Chicago Columnist Illinois Leader Entrepreneur Political Analyst Business Advisor Illinois Review

Wednesday, December 22, 2004

 By Ralf Seiffe

The same officious politicians that destroyed Chicago’s once vibrant banking business have returned to the scene of the crime.

This time, Lieutenant Governor Pat Quinn is outraged that banks impose service on ATM users.

He proposes to bludgeon the banks into dropping these fees by withholding the states’ banking business. This is another bad idea from the loony left wing of the state’s Democrat party that will eventually dis-serve the people of Illinois. Perhaps the best way to regard the Lieutenant Governor’s proposal comes from that old brokerage company advertisement updated to say “When Pat Quinn talks...Run!”

This is not Quinn’s first bad idea. His original contribution to the Illinois economic landscape is the Citizen’s Utility Board, an organization that has been authorized by the state to use the utilities’ money, postage and presence to meddle in utilities’ cost recovery plans.

While they’ve won some notable “victories”, their profound misunderstanding of markets and of what motivates businessmen has contributed to our state’s high energy costs.

According to Business Facilities, the service that helps executives rank potential expansion sites, power is no bargain in Illinois. They calculate the average cost of electricity to generate a million BTU’s is $14.62 in Illinois, almost 30% higher than in the states that border ours.

Our local utilities now find it more profitable to invest in out of state utilities and one wonders how much CUB had to do with the utility’s disinvestments.

Now, Quinn and his gang have targeted the ATM card and if history is any guide, his interest signals the price of getting cash will be going up. Quinn complains that banks charge consumers “artificial” fees when they use a cash machine that the consumer's bank does not operate.

Often, the owner of the ATM charges one fee while the customer's bank also charges a separate fee on the same transaction. Quinn is incensed that ATM operators, who buy the machines, pay to maintain them, keeps them filled with cash and makes them available 24 hours per day, would like to recover those costs.

Quinn believes ATM operators should charge a single, presumably smaller fee regardless of who owns the ATM. To induce their cooperation, Quinn proposes that banks involved in “two fee” ATM transactions be prohibited from obtaining state processing contracts. He described these contracts as “lucrative” and worthwhile to the banks.

Perhaps Quinn forgets the old days when banks closed at 3:00 PM and closed altogether Wednesday afternoons in small towns. Maybe this amateur socialist was asleep during the last 25 years and missed the explosion of new financial services banks offer the average citizen. Possibly, he has rationalized the legislative destruction of locally owned banks in the name of “fairness”.

The most blatant example of the state’s intrusion into the free markets occurred when small town bankers prevailed on the General Assembly to outlaw branch banks many years ago.

They did so in the theory that they could protect themselves from encroachment by Chicago banks and aggressive suburban operators. While this policy protected little institutions for a while, it also prohibited Chicago institutions from growing a durable deposit base.

More enlightened states saw things differently and let their banks build strong branch systems and raise low-cost deposits to fuel their growth. Illinois’ bank regulatory strategy came apart when these out-of-state banks were able to poach our once great institutions.

Chicago is now the only major city on the planet without a money center, headquarters bank. Instead, our deposits support headquarters operations in New York, North Carolina, Canada and the Netherlands.

Linking state business with bank ATM behavior smacks of the same kind of “protectionism” and is suspicious. If withholding state business would motivate the banks, is it possible the contracts a little too “lucrative”?

Shouldn’t the Lieutenant Governor first get his own house in order by re-negotiating these contracts? Could it be that the state is intentionally overpaying to create some advantage in the banking business?

Another reason Quinn marshals to support his infringement into ATMs is that banks once said that these machines would reduce banking costs. Now that they are charging to use them, Quinn thinks the bankers have broken their “promise”.

First, the bankers who made that promise have all been replaced by New Yorkers, Ohioans, Dutchmen and Canadians. Moreover, any Illinois politician who tolerates the Tollway and questions someone else’s promises is, at once, insulting, laughable and wrong.

The roads were supposed to be freeways a long time ago but the politicians can’t seem to wean themselves from the money.

The state has apparently adopted the bankers’ two-fee model for their business. Consider the non-resident driver traveling on the Tollway. He’s is analogous to a non-customer ATM user in the sense that he’s not part of the I-Pass system. Beginning next month Illinois will begin double charging him because he’s not using an I-Pass. That is exactly the same thing as double charging the non-customer ATM customer when he is on someone else’s financial highway.

The advent of ATMs has reduced the cost of financial services. In the days before direct deposit and ATM cards, consumers had very limited choices. For a look at what they were, visit a currency exchange and look at the fees they charge. The ATMs have massively reduced those costs.

Finally, most banks do not charge customers for using their ATM at all. Small banks have begun to develop reciprocity agreements with their peers to extend acceptance, an evident and welcome market solution that will expand choice and reduce costs. The Lieutenant Governor should pay attention.

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Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader.