UPDATE 2-Wal-Mart pulls bank application

(Recasts, adds Wal-Mart comment, NEW YORK dateline, bylines)

By John Poirier and Nicole Maestri

WASHINGTON/NEW YORK, March 16 (Reuters) - Wal-Mart Stores Inc. (WMT.N) said on Friday it has withdrawn its request to open a specialty bank after immense opposition from politicians, consumer groups and community banks hampered its application with U.S. bank regulators.

"Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers," said Wal-Mart Financial Services President Jane Thompson in a statement.

"We fully intend to continue to introduce new products and services that champion those who deserve convenient, lower-priced financial services."

In 2005, Wal-Mart submitted an application to regulators to allow it to operate a specialty bank known as an industrial loan company (ILC).

Wal-Mart repeatedly insisted that it was not interested in branch banking, but was looking to use the bank to save money by internalizing credit-card and check transactions.

But consumer groups and banks feared Wal-Mart would eventually provide other retail banking services and lead to the demise of community banks. "Wal-Mart made a wise choice," U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair said in a statement. "This decision will remove the controversy surrounding their intentions."

The development comes one day after a U.S. lawmaker released an e-mail he said indicated the company's interest in consumer banking extends beyond what it had previously disclosed to banking regulators.

"They don't need an ILC to play an important role in expanding access to financial services by partnering with banks and others," Bair said.

Wal-Mart shares rose 14 cents to $46.14 in midday New York Stock Exchange trading.

((Reporting by John Poirier and Nicole Maestri, editing by Brian Moss; john.poirier@reuters.com; Reuters Messaging: john.poirier.reuters.com@reuters.net; +1 202 898 8399))

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