Senator Tom Harkin has proposed an amendment to the financial reform bill that will set ATM fees at $0.50. Many consumers may celebrate this law, but as they teach in econ 101, if you set a price ceiling, quantity will go down and there will be a shortage. This means banks will put in less ATMs, and people will have to travel farther to get to shorter supply of them. In the end, consumer welfare very well may go down if total travel costs are greater than the gains from lower fees.
The fact that regulated fees lead to a lower supply of ATMs is fairly obvious, and supported international comparisons. The UK and France regulate ATM fees, and have 968 and 761 ATMS per million inhabitants respectively. The US and Canada don’t, and have 1,335 and 1,630. In addition, ATM supply has grown faster since banks started charging surcharges to other bank’s customers to use their ATM 1996. The number of ATMS per capita in the US was growing at an annual rate of 9.2% from 1991 to 1996, and then at 16.7% from 1996 to 2001. This paper provides empirical evidence that consumers in counties with high travel costs experienced welfare gains from these increased ATM fees, while the effect is negative for those in low travel cost counties. This paper, which the above statistics come from, argues that bank profits are lower and consumer surplus higher when banks can charge ATM fees.
To the extent that poorer areas tend to be underbanked, and are most likely to experience higher ATM growth in the future than wealthy areas, the impacts of this law will have the worst impacts on poor people.
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Monday ~ May 10th, 2010 at 12:33 pm
Agustin
From the article:
You may be confusing correlation and causation here. Could it also be that because Europe is more densely populated than North America, each European ATM can serve more people? Or maybe Europeans don’t use ATMs as much as North Americans.
Monday ~ May 10th, 2010 at 5:41 pm
Adam Ozimek
Yes, I’d be willing to venture that the causation runs both ways. But the other evidence corroborates the notion that the laws do impact ATM supply.
Tuesday ~ May 18th, 2010 at 4:31 am
Funky J
Given the amount it costs to install and upkeep ATMS, by your own logic if banks actually used money collect in ATMs fees, there should be an oversupply of ATMs.
If I ever get into any role of authority, my first regulation would be if you need to walk for more than 15 minutes to an ATM branded to your bank, you shouldn’t get charged.
Tuesday ~ May 18th, 2010 at 4:33 am
Funky J
DOH! That should read:
Given the amount it costs to install and upkeep ATMS, by your own logic if banks actually used money collect in ATMs fees on provisioning on ATMs, there should be an oversupply of ATMs.