It's time to go after Wal-Mart, everybody's favorite corporate whipping boy......even if it's the customer who comes out ahead. Wal-Mart wants to open a limited-purpose bank in Utah from where it could provide service nationwide, but first it must secure approval from the Federal Deposit Insurance Agency (FDIC) and from Utah regulators. The retailer has said it merely wants to process its own credit and debit transactions, but opponents fear it is positioning itself to expand further into retail banking. Wal-Mart says it would save money if it could handle its own debit, credit and electronic-check transactions through an in-house bank. It says it would not offer payment processing to other retailers, nor open bank branches for the public. Opponents fear Wal-Mart eventually will open bank branches, forcing small community banks out of business.

When Jack Pansegrau in Palm Springs, Calif., heard about the controversy, he sided with Wal-Mart. Maybe the company that has saved Americans "billions and billions" could drive down fees for use of automated teller machines and other charges, he wrote. Such letters now number nearly 2,000 - the largest-ever response to a bank application at the FDIC where the issue is so controversial that the FDIC has taken the unusual step of holding public hearings. Unfortunately, though, these hearings may become more of a sideshow and it's likely the issue will be more a referendum on Wal-Mart the store, than on Wal-Mart the potential banker.

The Federal Reserve has raised concerns that commercial owners of industrial banks avoid a level of federal bank supervision and this has prompted opponents to question whether that lack of full oversight could allow potential troubles within the company to spill into the bank's business and disrupt the payments system. Other, less oblique opposition has focused on the historic separation of banking and commerce in the U. S.

Interestingly, Wal-Mart is not the only commercial firm to seek to set up an industrial loan company. Its rival, Target, succeeded in its industrial bank application. GM and GE also have industrial banks. But along comes Wal-Mart and all of a sudden some people decide that the regulatory procedure is inadequate. A few states are even threatening preemptive legislative action against Wal-Mart's bid, but hopefully New Hampshire will not follow suit.

Quickly determining which way the wind is blowing, politicians and opponents are weighing in. Senator Hillary Clinton, who curiously once served on Wal-Mart's board, now says she has "serious reservations" about the bank application. Her "new" position is shared by several large New York financial institutions, which view such banks as potential sources of competition. Alan Greenspan has said the application process has the "potential........to further undermine the policies Congress has established to govern the banking system." His successor, Ben Bernanke, agrees. A number of lawmakers, including anti-business Congressman Barney Frank ( D-MA) and Paul Gillmor (R-OH) argue that granting Wal-Mart a bank charter, given the retailer's "massive scope and international dealings," would carry too many risks. In an example of logic gone terribly awry, Steve Verdier, Senior VP of the Independent Community Bankers of America, thinks Wal-Mart's bank could wreak havoc on the economy even apart from the fair competition issues. "Just think if Enron had opened a bank" he states. But he admits that while there are other principles involved, his group opposes Wal-Mart's charter mainly "because it's Wal-Mart."

Many others, however, say low bank pricing is the way to go. "Wal-Mart sees banking as an opportunity to give the customer a better deal," says Howard Davidowitz, chairman of a New York retail consulting and investment banking firm. "That's what Wal-Mart's about. That's why they have demolished the food and toy industries. If it's better for the customers, then that's the way it ought to be." Even Robert B. Reich, the liberal-minded labor secretary in the Clinton administration, says that even though Wal-Mart is "not my favorite employer," he is in favor of a Wal-Mart bank, for the very progressive reason that it would improve life for ordinary people. All the opposition to the plan, he added, "is a pretty good indication that consumers would be helped if Wal-Mart could get in somehow."

It's interesting to imagine what would happen if Wal-Mart applied its legendary price-cutting and other business techniques to banking. Clearly, it would be able to do things that banks don't (or won't) do........like giving customers faster access to money and paying more attention to low-income families so they might be able to pay lower fees to cash checks. Sky high credit card interest rates would surely decrease as well. The retailer might actually bring to banking the same cost-cutting strategy that made it prevail over less-efficient competitors and become the preferred retail outlet in American. Given its technological and business savvy, inexpensive capital, instant geographical reach, and knowledge of the financial arena, small and midsize banks have good reason to be paranoid. Even big ones should be looking over their shoulders. After all, as grocers, toy retailers, and jewelers have learned, complacency in the face of Wal-Mart can be competitively dangerous, if not fatal, and that's what a free capitalist economy is all about.

As submitted in an earlier column, Wal-Mart runs its business and earns its profits by the voluntary decisions of its customers to shop there. Within this context, A Wal-Mart "bank," would operate in the same manner. No one would be forced to use its services. Wal-Mart's opponents (whether they be posturing politicians, competitors, unions--who fail time and time again to organize its employees, or the government) certainly have the right to to argue as to what line of business Wal-Mart can or cannot go into. But as long as it does not violate any laws, Wal-Mart's should have the right to function in a free capitalist economy in any manner it sees fit. Hopefully, it willl become a force in banking.............and that could be good news for all of us.

"Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government." Milton Friedman