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Wal-Mart drops plans to set up in-house bank

Wal-Mart Stores Inc is dropping its bid to establish a bank after months of heated debate over whether the world's largest retailer should be allowed to gain the added financial power of a federally insured bank.

Wal-Mart announced on Friday that it was withdrawing its application for a bank charter, which aroused widespread opposition from banks, lawmakers and consumer groups, and spurred debate within Congress and before the Federal Deposit Insurance Corp (FDIC).

The FDIC was considering Wal-Mart's application to establish an industrial loan corporation, which is a limited-purpose bank for processing credit card and other payments.

Industrial banks have been proliferating in recent years -- Target Corp, UnitedHealth Group Inc and Harley-Davidson Inc are among the nearly 60 that now exist.

Critics say their growth dangerously blurs the line between banking and commerce, concentrating assets in the hands of a few big companies, stifling competition and hurting consumers.

The chairman of the FDIC, Sheila Bair, said the Bentonville, Arkansas-based company's move to withdraw its application for a bank charter was "a wise choice."

"This decision will remove the controversy surrounding their intentions," Bair said in a statement.

Wal-Mart does not need to have the sort of bank in question "to play an important role in expanding access to financial services by partnering with banks and others," Bair said.

"We look forward to working with Wal-Mart in meeting the need for low-cost financial services across all populations," she said.

Wal-Mart's application to establish an industrial loan corporation based in Utah had prompted a firestorm of opposition from banks, unions, lawmakers, and consumer and community organizations.

Last April, groups representing those interests argued against granting the retailer's request at two public hearings, the first ever to be held by the FDIC on such an application.

On Jan. 31, the FDIC extended for one year a moratorium on considering non-financial companies' applications to establish or acquire industrial loan corporations, also known as ILCs. The regulators' decision put on hold Wal-Mart's pending application as well as those from companies including The Home Depot Inc and DaimlerChrysler AG.

The FDIC action also gave Congress time to consider legislation that would prohibit such non-financial companies from owning the special banks. This year, with Democrats in the controlling majority, proponents believe prospects are stronger for passage of a bill to close what they see as a loophole in banking regulation. Current laws prohibit the mixing of banking and commerce, but an exception is made for the ILCs, allowing commercial companies to own a federally insured bank.

Atlanta-based Home Depot said on Friday that it "remains committed" to its plan to acquire EnerBank USA, an existing industrial bank.

"Any decision by Wal-Mart concerning its application ... in no way affects Home Depot's plans," the company said in a statement.
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