Monday, April 10, 2006

Wal-Mart and permission-based banking

Wal-Mart wants to provide banking services and the usual suspects are in an uproar.

A parade of objectors spanning American business, unions and charities are going before federal regulators to make the case against allowing Wal-Mart Stores Inc. to expand its empire into banking.

The first-ever public hearings by the Federal Deposit Insurance Corp. on a bank application are drawing a wave of opposition to the move by the world's largest retailer.

The company insists that consumers and retail banks have nothing to fear and is pledging to stay out of branch banking and consumer lending.

Some 300 institutions operate branches in 1,150 Wal-Mart stores and the company says it doesn't want to compete with them.

Opponents are not convinced. They portray Wal-Mart's proposed in-house bank — which would handle the 140 million credit, debit card and electronic check payments the company handles each year — as leading eventually to full-scale banking with retail branches that would destroy local banks.

Bentonville, Ark.-based Wal-Mart already is too big, they say, with 3,900 stores nearly saturating the U.S. market and unrivaled dominance — accounting for 10 percent of the U.S. retail economy, according to some researchers.

"Wal-Mart is a company that does not play by the rules," Robert E. McGarrah Jr., a corporate governance official with the AFL-CIO, said in a statement prepared for Monday's hearing.

"That factor alone makes its proposed bank a threat to the taxpayers and the nation's banking system. ... Wal-Mart's record in communities across America reveals a company that ruthlessly wipes out important community businesses," McGarrah said.

In an unusual alignment, the banking industry, unions and consumer groups have come together to make the case that a Wal-Mart bank would unfairly concentrate power over retail and small-business lending in one company that is already the biggest business in many small towns and rural communities. [Marcy Gordon, AP Business Writer]
Yet again, the anti-business mentality threatens to squelch the rights of the productive. Just how does Wal-Mart “ruthlessly wip[e] out important community businesses?” By finding efficiencies and providing its customers with better values. The only question in my mind is how has Wal-Mart been able to avoid antitrust.

After all, in his famous 1945 antitrust ruling against aluminum giant ALCOA, Judge Learned Hand wrote that he could “think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel."

How could one better describe Wal-Mart’s proposed entry into banking? I predict not to far in the future, Wal-Mart will become ext Microsoft, and in this context, that will not be a good thing.

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