According to a February 3 letter obtained by Reuters on Wednesday, Clinton, a former Wal-Mart board member, told the Federal Deposit Insurance Corp. the retailer's bid to open an industrial loan company (ILC), if successful, could have a significant impact on the financial sector.
"After hearing from very concerned constituents about Wal-Mart's application for federal insurance for their ILC, I see this as a time to urge the FDIC to give serious and careful review to the relevant issues before moving forward on any application for federal insurance," Clinton wrote to the FDIC's acting chairman.
"Indeed, I believe that any action by the FDIC that would lessen or loosen the oversight for ILCs while granting it the same privileges and functions of traditional commercial banks would be a critical mistake and stand in stark contrast to the fundamental principle of the separation of banking and commerce."
Clinton's letter is the latest in a string of correspondence from Capitol Hill to the FDIC urging the regulatory agency to either oppose or move slowly and carefully on the application from the world's largest retailer to open an industrial bank in Utah.
A spokesman for the FDIC said the agency's acting chairman had received Clinton's letter but had not yet responded. He declined further comment.
Industrial banks are state-chartered and state-regulated, and fall under the supervision of the FDIC. Commercial companies may own them because federal laws that bar non-financial companies from engaging in banking activities do not classify them as banks.
Wal-Mart is trying to open a bank to handle electronic payment processing.
But some legislators have raised concerns that Wal-Mart could use its bank as a base to offer a much wider array of services. Banks also fear competing with Wal-Mart.
Others who oppose Wal-Mart's application adopt the argument used recently by Clinton and the National Association of Realtors -- that Wal-Mart's bank would violate the historic separation in the United States between banks and enterprises that do not engage primarily in finance. Still, other corporations have already set up industrial banks, such as General Electric and General Motors.
Former Federal Reserve Chairman Alan Greenspan recently said Congress should review a "loophole" in federal law that allows companies to buy industrial banks in a handful of states but avoid a level of supervision by bank regulators.
Clinton referenced Greenspan's comments and said industrial banks may pose a greater risk to the FDIC than other insured depository institutions.
"With the dramatic expansion of ILCs over the last several decades, I am particularly concerned that these financial institutions do not have the same oversight and regulatory structure that traditional, full-service commercial banks have," she wrote.
The FDIC, under a new acting chairman, has agreed to hold a public hearing on Wal-Mart's application. That would be the agency's first formal public hearing on a bank application ever. A subcommittee in the House of Representatives also is expected to hold a hearing on industrial banks this year.
Wal-Mart has said it welcomes the hearings. It was not immediately available to comment on Clinton's letter.
