Time to Confront the Banks

By: Ernie Lightman

 In my last post, I discussed the NDP’s Parliamentary motion to cap ATM fees and the limited benefit this would offer to the poor in Canada. Today I want to look at why the whole idea of capping fees is bad policy and the limited impact it would have even if enacted. 

ATM fees are usually charged when one uses a machine at a bank different from one’s own, or the free-standing machines often located in bars, restaurants and convenience stores. The fees are typically in the $2-$3 range per withdrawal. The NDP thinks this is too expensive and wants the fee capped at fifty cents.

High ATM fees can be viewed as an irritant, a mere mosquito in the banking universe. They are not a big deal. The Canadian Bankers’ Association argues that 75 percent of ATM transactions are done at one’s own bank and incur no fee. The rest are a matter of “convenience” no different than the decision to pay more for milk at the corner store rather than going to No Frills. In other words, we pay a price for our indolence.

While this argument can be challenged – at times there is no option but to use an alien ATM – in general I tend (for the first time ever?) to agree with the bankers. I rarely incur ATM fees, I might add sanctimoniously, and when I do I understand the extra cost is the price of admission. On a regular basis, the cost might add up, but usually there is no reason for this to occur on a regular basis. 

There is another way, however, to look at bank ATM fees, to view them as a small part of an economic squeeze play operated by and for the banks. The banks take us regularly for every nickel they can get, as they continually abuse their privileged and protected market position. They simply have too much power. ATM fees are a tiny cog in a big wheel of financial oppression. 

Based on the latter perspective, there are two ways to address this excess market control: The first is to watch behaviours closely, to slap a banker’s wrist (with increasing degrees of force) when boundaries of what is acceptable are crossed. 

As recent history has shown, trying to regulating bank behaviour is mostly a joke. Banks and bankers transgress with impunity, utterly indifferent to whatever sanctions governments and the courts may impose. The global banking crises of recent years – Lehman Brothers and the rest – prove that greed, the lure of obscenely large paydays more than offset the risks of getting punished. It’s well worth taking a chance and cheat. 

In the Netherlands, 90000 bankers recently had to sign a statement promising to behave. If you believe this will really have any effect, well, good luck to you. 

The other approach is to alter the structures of the banking system, so that banks lack the power to seriously transgress. In practice this probably means to break up the cosy near-monopoly of the Canadian banks, either by opening the door widely to international and domestic competition, or by breaking up the banks themselves into smaller units.

Globalization, which takes the opposite view and dictates bigger international banks, is increasingly under challenge, and it may be time to directly take on the big banks. Certainly there are more banks around today than twenty years ago, and they do compete, to some extent, for our business. Look at all the travel-related credit cards before us. I even found a credit card (issued by Chase Bank on behalf of amazon.ca) that gives a better deal on foreign currency transactions, compared to the other Canadian cards. 

So what does this have to do with ATM fees? A lot, actually. 

Suppose the NDP succeeded in getting a legislated cap on ATM fees. You can be certain that before the day was out, the banks would have increased other charges to make up the shortfall. They might not all respond in the same way but overall revenues would surely be protected. Their immunity from serious competition mostly lets them do as they please. 

But suppose the NDP were to look at the bigger picture and aim at the obscene control over our economy and our lives that is exercised by that handful of privileged bankers. They could propose to change the banking structures, to directly reduce excess market power. For example they could set a ceiling not on ATM fees but on the share of total Canadian banking business that can be held by any single bank or by the top 3 (or 2 or 5). 

Lack of power based on structural change along with strong laws against collusion might just begin to keep the banks in line. But I wouldn’t hold my breath.

And in any case the NDP seems more interested in making trivial mostly symbolic gestures, like capping ATM fees, than in broaching the real structural economic change needed in Canadian banking today.