Question

Discuss why community banks might oppose Wal-Mart from being granted a charter for an industrial loan company.

Answer 1

The community banks opposed Wal- Mart from being granted a charter because, they believed that Wal Mart would start providing traditional banking services and underpriced loans in all it's stores which could be a potential threat to them.

They criticised the charter to WAL MART based on the following grounds:

• As they believed that banking and retail /commerce should be treated separately to protect customers from conflict of interest.
• As Wal- mart would not be subject to the same regulations as banks, there could be a problem of safety and soundness.
• Wal- Mart owned bank, would be particularly harmful in smaller communities where there are fewer alternative sources of credit.
• A Wal-Mart owned bank will not be able to look past a consumer’s credit score to understand the customer’s individual circumstances and can’t make the customer a loan based on a good understanding of the customer's credit history and credentials.
• if Wal mart enters into banking, the long term consequences would be the availability of fewer service providers and financial services will become more commoditized.