Frank says could act on ILC bank bill by spring

By John Poirier

WASHINGTON (Reuters) - If U.S. regulators extend a freeze on bids by retailers such as Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research, Stock Buzz) and Home Depot Inc. (HD.N: Quote, Profile, Research, Stock Buzz) to own a bank, House lawmakers could act to limit ownership by springtime, a top lawmaker told Reuters on Thursday.

"I hope we could get it passed before spring break," U.S. Rep. Barney Frank, incoming chairman of the House Financial Services Committee, said at the Reuters Regulation Summit in Washington, adding that there is overwhelming support in the House of Representatives.

Several companies are seeking government approval to own banks under a legal structure known as an industrial loan company, or ILC. They are state-registered and regulated and insured by the Federal Deposit Insurance Corporation.

The FDIC is reviewing almost a dozen applications by companies, both financial and nonfinancial, to either launch an ILC or acquire an existing one.

Because the issue has created a firestorm within the banking industry and among some U.S. House lawmakers, the FDIC imposed a six-month freeze on applications until January 31, which is when the agency has scheduled an open meeting to decide on the controversial matter.

Community banks fear their demise if retail heavyweights like Wal-Mart enter their business and bigger banks see competition from Home Depot loans for home improvement projects.

One option for the FDIC board is to extend the moratorium, perhaps by up to another six months. That would give Frank and his committee time to reintroduce legislation allowing companies with 85 percent of assets considered financial to own ILCs.

"I am getting the impression that they believe that this is a matter for Congress," Frank said. "I think that's fair. If the FDIC extends the moratorium, it's going to be an indication to us that this is something we have to deal with."

Frank, a Massachusetts Democrat, said he thinks the House will overwhelmingly approve a bill that is similar to the one he and Ohio Republican Paul Gillmor, who is now the top Republican on the panel's subcommittee on financial institutions, introduced last year.

U.S. banking laws traditionally wall off banking and commerce. But an exception allows nonfinancial firms to own ILCs. Many existing ILCs are chartered in Utah.

Any bill, therefore, would have to gain the support of Sen. Robert Bennett, a Utah Republican who has been opposed to legislation affecting his state's ILC business.

Frank, who acknowledged that the Senate might be "slower" in taking up similar legislation, said about 93 percent of Utah's existing ILCs would not be affected by his and Gillmor's bill.

"Generally, in our business you have more leverage with your colleagues when you are protecting an existing group of entities than when you're asking for the right significantly to expand," Frank said.