Dear Editor,
As reported in Stabroek News, the Central Bank, Regulator of commercial banks (hereafter “Banks”), is proposing to establish the level of fees they can charged consumers for their banking services. But the approach of consulting with the Banks is unconventional at best, unless similar consultations take place with the other major participant in the market, the consumer.
Regulation becomes necessary to reduce the market power of Com-panies, in this case Banks, which power arises because of constraints placed on their numbers participating in the economy. In a market economy, where there are no barriers to the entry and exit of participants in the market, there is no need for regulation. It is the restrictions that gives Companies market power and thus the need to be regulated, i.e., allowing pricing that is fair to both suppliers and consumers. So, Companies that are restricted in the supply of utility services such as electricity, tele-communications, and water, must be regulated. Similar restrictions in the banking and insurance services require comparable treatment. Otherwise, through the exercise of market power, these companies would usurp consumer surplus – an economic term for the price a consumer is willing to pay above an equilibrium price for a good or service – from all its transactions. In a competitive market, such surplus belongs to the consumer, and therefore regulation is at its best when it simulates a cost-based competitive market.
In the same article in Stabroek News, it is reported that the Banks are preparing to pushback against proposed fees by the Regulator. This is only possible when a Regulator loses control. Providing the proposed fees are cost based, as would be the case in a competitive marketplace, the Regulator is treating the regulated fairly. It is allowing the Banks to recover the cost incurred in providing the service and therefore has met its obligations. But from the fees proposed, they appear to be much higher than those developed from costs. For example, the relevant cost of an ATM transaction should comprise the annual carrying costs on the equipment, bandwidth to transmit the transaction, and software costs to record the transaction. The sum of these costs would then be reduced by employee costs saved from automating the transaction. It is difficult to imagine how these costs, divided by the number of expected transactions, can be anywhere close to $50.
The report also said that the Banks were opposed to the fees as they compete on such fees. How disingenuous. The fees set by the Regulator are caps which cannot be exceeded but there is nothing stopping the Banks for competing by charging fees below the caps. Further, to claim fees are lower than those charged in the Region, even if true, fails to recognize that regional fees are high and unsustainable as recently stated by the Barbadian Prime Minister, Mia Mottley. Guyanese businesses compete with goods and services from developed countries and the comparison should be with those. It is a welcomed development to see the Central Bank finally move to regulate the Banks but unless regulation is fully understood and implemented, it would only result in a further enabling the rent seeking practices of the Banks, practices from manipulating conditions for profit maximization.
Sincerely,
Louis Holder
Former Rate Manager
Long Island Lighting Company
