The Federal Deposit Insurance Corp. on Wednesday extended for another year its moratorium on granting deposit insurance for industrial banks owned by retailers and other commercial entities - a move that should give Congress time to consider the issue in more depth.

The FDIC did lift the freeze on applications filed by financial services companies.

"The industrial bank applicants - whether they are commercial companies or financial companies - deserve an answer," FDIC Chairwoman Shiela Bair said. "For commercial companies, I'm afraid, the answer is that they will have to wait a little longer."

Wal-Mart's application 18 months ago to open a Utah industrial bank sparked widespread concern and has been a lightening rod for critics of the company's business practices. Wal-Mart maintains it merely wants to use the bank to process its customer debit and credit-card transactions. Critics fear the company wants to use it to branch out and compete with existing banks in the communities where it operates retail stores.

Utahn Alan Whitchurch, who is poised to serve as Wal-Mart Bank's chief executive if it eventually gets approval, said the company was "incredibly disappointed" by the FDIC's action, and frustrated by the process.

"We're going to stay the course, though. We never intended to open branches and we fully expected that if we were approved, the FDIC and the state would put restrictions on us branching. And we wouldn't have any problem with that."

Regardless of Wal-Mart's intentions, the company's application, along with a subsequent filing by Home Depot requesting approval to take over an existing industrial bank, focused a national spotlight on Utah's little-known industrial banking community. In contrast, an earlier application by Target Stores sailed through the state and federal approval process without generating any controversy.

Utah is home to 31 active industrial banks, which also are known as industrial loan corporations, or ILCs. Combined, Utah's industrial banks hold assets of about $149 billion, or more than 80 percent of all assets held by industrial loan corporations in the United States.

Industrial banks were authorized under an exemption in federal banking laws enacted by Congress is 1987. That exemption - some disparagingly call it a loophole - for the first time since the Great Depression gave stock brokerages, retailers and other commercial companies a way to own a federally insured bank.

Sen. Bob Bennett, R-Utah, who has been a leading proponent of the industrial banks, said he, too, was disappointed by the FDIC decision.

"I expected some kind of extension, but not one this severe," Bennett said. "As the FDIC concedes, they have no clear authority to refuse a charter that is in full compliance with existing law, which allows commercial affiliations. It will be interesting to see if this decision triggers any legal actions by those who believe they are being discriminated against."

But Wal-Mart Bank opponents, such as the Independent Community Bankers of America, lauded the FDIC's action.

"They are trying to be careful, and what their decision shows is that they believe [the commercial ownership of banks] is really a public policy decision that is far more important than just a technical regulatory issue," said Steve Verdier, senior vice president and director of congressional affairs for the group.

He argued that if one of the world's largest commercial firms owns an industrial bank, and that firm were to fail, the FDIC insurance fund and taxpayers would have to bear the liability. "Federal regulators are in no position to go trooping down to Bentonville, Arkansas, to determine if Wal-Mart is operating in a safe and sound manner. We've always believed that these [commercial] applications place an undue risk on the federal deposit insurance funds and taxpayers."

The FDIC's Bair said industrial banks are not perfect, but have a good track record. Overall, "the industry has operated in a safe and sound manner."

By kicking the issue back to Congress, the FDIC is shedding considerable doubt on the future of commercially owned ILCs.

House Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Paul Gillmor of Ohio, the ranking Republican on the committee, last week introduced legislation that would prevent retailers from owning an ILC. In December, Frank, Gillmor and 105 other members of Congress sent a letter to the FDIC urging it to extend the moratorium.

John Dugan, an FDIC director and comptroller of the Currency, said in light of the debate in Congress, it would be unwise to proceed only to have a decision reversed by lawmakers. "The FDIC should not put itself in the position of having to unscramble the egg."

Rep. Jim Matheson, D-Utah, said during a House Financial Services Committee hearing last fall it was clear that industrial banks, whether owned by commercial entities or financial services companies, have proved to be safe and sound and are adequately regulated.

Unlike national banks, which are regulated by the Federal Reserve, industrial banks are regulated by the FDIC and the states where they are chartered. "But that bottom-up regulation has proved to be just as effective as top-down regulation" from the Federal Reserve, he said.

"Unfortunately, I don't believe this is all about the ILC industry," Matheson added, indicating that much of the criticism appears to be directed at Wal-Mart. "I hope we eventually can strip away that rhetoric. The legislative process may move slowly, but I'm hopeful we'll eventually be able to get the issues considered in a careful way."

Matheson said the industrial loan corporation industry is extremely important to Utah's economy, as well as to consumers across the country.

Although an industrial bank can operate in much the same manner as a commercial bank, most choose to conduct business in narrowly defined niches. Some issue credit cards, while others offer home mortgages or focus their business on commercial loans. Few operate branches.

steve@sltrib.com

gehrke@sltrib.com

* What happened? The FDIC extended for another year its moratorium barring retailers such as Wal-Mart Stores and Home Depot from operating industrial banks. It lifted its moratorium for financial services companies.

* What's next? Extending the moratorium should give Congress time to weigh the issues surrounding ownership of industrial banks by commercial firms.

* Do industrial banks operate differently than commercial banks?

Industrial banks can do virtually everything a commercial bank can do - issue credit cards, take deposits and make loans. For individual consumers, about the only thing an industrial bank cannot do - if its assets exceed $100 million - is offer standing checking accounts.

* Who already operates industrial banks in Utah?

There are 31, operated by such companies as Merrill Lynch, American Express, Morgan Stanley and UBS.

* Whose applications are in waiting?

Wal-Mart, Home Depot and DaimlerChrysler are among the commercial companies. Among financial service companies, there are Cargill and First City Financial, in a joint venture called American Pioneer Bank; Comdata Bank; and Marlin Business Bank. There also is Blue Cross and Blue Shield's Blue Healthcare Bank.