It is not surprising that Texas cities restrict strip clubs, but now the City of West Lake Hills near Austin has banned new banks and nearby Lakeway has required them to obtain a unique permit. Why? Because they do not generate sales tax revenue.

Lakeway Mayor Steve Swan told the Austin Business Journal, “We’re not trying to eliminate banks, but we want them to meet the same test as any other business coming into our City.” This statement is remarkable because the so-called “test” is how much sales tax revenue the business brings to the City.

By this absurd measure, Mayor Swan should also be getting rid of all service industries from gardeners to day care centers.

Bankers pointed out to the Austin Business Journal that retail banks, though they don’t generate sales tax revenues, are a steady source of property taxes for local governments, since they rarely go out of business.

Whatever happened to the idea that the free market will decide the best use for a particular property and that consumer demand should determine which retailers locate in a community. It is true that retail banks have proliferated but this arguably benefits consumers in competition for higher rates on CD’s and, in the case of Capital One which is expanding throughout Texas, banking hours on Sunday.

Interestingly, the national credit crunch is likely to spur mergers of regional banks, which could result in the consolidation of retail locations. If so, it will demonstrate yet again that the market can better allocate resources than any bureaucrat.