al-Mart Stores Inc.'s bid for a limited-reach bank, known as an industrial loan corporation (ILC), has not only irked the banking community, but it also has drawn scrutiny from U.S. legislators and regulators. As a result, the Federal Deposit Insurance Corp.'s (FDIC) board will hold a hearing on the matter.

FDIC officials, Rep. James A. Leach (Iowa) and the former Federal Reserve Chairman Alan Greenspan (succeeded by Ben Bernanke on Feb. 1, 2006) have been among those opposed. No date has been set yet for the hearing. Currently, the five-seat FDIC board is short-staffed and lacks a permanent chair. Acting Chairman Martin Gruenberg has indicated that a hearing must await a complete, full-time panel of directors.

According to the FDIC, a board hearing is conducted only if "written submissions would be insufficient or that a hearing otherwise would be in the public interest." The board received more than 1,500 comment letters and 90 requests for a hearing.

On Jan. 20, 2006, in response to questions from Leach, Greenspan wrote a 12-page letter in support of eliminating the ILC loophole, which interferes with the long-standing bank-commerce separations.

Greenspan wrote that ILCs "are undermining the prudential framework that Congress has carefully crafted and developed for the corporate owners of other full-service banks." He believes that ILCs threaten to remove Congress' ability to determine the direction of our nation's financial system, and he urged Congress to review the ILC exemption. A chief concern among all ILC opponents is that ILCs are not subject to Federal Reserve regulation. And although an ILC's parent company is FDIC-licensed and insured, a retailer such as Wal-Mart's sharp financial decline could place undue stress on the U.S. banking network's primary support system.

These new developments, however, have not deterred Wal-Mart. The company maintains that it only intends to use an ILC to save money by acting as its own acquirer, processing in house, the multitude of customers' electronic payments.