Wal-Mart Bank Would Mix Banking and Commerce: NAR

The Federal Deposit Insurance Corp. (FDIC) would establish a dangerous precedent that would inevitably lead to an erosion of the national policy against mixing banking and commerce, if it approves an application filed by Wal-Mart Stores Inc. for Wal-Mart Bank, the president of the National Association of Realtors®, Thomas M. Stevens, testified today.

“When commercial firms are allowed to engage in banking, the bank functions under an inherent conflict of interest,” said Stevens. “We cannot afford to open the door to actions that threaten the safety and soundness of the banking system.”

NAR is concerned about the competitive impact of giving a large commercial firm benefits that come with owning a federally insured bank. For example, a Wal-Mart Bank could provide loans on favorable terms to the suppliers of Wal-Mart Stores. That puts commercial firms not affiliated with a bank at a competitive disadvantage.

“As we know from the collapse of Enron and WorldCom, circumstances can spin out of control of management,” said Stevens. “It is not unreasonable to assume that if Walt-Mart found itself in a crisis, it might be too late to save the bank or minimize harm to the rest of the financial system.”

NAR believes that other initiatives to permit banks to engage in commerce should also be blocked. Since 2001, Congress has blocked the Federal Reserve Board and the U.S. Department of Treasury from finalizing a rule that would permit financial holding companies and financial subsidiaries of national banks to engage in real estate management and brokerage. Congressional actions are aligned with NAR’s belief that those activities are commercial.

More recently, the Office of the Comptroller of the Currency issued several rulings that go beyond the statutory authority of banks to own real estate to accommodate their business. Permitting banks to develop and own luxury hotels and develop luxury residential condominiums for sale stretches the law to the breaking point.

As in the case of the Wal-Mart deposit insurance application, NAR believes that Congress, not regulatory agencies, should resolve the clash between banking and commerce.

To view the full NAR testimony, please click here.