A Libertarian Nightmare

Slate ran this pithy analysis of Commerce Bankcorp.

Hill is intent on putting some fun back into banking. When a Commerce branch opens, a mascot - an out-of-work actor dressed as a giant red C - hands out free pens! And the branches are more Prada than Wal-Mart. While most banks spend about $1 million to open utilitarian branches, Commerce drops more than $3 million outfitting each store in wood paneling, marble floors, and granite counters. Just another part of what Hill likes to call Commerce's "unique brand of WOW!"

Here is what Commerce doesn't do: make you lots of money. While rival banks try to rope in customers with interest rates that are a few basis points higher than those offered by the bank around the corner, Commerce intentionally lowballs its customers. As James Grant of Grant's Interest Rate Observer noted in a critical look at Commerce last week, "in 2004, depositors earned, on average, a grand total of .98 percent." A quick check of the 12-month CD rates at six banks near my office this morning showed that Commerce offered the lowest rate of the group, 2.25 percent. Customers are flocking to Commerce despite the meager rates.

So what's not to like? Plenty, if you're a competitor. Commerce is forcing established banks like Chase and Citigroup, long accustomed to dealing with customers on their terms, to do things like remain open on weekends and invest in branch networks. There's a little jealousy at work here, too. Commerce Bancorp sports a higher price-to-earnings ratio and pays a smaller dividend than most other banks, and its earnings have continued to impress in a period of rising interest rates.

While it I found the article hilarious, you have to wonder a bit about the ability of markets to allocate wealth and reward inovation when you realize that bank customers can't be bothered to create some equilibrium in the highly transparent market for bank deposits.