The representatives said they want a moratorium in place while Congress considers the future of industrial banks, also known as industrial loan corporations, or ILCs.
The letter to Acting FDIC Chairman Martin Gruenberg represents the latest development in the ongoing saga that centers around Wal-Mart Stores Inc.'s bid to open a limited-purpose Utah-based industrial bank so it can process its own debt and credit card transactions in-house.
Wal-Mart's critics fear that if the company is successful in using an exception in federal banking regulations to establish a Utah industrial bank, it could harm small banks in communities across the country and lead to a flood of similar applications by other big commercial companies. And that, they contend, eventually could undermine the long-standing federal prohibition that generally bans commercial entities from owning banks - a prohibition adopted in response to the Great Depression.
"Congress needs to deal with the 'loophole' that allows commercial companies to own industrial banks," said Camden Fine, chief executive of the Independent Community Bankers of America. "It is tearing apart the fabric of banking regulations in this country."
He pointed to the recent application by Home Depot to buy an existing Utah industrial bank as evidence that the stampede is on by retailers to get into the banking business.
Rep. Barney Frank, D-Mass, who helped lead the effort that resulted in 98 members of Congress petitioning the FDIC for a moratorium, agreed.
"It is now clear, with the application from Home Depot joining the application of Wal-Mart, that it is now time for Congress to deal in a thoughtful and responsible manner with the policy implications of a significant expansion of the ILC model," Frank said Thursday. "The complexity and importance of this issue make it wholly appropriate for the FDIC to withhold action until we can have a full debate and resolution of this issue in a place where national policy should be made - the Congress of the United States."
Industrial banks were authorized under an exemption in federal banking laws enacted by Congress in 1987. That exemption - some disparagingly refer to it as a loophole - for the first time since the Great Depression gave stock brokerages, retailers and other commercial companies an easy way to own a federally insured bank.
Such banks can issue credit cards, take deposits and make loans. For individual consumers, about the only thing an industrial bank cannot do is offer standard checking accounts if its assets exceed $100 million. Utah is home to 34 active ILCs that have combined assets of approximately $123 billon.
Yet, almost all Utah ILCs operate within narrowly defined business parameters, such as issuing credit cards or offering automobile loans. And both Wal-Mart and Home Depot pledge they will do the same and have no intention of getting into the commercial banking business.
Not surprisingly, the names of Utah's Congressmen were absent from the letter sent to the FDIC. And they aren't buying the criticism levied against the industrial bank industry.
Rep. Chris Cannon, R-Utah, in a statement issued by spokesman Charles Isom, said the FDIC should be free to do its job and that companies that have applied for deposit insurance shouldn't face additional hurdles. "There are 34 ILC's now operating in Utah and we haven't see any of the chaos that critics are predicting," Isom said.
Utah's lone Democrat in Congress, Rep. Jim Matheson, expressed doubt the letter will have much impact.
"Sending a letter to a government agency asking them not to do what they're charged under the law with doing probably isn't going to accomplish much," Matheson said.
Still, he indicated he would welcome a discussion in Congress on the role of industrial banks and, more generally, the separation of banking and commerce.
"There is a lot of misinformation about ILCs out there. Many might be based in Utah, but they benefit consumers all across the country," he said. "And I'd disagree with anyone who says the law needs to be changed. There is no bright red line separating banking and commerce. It's pretty gray."
The Utah Department of Financial Institutions has not yet accepted as complete the applications from Wal-Mart or Home Depot for ILC charters in Utah.
steve@sltrib.com
