Monday, March 05, 2007

Bank Fees: Time For A Shakeup

Fellow BT's have been pooh-poohing Jim Flaherty's efforts to get the big banks to explain their hefty ATM fees. I, however, recall the imposition of these fees in the not too distant past.

It used to be that only independent ATMs charged the convenience fee; this was to pay operators such as convenience stores or gas station operators for hosting the machines. Then somebody at the big banks noticed; one-by-one the big banks introduced the $1.50 fee. Royal Bank led the way, as I recall, followed by CIBC, then Scotia and TD. (Royal seems to lead the way in all forms of new fees, as far as I can tell).

This is a case where the free market allows the banks to level up to a price, not down; if they all do it, consumers have no choice. The answer, in my mind, lies not in regulation or government pressure to eliminate fees, but in throwing open the doors to Canada's antiquated banking system with deregulation.

Margaret Thatcher's government deregulated consumer banking in the UK in the mid 1980s. Suddenly, all institutions - mutual societies, insurance companies, foreign banks, etc. could all offer retail banking services: chequing and savings accounts, Visa and Mastercards, personal loans, etc. The big four banks suddenly experienced real competition. Service fees disappeared almost overnight and free banking was the norm for at least a decade. It's time to open up the Canadian retail banking market to competition.

A cartel of four gigantic banks does not a competition make. Let the insurance companies and the Chase's, Citibanks, HSBCs, INGs, etc. of the world operate Canadian retail banks and then we'd have true competition.