Many fret about Wal-Mart (NYSE:WMT), but American bankers seem to have a particularly irrational fear of the retail behemoth. Three years ago, fierce opposition to Wal-Mart’s application for a banking license persuaded the company to retreat. Now lawmakers are poised to use financial reform to keep it even further at bay.
That would be a mistake. Extra competition, particularly in the concentrated American credit card market and high-fee retail banking sector, should be encouraged. Wal-Mart has the market power, loyal customer base and financial wherewithal to make that happen.
Indeed, the Arkansas-based juggernaut is forging ahead with plans to crack the financial services business. Banco Walmart plans to open over 160 branches in Mexico this year, nearly doubling its presence south of the border. Walmart Canada Bank also opened this month. It is offering a credit card and may make loans, including mortgages.
As it has done with retail in America, a Wal-Mart Bank could be a disciplining force in keeping costs for customers down. It could also act as an engine of credit creation for a significantly under-banked subset of the American populace.
The Federal Deposit Insurance Corp. estimates 60 million Americans, most of them low-income, are under-served by local community banks and wind up using usurious check-cashers, payday lenders and pawnbrokers for financial services.
Meantime, mergers of big banks, many blessed by regulators concerned with the safety of the financial system – such as JPMorgan’s takeover of Washington Mutual – has concentrated the industry further.
This consolidation has coincided with a 10 percent annual increase since 2000 in overdraft and other fees, according to the Government Accountability Office. Meantime, nearly two-thirds of the domestic credit card business is controlled by three banks.
So it’s no wonder the banking industry – in particular the community bank lobby – is so opposed to letting Wal-Mart onto its turf. As part of the financial reform legislation, bankers have supported a three-year freeze on new applications for industrial loan corporations, the charter Wal-Mart would need.
That runs contrary to the supposed spirit of reform that seeks to empower and protect consumers. Greater competition, coupled with sounder regulatory supervision, would help accomplish that. And Wal-Mart could be its catalyst.
Rich man, tax man.
Would-be billionaires often say they’re discouraged by high tax rates. For example, the private equity industry complained this week that the increase in the British tax rate on capital gains to 28 percent, would damage capital formation. The latest World Wealth Report from Merrill Lynch and Cap Gemini suggests otherwise.
The research examines what used to be called rich people, who are now known as high net worth individuals (HNWI). The cut-off is investible capital of $1 million.
The financial crisis and recession have been a little rough on those at the top of the global economic heap. From booming 2006 to busting 2009, both the millionaire headcount and their total net worth increased by a piddling 5 percent — to 10 million and $39 trillion respectively. After inflation and a generally weak dollar, it’s a loss.
They are still rich and numerous enough to be worth studying. One trend is not surprising. During the period, the global millionaire mix shifted away from the finance-intensive United States and Britain towards rapidly growing China, India and Brazil. It certainly wasn’t tax rates that made the difference.
Another pattern is more surprising — the lack of correlation between the concentration of wealth and the rate of taxes. A good measure is the ratio of HNWI to billion dollars of GDP, which corrects for the larger number of millionaires in richer countries.
In that count, low-tax Switzerland leads, with a ratio of 453. Low-tax (and high government-spending) Japan is second at 323. But high-tax Germany ranks third at 263. And the ratios in lightly taxed China, Brazil and India are around 100.
Tax rates are not a key factor for growing millionaires. Social aspects play a role. As for economic policy, two things seem necessary. First, a high savings rate. That helps explain why Germany and Japan are ahead of Britain and the United States.
Second, time. Traditionally wealthy countries are more millionaire-rich than the nouveaux riches. But China’s extraordinary savings and growth rates should enable it to catch up soon.