We often hear the financial industry complaining about the new regulation that they are facing these days. They say that prices for their products and services will have to increase as a result of their costs rising due to new regulations. Some critics of the industry brush these claims off as banks wanting to avoid lower profits, but looking at some basic economics shows that their threat is a real one.
This common misconception was asserted Thursday morning on CNBC. There was a segment about banks facing higher costs due to regulation. Economics reporter Steve Liesman paraphrased Rep. Barney Frank (D-MA) as having said the following:
When did the banks become charitable institutions and were charging less than the market would bear fore these fees? If they could have charged more, they would have charged more. And the idea that they can charge more now would suggest that there is not really a competitive market out there.
The following isn't meant to criticize Frank, as this is a second-hand paraphrased quote said in passing, so I cannot be certain of its veracity. Perhaps it was taken out of context or Liesman misunderstood. But if Frank did mean this, then he should look to some very basic economics of supply and demand.