Inside the FDIC

Chapter 10

Save Money, Live Better

A thorny question for banking regulators has always been who should be allowed to own a bank. Playing a critical role in the economy, banking is fundamentally based on trust. Therefore, regulators should allow only people who are worthy of the public's trust to own a bank, and prohibit those who are not. What criteria should be used to tell the difference? An overly conservative approach risks limiting competition, innovation, and economic growth. However, an overly permissive approach can lead to waste, fraud, self-dealing, or other forms of abusive behavior.

The criteria for ruling on bank applications continue to evolve, as policymakers try to find the right balance between competing objectives. These debates can devolve into mind-numbing details that attract little or no interest beyond the limited confines of the financial regulatory community. But that changed in 2005, when mega-giant retailer Walmart sought government approval to start a bank.

It didn't take long for those opposed to Walmart's application to mobilize. The opponents raised a number of important public policy issues, though many of these issues were disconnected from the criteria used by the FDIC when ruling on a bank application. As the agency navigated its way through the process of ruling on the application, there was a prolonged and contentious public debate.

The Walmart episode was noteworthy in two ways. First, it was an opportunity for the FDIC and other financial ...