In the US, the only part of the transaction that is encrypted is the PIN number. All other information sent between the ATM and the card holders bank is sent in clear text. Some other countries require that the entire conversation between the ATM and card holders bank be encrypted, but I digress.
The original encryption between the ATM and the host processing server is a 3DES private/working key system. I'm not entirely sure the encryption between processing networks (star, plus, pulse, etc) and between processing networks and banks, but there are many networks and many more banks. Having some sort of system that required the networks and banks to share working keys of 300,000+ ATM's in the US would be a major undertaking and would require some major cooperation between companies who are in reality competitors. I personally don't see that happening, unless companies like Mastercard or Visa start requiring it.
Beyond that, there are other encryption systems in place for TCP/IP based ATM terminals the utilize SSL and IPSEC for communication over the Internet to a host processing server.