The Utah Industrial Bank Symposium, held at the Governor's Mansion, featured the entire Utah federal congressional delegation, Gov. Jon M. Huntsman Jr., state lawmakers and regulators from the Utah Department of Financial Institutions and the Federal Deposit Insurance Corp.

"I do believe that Utah, thanks to (Financial Institutions Commissioner) Ed Leary, has done more than any other state in really carving out this niche as a center of excellence," Huntsman said. "Nationally, Utah has become or is rapidly becoming the face of (industrial loan corporations). All you have to do is look at the trend line, to look at where the last few years have taken us in terms of growth."

Industrial loan corporations, or industrial banks, function much like commercial banks in that they can offer commercial and consumer loans, issue credit cards and offer financing for auto purchases. Most industrial loan banks are owned by financial services companies or other corporations.

In 1992, there were 17 industrial banks chartered in the state, with total assets of about $1 billion, Huntsman said. As of Dec. 31, 2004, there were 29 chartered institutions with $120 billion in total assets. Those institutions include American Express Centurion Bank, Merrill Lynch Bank (the largest, at $66 billion in total assets) and Target Bank.

Despite that growth, the issue likely would have remained under the radar were it not for a single retailer, Leary said.
"The discussion about the merging of banking and commerce likely would have remained an esoteric discussion, in my opinion, had it not been for Wal-Mart," Leary said. Inquiries about banking possibilities from the behemoth retailer have elevated the volume and intensity of public debate, which appears to be nearing Utah's borders.

Critics are concerned that Wal-Mart's interest in establishing an industrial bank may open a Pandora's box (a bank branch in every store), which could devastate community banks, credit unions and others.

Rep. Jim Matheson, D-Utah, advocated expanding Utah's industrial bank charter "in any way we can." But, he said, the Wal-Mart issue has become part of the government's deliberation.

"Quite candidly, we might as well acknowledge that the issue that's out there is that there's a certain entity, called Wal-Mart, that's interested, that's looking at this industry," Matheson said. "When Wal-Mart wants to get involved in something, that tends to draw some attention from folks who aren't too engaged in the financial service industry. If Wal-Mart wants it, they're going to be against it. So that's created a lot more attention in this industry and created some issues in Congress in terms of allowing the expansion of the charter."

Leary did not speculate on what would happen if Wal-Mart applied for a banking charter in Utah, except to say that the retailer has yet to submit an application to the department. If it did, Leary said, concerns likely would have to be dealt with at the state level, and there is concern that the "Wal-Mart issue" could lead to legislation that would restrict all industrial banks to spite the one.

Matheson trumpeted the industry's contribution to the state — 14,000 jobs, taxes paid and community involvement mandated by the Community Reinvestment Act. Industrial banks make up $115 billion of the $121.6 billion in total assets at state-chartered banks.

Wal-Mart aside, there are other worries when it comes to industrial banks. Some worry that industrial banks are not under the regulatory authority of the Federal Reserve (as are bank holding companies). Industrial banks are regulated by state authorities and insured by the FDIC.

Others worry about the "three horribles": that an industrial bank might lend preferentially to its affiliate or parent company, or not lend to a competitor of an affiliate or parent company, or that an industrial bank may be used to bail out a parent or affiliate company in financial trouble. That hasn't happened yet, Leary said.

Matheson, Leary and Michael Zamorski, director of the FDIC's division of supervision and consumer protection, all maintained that Utah's industrial banks are well-capitalized and closely watched to ensure both safety and soundness and sufficient distance from their parent companies. All argued that the industry is good for the country and good for Utah.

"Fifty-two percent of our GDP (gross domestic product) is based on the activity of small- and medium-sized enterprises," Zamorski said. "The largest organizations have access to the capital markets directly. But it's this type of industry that really intermediates credit for the vast majority of small businesses that contribute greatly to the overall level of economic activity and stability."

"So it's very important, and it's why we stress supervision: a sound industry is critical to maintaining the overall stability of the economy. If people can't get credit on reasonable terms and on a reasonable basis, it inhibits them and exacerbates difficulties. The ILC industry is a sound industry, with good corporate governance, which contributes a lot to economic activity, not only in Utah, but other states as well."