Wal-Mart banking should be allowed

By Bill Weber

During the 1950s, 1960s and 1970s, some observers suggested that bankers operated according to a 3-6-3 rule: borrow at 3 percent, lend at 6 percent, and arrive at the golf course by 3 in the afternoon. The relaxed banking atmosphere was made possible by a tight regulatory structure that set interest rates which generally assured bank profits.

The beginning of the end for so-called bankers' hours came in the late 1970s as interest rates were allowed to fluctuate and bankers began facing greater competition. Today, banks can branch across state lines. and the wall between banks and other financial services, like mutual funds, has been torn down with consumers the primary beneficiaries. No longer are borrowers at the mercy of the community bank loan officer, as credit is available at the click of a mouse button.

This new financial environment might be more accurately characterized by banks borrowing at 4.75 percent, lending at 5 percent, 24/7/365.

Although consumers have been the beneficiaries of greater competition, an undeserved constituency still sees their financial needs met by pawn shops, pay-day loan companies and check-cashing outlets. The rates charged by these financial-services companies are in line with the perceived risk associated with servicing the customer, for if those customers were profitable at bankers' rates, bankers would gladly provide for them.

Innovation is the driving force of economic growth and well-being. Entrepreneurs become rich by figuring out what people want, but don't have, and then giving it to them, or by providing the same service at a lower price. Sam Walton was the opportunity to provide for an underserved group, primarily low-income rural customers, when he opened the first Wal-Mart store in 1962 in Bentonville, Ark.

In the past several years Wal-Mart has sought to enter the banking business by starting an industrial loan corporation. Much like General Motors Acceptance Corporation helped finance new car loans to purchasers of GM cars, Wal-Mart's ILC would handle credit card, debit card and other electronic transactions and help reduce their fees with those cost-savings passed on to consumers via lower prices.

While consumers reap the benefits of increased competition, it is usually a safe bet that incumbent firms will try to stave off that competition by lobbying government to place artificial barriers to keep potential competition out. Such lobbying was in full view as the recent legislative session in Missouri ended with both the Senate and the House voting unanimously to deny Wal-Mart the opportunity to engage in branch banking in Missouri.

Usually the proponents of anti-competitive bills cloak their dislike of the market process in the guise of some altrusive motive, while ignoring the unintended, but not unpredictable consequences of their policies. In this vein the anti-business crowd argues that Wal-Mart eliminates jobs, pays low wages and offers few employees health benefits. Last year Maryland passed a law requiring Wal-Mart to spend at least 8 percent of its payroll on health benefits. While cheered by some health-care advocates, the likely effect will be to reduce Wal-Mart's employment growth in Maryland and cause workers who prefer money wages to health-care benefits to seek employment elsewhere. Evidently Wal-Mart's success forced by offering "Everyday Low Prices" that help millions of families feed and clothe their children and buy their child their first bicycle are too much for the anti-business crowd who, like the mind-numbing bureaucrats in Ayn Rand's novel "Atlas Shrugged" want to erect their own anti-dog-eat-dog bill in the guise of some altruistic motive.

While facts are sometimes disturbing and get in the way of style, University of Missouri economist Emek Basker found that when Wal-Mart opens a new store there is a net gain of 50 jobs five years later as employment gains for support businesses like fast-food restaurants and gas stations that open in the vicinity of the new Wal-Mart more than offset any jobs losses by competing retailers.

Wal-Mart has pledged not to use its ILC as a means of expanding into branch banking, but so what if it does? Why should underserved consumers of financial services not have access to "Everyday Low Prices"? According to Liz Pulliam Weston of "MSN Money," Wal-Mart already offers cheaper wire transfer of money to Mexico than Western Union, charges less for money orders than most banks and only charges $3 for cashing a check while not steering customers into exorbitantly priced short-term loans like some unethical check cashing companies. Although the anti-Wal-Mart banking bill passed unanimously in the legislature, it was mainly a triumph of big financial institutions against low-income consumers. As James Bovard has written, "Democracy must be something more than two wolves and a sheep voting on what to have for dinner." Gov. Matt Blunt should veto the bill denying Wal-Mart branch banking in Missouri.

Bill Weber is a professor of economics at Southeast Missouri State University.