Should Banking Be Kept
Separate from Commerce
Alexander Raskovich, EAG 08-9, August 2008
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Abstract:
In the U.S., unlike much of the rest of the world, the mixing of banking
and commerce is largely prohibited. One exception is industrial loan
companies (ILCs), state chartered depository institutions some of which
are owned by commercial parents. In 2006, the FDIC put a moratorium
on the chartering of new ILCs pending resolution of a controversy sparked
by Wal-Mart's application to start up an ILC in Utah. Wal-Mart subsequently
withdrew its bid. This paper reviews the major arguments that have been
raised against the mixing of banking and commerce, finding most to be
theoretically weak or lacking in empirical support, and discusses several
efficiencies that may arise from the integration of banking and commerce.