Tuesday, May 2, 2017


Arnold Kling's Askblog quotes Robert J. Mann
Wal-Mart’s application to form a bank ignited controversy among disparate groups, ranging from union backers to realtor’s groups to charitable organizations. The dominant voice, though, was that of independent bankers complaining that the big-box retailer would drive them out of business. Wal-Mart denied any interest in competing with local banks by opening branches, claiming that it was interested only in payments processing. Distrusting Wal-Mart, the independent bankers urged the FDIC to deny Wal-Mart’s request and lobbied state and federal lawmakers to block Wal-Mart’s plans through legislation. Ultimately, WalMart withdrew its application, concluding that it stood little chance of overcoming the opposition.
Mann also writes
... I argue that permitting Wal-Mart to have a bank would have a salutary effect on the relatively uncompetitive market for payment networks. The dominant position of Visa and MasterCard, in which payments are priced above cost to subsidize credit, inevitably will give way to a world in which payment services are priced at cost, or even below cost as a loss-leader to attract customers to other goods and services.  
As the first quote shows, Walmart was only trying to process payments more efficiently -- because it already saw the chance to offer banking services, lend, and other banking functions would be blocked.

Arnold also points to this by Lawrence J. White.

Arnold sums up,
We are always told that we need regulation to protect consumers and make the financial system safer. That is the theory. The practice is that regulation very often gets used to limit competition. 
Many people in the US still do not have regular bank accounts, and perhaps wisely so as banks notoriously suck money from poor people with pesky fees. Yet cashing a social security check remains a problem. Imagine small town America in which Walmart also offers banking services.

If it's not obvious, Walmart banks would be much safer than traditional banks. A bank tied to a huge retailer would not be financed by astronomical leverage, and if the bank lost money the equity holders of Walmart would pick up the losses.

Walmart has also faced a lot of resistance and restrictions in opening clinics. Imagine small town America in which simple, cheap Walmart clinics can offer a much wider range of services.

It's worth remembering how much opposition Walmart already overcame. It was the Uber of its day. A&P, its predecessor, was widely opposed, as was Walmart. Walmart still faces union opposition -- as I left it was still blocked from operating in the city of Chicago. Imagine the south side of Chicago populated with Walmarts, Walclinics and Walbanks! Thank its legislators and regulators for protecting its citizens from that nightmare.


An excellent blog post by Larry White on Walmart's troubles in starting a bank. A primary obstacle is the rule that bank holding companies can't be engaged in "commerce." Larry also points out just how much the other banks use this to keep out competition.

the Dodd-Frank Act of 2010 placed a three-year moratorium on the granting of deposit insurance to any new (or newly acquired) ILC. Although the moratorium expired in 2013, bank regulators appear to have “gotten the message” that the commerce-finance barrier should remain intact.


  1. The missing link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1098276

  2. "... payments are priced above cost to subsidize credit..."
    and retailers put that in the ticket price of the goods , so that cash payers pay for it too. And on top of that some credit card user get a credit card company "cashback" !

  3. Echoing your last paragraph, while many complain that Walmart offers low pay and poor benefits, in my own unscientific study (shopping over the last 25 years) I find that Walmart has better employee retention than other discount stores (e.g. Target) and is at least as good as traditional grocery stores. So either Walmart's pay and benefits aren't so bad or they're hiring people who aren't willing to find a better job.

  4. Anyone who thinks that banks are too big, and that they should be brought to heel, ought to advocate allowing Wal-Mart, and other chain retail stores, such as Target, Safeway, and Kroger to open their own banks with branches within their retail stores. It would be a very effective way to restrain Chase, Bank of America, et. al.

  5. The real answer: http://cdn.harvardlawreview.org/wp-content/uploads/pdfs/forvol127_baradaran.pdf

  6. It's often difficult for any company to profitably provide services to far flung rural communities. Allowing Walmart to provide banking, health, etc. services in rural America would be a blessing, not a curse.

  7. Congrats to Cochrane on this post.

    And shame on America's "right wing" chattering classes.

    So busy with anti-solar power memes, the right wing cannot find time to bash this bit of pure protectionism (protectionism for bankers, that is)?

    First bring on Wal-Mart!

    Then let's outlaw property zoning!

  8. Some of these fees can be more than ‘pesky.’

    There are already over 1000 banks operating within Walmarts.

    These banks normally target folks with low income, little or no savings or credit.

    ‘The average bank in the U.S. only gets about .7% of its revenue from fees charged to customers. But the five banks with the highest number of in-Walmart branches get anywhere from 11.3% to 20% (median 12.7%) of their revenue from these fees.’

    ‘And while the bank with the highest percentage of revenue from fees (Sunbank, at 20.9%) only has 12 branches, all 12 of them are in Walmart stores.’

    ‘The CEO of Texas-based Woodforest bank, with more than 700 Walmart locations, tells the Journal (WSJ) that around 78% of his bank’s $271 million in fees comes from overdrafts.’

    The overdraft fee is normally $30.

    ‘The Consumer Financial Protection Bureau has been probing the topic of overdraft fees for the last couple of years, to consider whether the more than $30 billion taken in annually in fees might be doing more harm than good, and if the price tag for these fees is in line with the actual cost to the banks.’

    We should encourage (maybe require) folks to have a bank account for direct deposit of their paychecks or social security checks. Approximately 96% of US citizens use direct deposit.

    As for me, I would like to see SS require direct deposit and, which I think is related, I would like to see all US citizens show ID when voting.


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