CHICAGO, May 18 (Reuters) - Federal Reserve Chairman Ben Bernanke on Thursday said he had become more convinced of the need to keep banking and commerce divided, but would not comment on Wal-Mart's bid to start limited banking activities.

"This is an old debate and we can sit here as economists and talk about the pros and cons," he said at a Chicago Fed banking event. "Personally, I've become more convinced of the benefits of maintaining that separation over time."

Bernanke also urged Congress to review U.S. law that allows commercial companies to buy a type of bank known as an industrial loan company but escape a level of federal regulation.

He said Congress has been clear that it wants banking and commerce separated, but a "loophole" in current law allows that policy to be violated.

"Congress has clearly indicated that separating banking and commerce is the policy they want to pursue, and therefore allowing that barrier to be broken down by loopholes seems to be inconsistent with the public policy that Congress has enunciated," he said.

"Congress I think, therefore, ought to consider whether it wants to allow the acquisition of a financial institution by a commercial organization to be continued or whether or not it wants to clarify its position on banking and commerce," he said.

An application by Wal-Mart Stores (WMT.N: Quote, Profile, Research), now pending before the Federal Deposit Insurance Corp., has put the spotlight on industrial banks in recent months.

The company's bid to start limited bank activities has generated an unprecedented level of opposition from some in Congress, community banks and groups that regularly criticize the retail giant, such as labor unions.

Another retailer, Home Depot Inc. (HD.N: Quote, Profile, Research), has announced the planned purchase of EnerBank USA from CMS Energy Corp. (CMS.N: Quote, Profile, Research), raising concerns from some on Capitol Hill as well.

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