Instead of supporting our efforts to help save even more money for working families across the country, our critics chose to distort the facts and raise fears about activities our application prohibits.
Wal-Mart in a statement issued after yesterday's FDIC hearing.

Wal-Mart fired back at critics of it's financial services division in a statement issued after Monday's FDIC hearing .The statement reads, "Today's hearing made it clear that regulators can choose between approving a routine application or yielding to unfounded speculation and heated rhetoric about topics unrelated to our application."

The statement continued, "Our application and testimony should convince regulators that we will continue to support and expand upon the over 1150 independent bank branches already in our stores, and that our goal is to save money on transaction costs and then pass on those savings to working families who shop in our stores. We've made it clear to regulators that the scope of our plan is limited and specific and that anyone who suggests otherwise is simply wrong."

"Instead of supporting our efforts to help save even more money for working families across the country, our critics chose to distort the facts and raise fears about activities our application prohibits."

"In the end, we think regulators will see through their rhetoric, and we're confident they will approve this application based on its strong, pro-consumer merits, just as they have approved some 60 similar applications."

Below is written Testimony by Jane J. Thompson on behalf of Wal-Mart Stores, Inc.

Introduction / Overview

We appreciate the opportunity to testify at these hearings concerning our application for an Industrial Bank in Utah.

In these remarks, my intention is to focus on the purpose of the bank and how it is designed to strengthen the safety of the payment system.

I will reinforce our commitment not to engage in branching, and will provide clear evidence that having independent banks in our stores is our preferred and highly visible strategy.

Finally, I will also highlight several amendments to the final bank application that demonstrate our responsiveness to ideas expressed throughout this process. Specifically, I will comment on our community reinvestment activities as well as our commitment to increased capital.

The Limited Purpose of the Bank

The purpose of the proposed bank would be to sponsor credit card, debit card and electronic check transactions – nothing more.

Wal-Mart has been consistent throughout the process. We are single-mindedly seeking an Industrial Bank in order to provide greater efficiency, effectiveness and safety in Wal-Mart’s interaction with the payments systems. The payment system involves sending electronic checks, debit and credit card payments by Wal-Mart customers to the customer’s bank and subsequently returning payment funds to Wal-Mart.

By engaging in sponsorship activities, which requires a bank charter, Wal-Mart would capture the fees now paid to third parties and provide more effective oversight of those activities. The proposed bank would not have computers and systems to perform the actual processing of payments, but would serve essentially as the legally required “sponsor” so that Wal-Mart can submit payments to the payment system.

The bank would directly serve Wal-Mart’s core mission of everyday low prices for our customers – a mission that has improved the standard of living of millions and millions of Americans. While Wal-Mart Stores would continue to pay the bank sponsorship fees that it pays today, the fees would be received by the Wal-Mart Bank rather than a third party bank.

Lowering Risk to the Payment System

With this proposed bank, Wal-Mart is committed to reducing the risk to the payment system.

This bank would provide new safeguards to the payment system and would be fully supported by the financial strength of Wal-Mart.

By sponsoring the highly predictable and low-risk payment transactions of Wal-Mart Stores, Inc., Wal-Mart Bank would have lower risk than other sponsor banks that serve thousands of retailers and businesses, representing a broad range of risk, including high risk entities.

The sole customer of the bank, Wal-Mart Stores, Inc., will be 100% PCI compliant.

Wal-Mart will have implemented the new Visa and MasterCard Payment Card Industry (PCI) standards for data security protection before the bank commences operations. Wal-Mart is one of an estimated 15% of retailers that has committed to PCI compliance. This potentially would make Wal-Mart Bank the first sponsor bank to be able to make the claim that 100% of its transactions are compliant.

The bank would be protected by a parent indemnification and a conservative investment strategy.

In essence, Wal-Mart is committed to cover any potential risk to the bank’s capital with a formal indemnification agreement in favor of the bank.

The risk to the FDIC from this bank would be reduced even further by both the maintenance at all times of an earmarked “evergreen” deposit account of at least
$1 million at the bank. In addition, the bank’s assets would be concentrated in highly-rated investment grade securities and would have no credit risk from lending activities, because the proposed bank would not engage in lending.

Our Commitment Not to Engage in Branch Banking

One of the most important messages that we can leave you with today is that Wal-Mart is absolutely and unequivocally committed not to engage in branch banking.

We have clearly stated in our business plan submitted to the regulators that we do not intend to open bank branches. We are fully, actively and very visibly committed to our bank leasing strategy with unaffiliated third party financial institutions.

We currently have independent banks in over 1,150 store locations, with an additional 250 locations opening between now and 2009. Since July 2003 we have more than doubled our lease agreements and now have long-term leases with more than 1,400 tenants, some extending out to 2024. These leases can only be terminated by the bank tenant.

Wal-Mart is, in fact and in practice, clearly committed to supporting community banking, not undermining it.

We continue to expand our in-store bank leasing program through a full time leasing manager supplemented by outside consultants, by advertisements in banking industry trade publications and by attendance at bank conferences. Our Supercenters are designed and built with dedicated space for an independent bank tenant and our goal is to have an independent bank in 100% of our Supercenters.

Our best source of recruitment is from current independent bank tenants, reinforcing the attractiveness of this business and the confidence of these independent banks in our commitment to our bank leasing program. These branches can be found in Wal-Mart stores in every state and represent over 300 independent banks. Together they have between 8,000 and 9,000 employees.

Our commitment not to branch and our independent in-store branch strategy is not simply a promise; it is a very visible and rapidly growing reality, locked in by hundreds of long-term contracts.

Let me emphasize again, these are all independent regional and community bank branches. They are not and would not be Wal-Mart Bank branches.

We have absolutely no plans to open bank branches.

In fact, with the largest number of in-store banks, Wal-Mart may be one of the most supportive institutions for independent regional and community banks anywhere. Our industrial bank would not be a threat to independent banks, or any other banks.

Amendments to the Application

During the application process, we have listened to others and made a number of significant changes to the bank application in response to comments and concerns. The most notable changes are in the areas of CRA and capital.

Wal-Mart has updated the bank application to be fully engaged in Community Reinvest Act (CRA) activities.

Wal-Mart Bank will be fully committed to the Community Reinvestment Act (CRA) and has updated the bank application to be fully engaged in a way that we hope would earn an “outstanding” rating. We have filed a CRA plan that demonstrates our strong commitment to community reinvestment and to leadership in community service. Our CRA commitment exists not only on the local level in Salt Lake County where our bank office is located, but also extends to the national level.

Across the nation, we serve millions of unbanked customers each week with our basic money services. Wal-Mart is also a recognized leader in corporate philanthropic efforts, and we intend to work to direct corporate giving to support our CRA commitments. Last year, Wal-Mart contributed more than $200 million to support communities served by our stores, making it the top cash contributor of any corporation in America.

We are convinced that the CRA commitment and the expertise of our bank will help enhance the Wal-Mart’s investments in communities across the country. As many can attest, supporting our communities is an important part of the culture of Wal-Mart. This is not something extra we do; this is who we are and what we do well, especially in communities in need.

Wal-Mart is significantly increasing its capitalization commitment.

Following ongoing discussions with the FDIC staff over the past several months, we have recently amended our bank application and business plan to provide adequate capital that takes into account not only additional specified risks, but also unspecified risks. We will initially capitalize the bank at $125 million.

Wal-Mart is enhancing the management structure of the proposed bank.

Recent months have underscored both the opportunities for payments system innovation and threats to that system, including data security breaches and fraudulent activities with card products. Both factors have encouraged us to reassess the skill sets and number of bank officers and employees. We plan to add experience from the payment processing industry so that, if the bank is approved, we will have the staff we need to ensure the safety and soundness of the bank and avoid any risk to the deposit insurance fund.

Wal-Mart will also ensure no affiliated transactions result from the proposed bank.

The bank will not engage in any lending activity and will never extend credit in any way to any affiliate. Furthermore, its Affiliate Transactions Policy provides safeguards and procedures to ensure that the Bank would conduct its operations autonomously from Wal-Mart and its affiliates.

Our Commitment to Financial Services

Outside of the bank charter, Wal-Mart is fully committed to the goal of providing low cost and convenient financial services to customers – with primary emphasis on lower income, often unbanked and underserved customers.

We are very proud of the basic money services we provide in all of our stores.

We help customers cash their payroll and government checks, buy money orders to pay their bills, transfer money domestically and internationally and pay bills that need to be posted today. The every day low prices we bring to our customers with these services help them collectively save hundreds of millions of dollars annually. With the growth of these transactions, we estimate that customers save between $3 million and $4 million each week compared to what they would pay at the next lowest-cost supplier.

We know that most of these basic money services customers are unbanked.

They are customers who may not be comfortable with banks. It is our hope that these customers will turn to the independent banks, within the comfortable setting of our stores, and establish a banking relationship that may help them achieve a better financial life. The independent banks in our stores provide space that helps make these customers comfortable; therefore, these banks have the potential to be one of the best channels to bring unbanked customers into the banking system.

The proposed Wal-Mart Bank has a commitment to support this strategy through the implementation of an education initiative. The Bank plans to utilize the FDIC’s Money Smart materials and to partner with community groups and other financial institutions to lead the way with its efforts to promote financial education.

Public Policy Issues

We are, of course, aware that this application has highlighted two major public policy issues, attracting many views on these topics, including from the Federal Reserve. These two issues are:

• Who should regulate and supervise financial services and organizations,
• Who can own and be affiliated with a bank.

A full discussion of these issues is beyond the scope of my testimony. I would like, however, to contribute two thoughts:

First, both the FDIC and the OTS, and in this case, the Utah Department of Financial Institutions, have admirable track records of regulating and supervising diversified financial companies in their ownership of depository institutions.

Finally, Wal-Mart would be profoundly disappointed and its customers and the communities it serves would be ill-served if Wal-Mart is treated differently than the myriad of commercial and retail firms that now engage in far broader banking activities than we are proposing.

Other Wal-Mart Issues

We recognize that our charter application has received a great deal of concern and attention. We applaud the FDIC for holding hearings and affording the public the opportunity to express their concerns.

In closing, may I add that many of the comments concerning our application, and, undoubtedly, many that you will hear today, are unrelated to the bank application.

It is not my intent to address these issues today. However, I do want to make one point. We obviously do not agree with all the charges leveled against our Company, but when the accusations have merit, we evaluate and address them.

Wal-Mart has been, and will be, a good corporate citizen in each of the communities it serves.

We also will take very seriously the responsibility we have to ensure the safety, soundness and appropriate independence of the proposed Wal-Mart Bank.

Thank you for giving me the opportunity to represent Wal-Mart. I would be happy to answer any questions.