Banking/Financial Institutions

Bernanke: Limits on debit card fees could hurt smaller banks

{mosads}However, he maintained that the Fed is “agnostic” on whether the exemption will work. Critics of the limits have argued that market forces will require smaller banks to lower their fees to keep up with bigger banks that must meet the new limits.

“I can’t say with certainty … there’s good reason to be concerned about it,” he said.

Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair said that while smaller banks could be stressed by the limits, she does not expect to see failures as a result.

The Dodd-Frank financial reform law that set the new limits included an exemption for any financial institutions with less than $10 billion in assets.

The comments, made at a hearing of the Senate Banking Committee, are sure to set off a fresh round of lobbying on Capitol Hill over the so-called “Durbin amendment,” as banks and retailers continue to spar over how much a bank can charge merchants swiping their debit cards. Billions of dollars in revenue are at stake, and the two sides have been engaged in a fierce lobbying battle for months.

Under the provision, the Fed is required to establish limits on debit card fees that are “reasonable and proportional” to the cost of a debit card transaction. Under proposed rules released in December, the Fed would slash fees from 7 to 12 cents per transaction, as compared to the current 44-cent average.

The central bank chairman was responding to questions from Sen. Jon Tester (D-Mont.), who is pushing legislation that would delay the limits for two years.

The Fed is currently expecting to finalize and put the limits in place by July, and is poring over some 11,000 comments it has received on the issue, according to Bernanke.

“We have plenty of information,” he said.

Meanwhile, Sen. Charles Schumer (D-N.Y.) used the hearing to try and pit Bernanke against House Speaker John Boehner, over comments the Ohio Republican recently made to financial experts in New York City.

The Speaker said in a speech at the Economic Forum of New York on Monday that government spending was crowding out private investment. When asked by Schumer if that were true, Bernanke disagreed — at least for now.

“In the near term, I don’t think there’s a lot of crowding out … interest rates are quite low, there’s a lot of excess resources available for firms,” he said.

But he noted that government spending does need to be addressed in the long term.
“We have a very significant long-run problem, in the sense that we’re pushing our debt situation further and further into the red,” he said.

He also parted ways with Boehner on his claim that the stimulus program “hampered job creation.”

“My best guess is that the stimulus increased employment,” he said when asked about it by Schumer.

Another major topic of discussion at the hearing was how the new Financial Stability Oversight Council (FSOC) will go about determining which financial institutions qualify as “systemically significant” and will be subject to more regulation. While banks will receive the designation based upon a formula, regulators indicated Thursday that when it comes to non-bank financial institutions being designated, there will be an element of art to it.

Lawmakers and financial institutions alike have aired concerns about the lack of clarity in how non-banks will earn the “systemically significant” moniker.

“We really have to have this as objective as possible,” said Sen. Pat Toomey (R-Pa.). “The implications for a firm being designated are huge.”

But regulators maintained that some element of judgment will be needed, and that a purely mathematical designation wouldn’t be possible.

“I don’t think we can provide an exact formula that would apply mechanically without any allocation of judgment,” said Bernanke. “Ultimately, we’re going to have to look at a whole variety of issues.”

“There will be some area for judgment,” added Bair.

Tags Boehner Charles Schumer John Boehner Jon Tester

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