For years, bankers in Utah have operated hand-in-hand with their industrial bank cousins, supporting each other at the Legislature and even sharing membership in the Utah Bankers Association, whose past chairman is an industrial bank executive.

But the CEO of Zions Bancorporation, one of the nation's most influential bankers, doesn't seem to be interested in playing nice any longer.

Simmons, whose last major campaign was against large "bank-like" credit unions because of their tax-exempt status, said he is troubled by the growing number of commercial enterprises - discount retailers, car manufacturers and the like - that have gotten into - or want to get into - banking via industrial banks.

If a retailer can sell certificates of deposit to their customers via their own industrial bank, "we should be able to sell you socks," Simmons says, only half-jokingly. "I'm a level-playing-field kind of guy."

Speaking out just weeks after the U.S. House of Representatives passed a bill restricting industrial banks, Simmons echoes concerns made by members of Congress and bankers in other states. But his views also put him at odds with Utah's top banking regulator, U.S. Sen. Bob Bennett and even many of his fellow Utah bankers.

Simmons is careful to underscore the fact that he isn't isn't against all industrial banks, also known as industrial loan corporations, or ILCs. In fact, he notes that industrial banks have a substantial economic effect on Utah - not to mention on his own company, which has business arrangements with some industrial banks.

That said, Simmons said he sees an inequity. While banks can peddle a variety of financial services, such as insurance and retirement accounts, they can't get into other areas such as real estate brokerage services, which some banks have wanted to do. And of course, they can't make money selling hard goods, such as the cars or general merchandise that some industrial bank parents offer.

On the other hand, industrial banks, including those owned by retailers, can do many of the things traditional banks do. They can take deposits, make loans and issue credit cards. The only key restriction is that industrial banks with more than $100 million in total assets cannot offer standard checking accounts.

Retailers like industrial bank charters because they afford them greater control over their financial services activities. Through its industrial bank, Target can use its charter to finance its customers' purchases. Car manufacturer BMW has an industrial bank that offers financing to those who buy or lease its vehicles.

And that leads Simmons to pose a controversial question: Is it in the government's best interest to offer industrial banks owned by non-financial services companies deposit insurance, which guarantees accounts up to $100,000? Without such coverage, it would be nearly impossible for industrial banks to operate.

"An important question to ask is, to whom and why should a federal safety net be extended?" Simmons says, bringing up the savings and loan debacle of years ago.

He implies that if the industrial bank industry and its commercial operators ultimately run into problems, it will be taxpayers who foot the bill.

A brand new debate

The last time Simmons talked like this, he was embroiled in a nasty fight between banks and credit unions, which went from the Legislature to the courtroom to Congress, resulting in greater restrictions being placed on credit unions.

In fact, one can get the distinct impression talking to Simmons that he's about as aggravated by industrial bank issues these days as he was with credit unions - which is saying a lot.

Howard Headlee of the Utah Bankers Association said he's heard some bankers raise safety and soundness issues in relation to industrial banks. But he doesn't share those concerns, and he doubts that many other Utah bankers share Simmons' concerns.

"Safety and soundness is a top priority with all banks. But history demonstrates that there are no issues [with industrial banks] beyond those that would exist for any bank," he said.

Frank Pignanelli, executive director of the Utah Association of Financial Services, a trade group made up mainly of industrial banks, has been hearing the safety and soundness issue a lot lately at the federal level as the House debated the bill restricting industrial banks.

"If you're worried about [that], where have all the failures been?" he sadi. "They are the safest financial institutions in the country."

Ed Leary, commissioner of the Utah Department of Financial Institutions, agrees, noting the failure rate of industrial banks is on par with traditional banks. And even in the rare instances that one gets into financial trouble, the parent company often is poised to step in and recapitalize it, said Leary, the state's top banking regulator.

Although the debate over industrial banks is relatively new, the banks are not. They qualified for federal deposit insurance in the mid-1980s. But FDIC insurance did set the groundwork for their expansion, which has occurred in earnest since.

Today, there are nearly 60 industrial banks operating in a half-dozen states. With 31 of the 60, Utah is the undisputed epicenter of the ILC industry - ILCs based here hold nearly 90 percent of the nation's industrial bank assets. Many are owned by financial services companies such as Merrill Lynch or Morgan Stanley; a smaller number are operated by retailers such as BMW or Target.

Despite growing interest among retailers in setting up industrial banks, the industry grew and grew for years with little fanfare. Then came Wal-Mart.

Wal-Mart's application in 2005 to open its own industrial bank struck a nerve that has created a rift between banks and industrial banks, said Leary of Utah's Financial Institutions Department.

Wal-Mart - under seemingly constant scrutiny for issues such as how it treats and compensates its employees, whether its top executives are adhering to its strict ethical policies and whether its suppliers are getting a fair shake - brought the same type of examination to industrial banks. Suddenly, a little-examined industry was being poked, prodded and questioned in much the same manner as the world's largest retailer.

"Wal-Mart brought a whole new dynamic to the industrial bank issue," Leary said. "Everybody's concerns about Wal-Mart transferred over to the industrial bank industry."

He contends that "Wal-Mart became the face of the industry."

And given Wal-Mart's knack for being a lightning rod of controversy, that wasn't good news for an industry trying to blend in with traditional banks.

In the end, all the controversy over Wal-Mart led the FDIC last July to place a six-month moratorium on all industrial bank applications.

The Wal-Mart aftermath

In January, the FDIC lifted that all-inclusive ban but kept in place until January 2008 a moratorium on all commercially owned industrial banks.

That puts in limbo the applications of commercial enterprises such as DaimlerChrysler and Ford Motor Co., which want to own industrial banks so that they can finance their customers' purchases. Also at bay is Home Depot's effort to acquire a home-improvement loan company.

Wal-Mart insisted that all it wanted to do with an industrial bank was handle some back-office tasks. But a number of groups said what Wal-Mart really wanted to do was get into retail banking, posing a huge threat to traditional banks and, in the end, stifling competition and hurting consumers. Wal-Mart insisted it never planned to get into retail banking. But the damage from a public-relations standpoint had already been done. In March, Wal-Mart contacted Utah officials and withdrew its application.

Wal-Mart's bid to open an industrial bank undoubtedly led to the measure that passed the House 371-16 last month barring non-financial services companies from getting into the industrial bank business and qualifying for federal deposit insurance.

Under the terms of the bill, only companies with at least 85 percent of their business in financial services would be allowed to operate ILCs. There are some grandfathering provisions for existing industrial banks owned by nonfinancial services companies, but they are relatively weak.

Regulator Leary said he's puzzled by how swiftly the bill moved forward with such overwhelming support.

"There is no systemic crisis caused by the industry that warrants the type of punitive bill that has passed the House," he said.

Leary isn't the only critic of the measure. Utah Republican Bennett has opposed efforts to radically change - or even tinker - with the industrial bank charter.

Bennett was not available for comment, but in an e-mail spokeswoman Emily Christensen said although Bennett might be open to "updating" the charter, "he opposes the measure passed by the House because of the negative impact it will have on the charter, which he believes fills an important niche in the marketplace."

"If you're worried about [failures], where have all the failures been? They are the safest financial institutions in the country."

FRANK PIGNANELLI

Executive director of a trade group representing industrial banks

"History demonstrates that there are no issues [with industrial banks] beyond those that would exist for any bank."

HOWARD HEADLEE

Utah Bankers Association

"Everybody's concerns about Wal-Mart transferred over to the industrial bank industry."

ED LEARY

The state's top banking regulator

"An important question to ask is to whom and why should a federal safety net be extended?"

HARRIS SIMMONS

CEO of Zions Bancorporation