My grasp of capitalist theory is somewhat lacking but is this the point where the invisible hand would conjure up a competitor whith lower rates and higher pay outs, taking business from the gouging banks?
Those gouging banks could immediately use their scale to undercut that competitor, killing it, then return to whatever they were doing.
Considering how much of an upfront investment (not just in pure cash, but also in agreements, infrastructure and operations) becoming anything more than a basic savings bank is, the risk is very great.
Likely existing players can go pretty far before before the risk/reward of creating a new bank checks out.
The real question is why those existing banks aren't trying to undercut each other. Maybe there's some pressure and risks that make them behave this way in the current economy, or maybe it's good old price fixing.
They do undercut each other. Interest rates respond directly to interest rate changes from central banks and commercial savings banks operate on thin margins. It is not price fixing for people to make large profits.
Competition relies on the ability for new players to enter the market. That's very difficult in highly regulated industries like banking. Some of those regulations exist for good reasons. Many of them are not. For example, there is no evidence that the US-pushed anti-money-laundering rules that every country has been essentially forced to adopt have resulted in any reduction of criminal activity, anywhere, ever. I'm not exaggerating when I say that. Nobody has ever demonstrated their effectiveness in stopping crime, which was what we were told they would do. And they're a huge compliance cost for banks, worldwide.
It's not really fair for the state to impose huge regulatory hurdles that make competition impossible and then for leftists to go 'hurr but what about the invisible hand meme now???', when that obviously relies on FREE MARKETS, which we increasingly do not have.
No, you can't use "invisible hand" theories in the current economy because the hand is very visibly the government when it comes to bank monetary policy. Any claim that world economies are anything like the markets Adam Smith envisioned would be completely thrown out the window after 2008. They were already on very tenuous grounds.
Or maybe another way to look at it this: the invisible hand of force is yet another invisible hand operating in the markets.
Considering how much of an upfront investment (not just in pure cash, but also in agreements, infrastructure and operations) becoming anything more than a basic savings bank is, the risk is very great.
Likely existing players can go pretty far before before the risk/reward of creating a new bank checks out.
The real question is why those existing banks aren't trying to undercut each other. Maybe there's some pressure and risks that make them behave this way in the current economy, or maybe it's good old price fixing.