Two Sides of the Coin: Payments and Lending

I’m thrilled to be able to join Credit Slips this week for my first foray into law blogging. I’m hoping to write a bit about credit card advertising, bankruptcy claims trading, reclamation rights, identity theft, and my pet topic of credit card merchant fees. Later this week I’m also hoping to post something timely about Yom Kippur and debts, which might put my background in Jewish history to use (I wasn’t always an attorney).

For my first substantive post, however, I’ve decided to write about ATM fees, although they are not a “credit” or “bankruptcy” issue per se. Nonetheless, I think they illustrate important themes in my work—the interconnectedness of different parts of the banking industry, particularly payments and credit, and how the competitive dynamics of the banking industry affect consumer lending and consumer behavior. Credit cards are surely the posterchild for the interconnectedness of payments and lending, an issue which I'll blog about later this week.

The ties between payments and lending go much further, though, as I hope my post on ATM fees will show. What banks do on the payments side of their operations (including ATMs) affects what they do on the lending side and vice-versa. Payments and depositary accounts fund lending operations, and the costs at which banks can raise funds affects how they lend out money; it’s a lot easier to make a risky loan if the cost of capital is low. Likewise, the consolidation and concentration of the banking industry focuses and increases the banking industry’s political power, which affects all types of banking and lending regulation. So, if we want to think about lending practices, it is also useful to think about what enables and drives those lending practices, as lending is only one part of bank economics.