SHOCKA! Congressman Barney Frank of Massachusetts and a gang of other Capitol Hill liberals have cast a negative eye toward Wal-Mart's entry into banking. If they decide to regulate Wal-Mart out of the industry, the end result will be higher banking service costs for the poor constituents they claim to represent.
Great article over at the WSJ here (subscription necessary)
If the bankers succeed in this protectionist gambit, the biggest loser won't be Wal-Mart, but rather consumers, particularly those in lower-income neighborhoods where competition in retail banking is traditionally scarce. Wal-Mart banking services in these areas might even solve the longstanding problems of red-lining and discriminatory lending practices. Wal-Mart already performs many bank-like functions that are especially popular in poor areas -- including wire transfers, money orders, paycheck cashing, and express bill payment services.
The protest is all the more curious since Wal-Mart's immediate banking ambitions are quite modest. To head off the mounting opposition from the bankers, Wal-Mart insists that in the short term it merely wants to create an in-house banking affiliate so it can lower costs on credit card transactions at its stores. Traditionally, banks charge an interchange fee of roughly 2% on the cost of the retail credit/debit card transaction. Wal-Mart has determined that if it owns its own bank it can cut the transaction fee in half, and pass the cost-savings on to its customers who pay with Visa or MasterCard.
But why shouldn't Wal-Mart be permitted to engage in a whole range of banking services down the line, if it wishes to? That's the meaty policy issue at stake here: whether the traditional firewall between banks and commercial enterprises (i.e., the commercial lenders and the borrowers) should be officially torn down. The Gramm-Leach-Bliley Act of 1999 effectively abandoned this traditional separation between commerce and banking when it allowed securities and insurance firms to engage in most banking activities. This has all been part of a 25-year-long deregulation of banking that has led to huge increases in efficiency in American financial markets as well as vastly improved consumer services. (Remember the quaint notion of "banker's hours?")
Studies have found, for example, that in neighborhoods where Wal-Mart has entered the grocery business, its prices range from 8% to 27% below those charged at the incumbent grocery chains. Moreover, if there were a repeat of the kind of bank failures we witnessed in the late 1980s, financially sturdy Wal-Mart would be far less susceptible to the risk of closure (and FDIC deposit insurance payments to depositors) than small and less capitalized community banks.
I make no secret of my support and position on Wal-mart. I own no stock in Wal-mart, do not shop at Wal-mart - as the city council stopped the proposed Wal-mart store in the NYC area and so I have no private agenda, only that as an American wishing to preserve the Declaration of Independence, the greatest document in human history.
"We need not give in to the barbarians, but they are certainly waiting anxiously" Ayn Rand.
I expect the banking industry to be unhappy with the idea of a stealth competitor entering the arena but hey that's too bad.
The Federal Deposit Insurance Corporation (FDIC) will soon have to make a big decision: we can only hope that non-partisan free market heads will prevail.
UPDATE: More Commentary: Michael Barone of U.S. News and World Report argues that Wal-Mart succeeds where General Motors has failed: it continually adapts to the shifting demands of the marketplace and in doing so benefits its customers and employees alike.
UPDATE January 5th MORE WAL-MART BASHING:
What is it with union leaders? Their duplicity never ceases to astound, eh?
An yet last summer, as millions of teachers saved money on their back-to-school supplies by shopping at Wal-Mart, the NEA called for a boycott.Today, Working Families for Wal-Mart released a poll that shows that even as union leaders continue their anti-Wal-Mart campaign, 96% of union households shop at Wal-Mart and 63 percent of union households think Wal-Mart is good for consumers. Poll here: .
Some more highlights:
A majority of union households (54 percent) say that unions should make protecting jobs at places like GM a higher priority than attacking Wal-Mart.
Overall, 71 percent of Americans believe Wal-Mart is good for consumers and 60 percent of Americans say the campaign against Wal-Mart is not a good use of union dues.
These lefties made me sick and do everything in their power to hurt the American working class and that my dear is a fact.