ARLINGTON, VA — The "doomsday scenarios" of Wal-Mart eliminating competition in the banking industry wouldn't happen even if the retail giant broke its promise not to use a Utah-chartered industrial loan company as an entree into retail banking, an econo- mist testified Tuesday.

Critics of Wal-Mart's proposal to form a Utah-based industrial bank continued to warn officials of the Federal Deposit Insurance Corp. that the retail giant cannot be trusted.

But Lawrence White, an economics professor at New York University, dismissed the warnings as unfounded fear by Wal-Mart's rivals.

"The 'doomsday' scenarios of Wal-

Mart's rivals seem far-fetched and unrealistic," White said during the second day of unprecedented hearings before the FDIC on Wal-Mart's application for deposit insurance for its proposed industrial bank. "Such scenarios ought not to be guiding bank regulatory policy."

Wal-Mart has said it would use the bank to process credit card and debit card transactions.

White said using the industrial loan bank for "back office financial transaction costs" could not "generate any of the feared scenarios." And even if Wal-Mart did expand its banking operations, it is unlikely the Wal-Mart Bank would "sweep the countryside clean of all rivals."

But that's exactly what Wal-Mart critics told the FDIC board could happen if Wal-Mart is granted

deposit insurance, a condition for it receiving the Utah charter that is still pending before the Utah Department of Financial Institutions.

"You must presume and consider the impact of Wal-Mart as the retail banking giant in the near future," said Rashmi Rangan of the Delaware Community Reinvestment Action Council. "While this specific transaction may not rise to the level of a monopoly, but experience suggests that once the FDIC insurance is granted, nothing will prevent it from expansion using the Wal-Mart brand of reducing prices until competition is annihilated and then raising them when there is no competition left."

Other opponents said past regulatory violations and lawsuits, such as the largest-ever gender-discrimination case, demonstrate Wal- Mart can't be trusted to restrict its bank to merely processing payments. The company also can't be counted on to cooperate with regulators, said Jack Blum, counsel for Americans for Democratic Action, a Washington lobbying group.

"Regulatory agencies absolutely depend upon the internal controls of the institution," Blum said. "We don't have that kind of culture at Wal-Mart. The idea is, what can we get away with and how fast can we get away with it?"

Unlike commercial banks, industrial loan banks aren't regulated by the Federal Reserve. Target Corp., Toyota Motor Corp. and General Electric Co. are among nonfinancial companies that operate industrial banks.

Tuesday's hearing repeated many of the same concerns that opponents voiced Monday. But a panel of banking and economic experts urged the FDIC to treat Wal-Mart's application like any other.

Jim Tozzi, a board member of the Center for Regulatory Effectiveness, said it is "imperative" that the government base its decision on granting deposit insurance to Wal-Mart using "the same criteria and standards that the FDIC has applied to other applications from proposed industrial banks, such as Target Bank."

"Were this agency to assess Wal-Mart's application differently than it assessed the application from its competitor Target, that would constitute bias and the information dissemination including or based on such bias would be biased information," Tozzi said.

Wal-Mart spokesman Marty Heires said Wal-Mart has 1,150 other bank branches operating within existing stores, with more planned in years to come. He acknowledged that the company has applied to have its own banks in the past, but after three rejections, decided to allow other banks to move into its stores instead — a decision it will continue to use.

He emphasized that the Utah-based bank would save millions of dollars a year that the company is now paying to other payment centers that process credit card and bank card transactions. Heires said these savings would be passed on to Wal-Mart customers.

He said if the FDIC approves the insurance, he would expect a no-branch clause to be part of the approval.

The presiding officers at Monday and Tuesday's hearings gave no hints as to how they would rule on the pending insurance application, although their questions indicated they would consider strict guidelines in an approval that would specifically spell out what types of activities Wal-Mart's bank could do.

A third and final hearing is scheduled for April 25 in Overland Park, Kan.

Contributing: Bloomberg News