The Agenda

On ATM Fees

Jennifer Waters of the Wall Street Journal has written a frustratingly short article on Senator Tom Harkin’s effort to limit ATM fees to 50 cents. Much to my chagrin, the article doesn’t provide any context for understanding the likely consequences of this very popular idea, though it does mention that an Iowa law that banned ATM fees in the state was preempted by federal law in 2002. In 2002, Thomas Hazlett wrote an article for Reason on the unintended consequences of a similar effort in the cities of Santa Monica and San Francisco, California.

Where the consumer really does choose straight up between the ATM transaction and the teller interface–at the bank’s own branch–the ATM operates for free (and, typically, more quickly and pleasantly). So the “ripoff” is literally somewhere else–between a bank teller and a remote ATM location. But now the situation is complicated, not least of all by the fact that keeping ready cash in convenient remote locations is both costly to the bank and valuable to customers.

The powers that be in San Francisco and Santa Monica disagreed, and staged rebellions to prove their point. Immediately, California’s two largest banks, Wells Fargo and Bank of America, staged a revolt of their own and axed remote ATM network access. Class, can anyone explain why at a price of $0, quantity supplied is nil?

It is, of course, entirely possible that things have changed since 2000. But my guess is that limiting fees will reduce access relative to where it would be in the absence of price controls.

This might strike you as a trivial issue, and one can make the case that the optimal amount of cash one should carry is far higher than the typical amount. Greg Mankiw suggested that one should carry several hundred dollars, depending on the opportunity cost of frequent trips to the bank, the interest rate, the risk of theft, etc. What worries me isn’t so much this proposal in itself — rather, it’s the fact that someone who believes that this is a good and sensible idea is a very powerful legislator, who has shaped and will continue to shape the U.S. labor market and welfare state.

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