In the 1920’s, commercial companies in our nation could and did own banks. Some of their failures contributed to the massive collapse of the banking system and the crisis of the Great Depression. Soon after, Congress began restricting commercial companies from owning banks. Unfortunately, one loophole in our laws remains and so I have worked with Financial Services Chairman Barney Frank to close that loophole.
When a bank is opened in America, it must apply for deposit insurance from the federal government. This coverage guarantees that should the bank fail, up to $100,000 will be protected for each depositor. Banks owned by financial firms face less risk than those owned by commercial companies because they are not as exposed to market fluctuations. If we had allowed companies such as Enron or WorldCom to own banks, the federal government could have potentially put billions of taxpayer dollars at risk.
Wal-Mart, the nation’s largest retailer had applied to own and operate a bank with federally insured deposits some 20 months ago. After Chairman Frank and I gathered 98 Members for one letter and 107 for another, we successfully petitioned the Federal Deposit Insurance Corporation (FDIC) to twice delay all commercial applications, including Wal-Mart’s. Today Wal-Mart withdrew their request for a bank.
For me, the importance of maintaining the separation between banking and commerce has always been bigger than one company. This single exception that exists in our bank laws is not a Wal-Mart or a Home Depot loophole, it is an ILC loophole, and it must be closed. It is critical that we do not create a parallel banking system for commercial firms. Chairman Frank and I have been working on legislative solutions for more than four years and I am optimistic that we can get the Gillmor-Frank measure to the President’s desk shortly.