Wednesday, November 22, 2006

Walmart Bank -- Will it ever be possible?

When Wal-Mart Stores Inc. applied 15 months ago to get a banking license, it looked like a slam dunk. The retailing giant applied for an industrial-bank charter in Utah -- the same type of permit the state had already given to many companies including Volkswagen AG, Pitney Bowes Inc. and even another big retailer, Target Corp. The Federal Deposit Insurance Corp., which insures deposits at banks, had blessed similar applications. To allay fears that it would compete with small banks, Wal-Mart promised not to open retail branches, saying it would use its bank to process card transactions.

But, Wal-Mart's banking bid is on life support now. The FDIC in July issued an unprecedented six-month moratorium on all applications for these specialized banks, freezing Wal-Mart's effort. Utah, which also must approve the application, has stayed mum. Powerful members of Congress are lining up to pass laws that would block Wal-Mart, or any nonfinancial company, from getting into the U.S. banking business.

That's bad news for the world's biggest retailer, which is already facing slowing growth in the U.S. and has stumbled in several overseas forays. Wal-Mart's effort to open a bank has galvanized a broad coalition of opponents: large banks, small banks, the Federal Reserve, unions, grocers, real-estate agents and congressmen of both parties. Some in the coalition are mainly interested in dealing a blow to Wal-Mart. Others are worried about the trend of allowing commercial companies into banking, which they fear could undermine the soundness of the financial system. That argument has been around for years, but it generated little political heat until Wal-Mart came along -- illustrating the power of the company's name to transform stalemated policy debates.

This illustrates another point. The power of political lobbying in U.S. I am sure that all the banks in U.S. are scared to death when they heard about Walmart’s intention to open the bank. These banks paid money to politicians to prevent Walmart from opening the bank. If the same thing happened in India, that’s called “Bribe”. Just because it’s happening in U.S., it’s called “Lobbying”.

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