Banking Law

With the same perverse fascination that compels us to watch Godzilla crush Tokyo, we can't tear our eyes away from the sight of Wal-Mart's inexorable march into the land where, lately, many banks have feared to tread: small business lending. Through a venture between Wal-Mart's Sam's Club unit and nonbank small business lender Superior Financial Group, Wal-Mart plans to offer small businesses loans in the $5,000 to $25,000 range. As DBJ Confidential blogger (and Dallas Business Journal associate editor) Chad Watt so aptly puts it, "The Bank of Wal-Mart has come a step closer to reality."

The Sam?s venture hits banks while they?re vulnerable. Wal-Mart says 15 percent of its small business members have been denied a loan in the past year, up from 12 percent in spring 2009.

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The deal with Superior is for an online loan application. That?s something Superior does anyway, so what is Sam?s Club bringing to the table? Put simply, a 20 percent discount on Superior?s application fee and a 25 basis point discount on Superior?s finance rate.

That should free up some more money for coffee cups and creamer.

As I said in March when discussing Wal-Mart's plans to rapidly expand its in-store MoneyCenters, Wal-Mart is on a mission to beat banks at their own game, and without the psychological and emotional pain (and financial burden) of dealing with federal bank regulators, like those who denied it an opportunity to enter the banking business through acquiring an industrial bank charter. Not being able to leverage insured deposits is a funding disadvantage, but one with respect to which a giant retailer like Wal-Mart can always find a work-around.

Love it or hate it, you have to respect Wal-Mart's persistence and ingenuity. If Wal-Mart's "lucky," however, they'll continue to grow their financial services business until they eventually become a too-big-to-fail, systemically important nonbank financial company that is drawn into the web of the soon-to-be-created "Financial Stability Oversight Council," where it can be hounded by bureaucrats like most of the rest of the financial institutions in this country.

I'm such a glass-half-full kind of guy, aren't I?