WASHINGTON (AP) – Federal Reserve Chairman Alan Greenspan is urging Congress to close a regulatory loophole that lets companies own a certain breed of banks, including a bank Wal-Mart Stores Inc. wants to operate in Utah.

The Fed chief’s remarks take direct aim at an exemption in federal law that allows any type of company – commercial firm, foreign bank or other – to own so-called industrial loan companies in a handful of states, principally Utah, California and Nevada.

When the exemption was adopted in 1987, industrial loan companies, or ILCs, were mostly small, locally owned institutions that had only limited deposit-taking and lending powers, Greenspan said. Since then, however, these loan companies have grown considerably, the Fed chief pointed out in a letter to Rep Jim Leach, R-Iowa, a senior member of the House Financial Services Committee, which oversees banking matters.

Total assets held by industrial loan companies have grown by more than 3,500 percent between 1987 and 2004 – from $3.8 billion to $140 billion, Greenspan said.

General Motors, General Electric, Pitney Bowes and BMW are among the companies that now own industrial loan companies under the exemption, Greenspan said. Wal-Mart, the nation’s largest retailer, has filed an application to operate an industrial loan company in Utah, he said.

Bentonville, Ark.-based Wal-Mart is seeking to establish such a bank in Utah so that it could process credit card, debt card and electronic check transactions from its retail locations.

Wal-Mart did not immediately respond to a request for a comment on Greenspan’s letter.

Greenspan’s comments didn’t make a specific attack on Wal-Mart’s efforts but rather were a broader shot at the exemption itself.

The exemption allows the corporate owners of these industrial loan companies to avoid the regulatory requirements that apply to corporate owners of other types of insured banks overseen by the Federal Reserve, said Greenspan. He found this troubling.

“The character, powers and ownership of ILCs have changed materially since Congress first enacted the ILC exemption. These changes are undermining the prudential framework that Congress has carefully crafted and developed for the corporate owners of other full-service banks,” Greenspan wrote.

“Importantly, these changes also threaten to remove Congress’ ability to determine the direction of our nation’s financial system with regard to the mixing of banking and commerce and the appropriate framework of prudential supervision,” he added.

These crucial decisions should be made after careful deliberations in Congress, Greenspan said. “They should not be made through the expansion and exploitation of a loophole that is available to only one type of institution chartered in a handful of states,” he wrote.

Some legislative proposals in Congress would change the exemption to give industrial loan companies more leeway in their business activities. Leach, however, has offered legislation that would subject owners of industrial loan companies to the same regulations that now apply to big financial holding companies.

“We as a Congress cannot afford to do anything except promote prudential financial oversight,” Leach said. The issue is not Wal-Mart’s application but whether Congress has opened the way to a complicated web of financial and commercial cross-ownerships, Leach said.

Anti Wal-Mart groups, though, seized on the Greenspan letter.

“Federal regulators need to heed Chairman Greenspan’s warning and realize that a Wal-Mart bank would pose serious and grave threat to consumers, community banks and the economic health of this nation,” said Chris Kofinis, communications director for WakeUpWalmart.com, a group funded by the United Food and Commercial Workers union.

The letter to Leach was dated Jan. 20 and released to The Associated Press on Thursday.

It may be one of the last pieces of correspondence to Congress that Greenspan will write as chairman of the Federal Reserve. Greenspan, 79, retires on Jan. 31 after 18-plus years at the helm. Ben Bernanke has been tapped to succeed him.

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AP writer Marcus Kabel in Springfield, Mo., contributed to this report.

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