future banking plans by the retailer.
"We can compete with Wal-Mart. We already compete with thousands of other banks. There's just too much risk to the payment system. Wal-Mart could get in trouble and drag down its bank with it. That's why Congress said after the Depression that the banking system should not be exposed to risk of being owned by a large commercial business. And rightfully so," said Shafer, a member of the Independent Community Bankers of America Board.
Vogelsinger further noted that industrial limited banks are overseen only by FDIC. Traditional, commercial banks get regulated by the Federal Reserve system, which can step in and halt operations if banks violate laws.
Community bankers are also concerned about effects on rural communities if Wal-Mart should enter full-fledged banking at some point. Shafer said he's seen the effects of the large retailer on Tremont.
"We have a viable, vibrant community, but we lost our hardware store. We're on the verge of losing our grocery store and our pharmacy is struggling," said Shafer.
Bob Lakin, Commerce Bank Illinois regional president, shares similar concerns about Wal-Mart's banking intentions. Like his fellow Central Illinois bankers, Lakin said Wal-Mart's industrial banking won't affect how local banks do business with their customers.
"I have no real opinion personally about Wal-Mart processing its own debits and credits, but the banking industry is very sacred to people because it's their money," said Lakin. "Wal-Mart seems to approach banking from a different perspective than banks have historically approached the industry."
Vogelsinger and Shafer said they believe FDIC officials will approve Wal-Mart's banking request because it does not violate the law. No timetable has been set for approval.
"My guess is that the FDIC will grant the charter because there's no legal basis to deny it," said Vogelsinger. "The interesting question is whether FDIC can impose restrictions and whether Wal-Mart would agree to restrictions that would permanently bar them from traditional banking. That would signal Wal-Mart's intention if they would agree to restrictions."