BusinessWeek's "Debate Room" features an interesting point-counterpoint debate on the topics of Wal-Mart's (NYSE: WMT) foray into the banking and financial services industry.
Ronald Ence of Independent Community Bankers of America naturally opposes the move: "Federal and state lawmakers traditionally have limited banks' rights to conduct commercial activities and prohibited commercial firms from owning banks. The reason: to prevent a dangerous concentration of economic and financial power or a threat to the safety and soundness of our financial system and the federal deposit insurance fund."
Howard Davidowitz disagrees: "The hue and cry over Wal-Mart's attempts to expand its financial-services business is largely motivated by a single fact: The company will offer these services at a lower cost to the consumer, taking revenue away from competitors that happen to include banks."
While I'm certainly no great fan of the world's largest retailer, I'm inclined to agree with Davidowitz. If America's banking system was succeeding in providing value to low-income consumers, Ence might have a point. But Wal-Mart will primarily be taking market share away from loan sharks and payday lenders, and that's good for America. If companies like Bank of America (NYSE: BAC) would step up and offer products that make sense for low-income workers, I might be more inclined to oppose Wal-Mart's foray into banking. But the company could step in and provide a valuable service to a market that has been largely ignored and exploited, so why not give it a shot?
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Reader Comments (Page 1 of 1)
7-08-2007 @ 11:19PM
ed said...
It's easy to understand the objections of the competition (and dismiss them, I say).
What has been ignored in the media for the last two years is the objections of the FDIC.
There's a good reason why Greenspan objected to Wal-Mart entering the banking arena when he was at the Fed, and why Bernanke continues to object.
7-09-2007 @ 12:03AM
vernholtz said...
banking regulators have enough problems.....
7-09-2007 @ 6:41AM
hal c said...
Ed, what are the good reasons?
7-09-2007 @ 11:26AM
ed said...
Hal, Greenspan's beef is that traditional banks operate under the supervisory authority of the Fed. Without having the same regulation of banks, Wal-Mart has a competitive advantage. This could lead to very relaxed lending, something which Greenspan calls a dangerous loophole.
As far as I know, Bernanke doesn't like the idea either.
And this is not just an argument against the spread of Wal-Mart banking, it's an argument against the mingling of banking with commerce.
Other companies to date have been allowed to do this, and now the Fed would have liked to have seen the trend reverse.
In sum, the risk is the relaxed lending that could occur.
e.d. (erin)
7-09-2007 @ 11:26AM
ed said...
Oh yeah. And you'll recall that this was precisely the problem Japan had - relaxed lending.
7-09-2007 @ 1:32PM
john said...
What we want in the banking industry is a business that will rip off its customers.
7-30-2007 @ 5:51AM
Wm Stoup said...
Anytime a company rips off a consumer its against the law. Its called Stealing. Now why should Wal-Mart have to setup shop to help consumers? Shouldn't the government with all of the laws it has on the books enforse its own rules and laws against stealing? Of course i suppose those who live in glass houses shouldnt throw stones.