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SCOTT JAGOW: A banking riddle. Okay here goes: What do G.E., Merrill Lynch and Harley Davidson have that Home Depot, Chrysler and Wal-Mart want? Their own banks. More specifically, something called industrial loan companies or ICLs. Last summer, there were so many applications for ICLs, the federal government said no more charters. But that moratorium expires today. Here’s John Dimsdale:
JOHN DIMSDALE: There are currently about 60 ILCs.
Some exist just to handle the financial transactions of their parent company, but others act more like full-service commercial banks. And that has traditional bankers crying foul.
The American Bankers Association’s Mark Tenhundfeld says company-owned banks are more likely to offer favorable loans to their owners’ friends and customers.
MARK TENHUNDFELD: Or, they could decide not to make loans to competitors of the bank’s parent. And in that way, decisions that should be based on the creditworthiness of the borrower are based instead on how they will affect the bank’s parent.
ILC supporters argue regular banks are just afraid of the competition. They believe a Wal-Mart or Home Depot bank could offer cheaper fees.
Traditional bankers are asking regulators to extend their moratorium on new ILCs, while Congress considers a ban on allowing the likes of retailers into the banking business.
In Washington, I’m John Dimsdale for Marketplace.
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