SAN DIEGO — Federal Reserve Board Chairman Ben Bernanke assured community bankers Wednesday that the central bank will attempt to protect them as it finalizes its rule capping debit interchange fees.
Speaking here to the annual convention of the Independent Community Bankers of America, Bernanke said the Fed "is quite aware" that Congress never intended for small banks to be subject to the proposed limits.
"In our rule-writing we will do everything we can and use all the powers we have to try to make sure that the carve-out is effective," he said.
Bernanke, who has warned the provision could hurt small banks, said the Fed needs cooperation from debit card networks to ensure that a carve-out works.
John Walsh, the acting comptroller of the currency, also noted that Congress intended to exempt banks with less than $10 billion of assets from the provision, which would limit the fees issuers can charge merchants for debit card transactions. He said the exemption has little practical benefit, since the price that the Fed sets for large banks will ultimately be the price for all institutions.
Walsh said the Fed's proposal "crimps income more than necessary by taking a very narrow view of costs the law permits, and we've provided our views to the Fed in a comment letter."
Bernanke said 50 Fed staffers have been working full time for about six months to collect data, analyze the market and review more than 11,000 comment letters. The law has two parts, he said. While small banks are ostensibly exempt from the part that would restrict interchange fees, he said they are not carved out from the portion of the law that relates to the networks that merchants use to process those transactions.
"In part it creates more competition so that merchants will have more choices about which way they want to route their charges," Bernanke said. "Overall more competition in this market will probably bring some pressure on interchange fees."
The banking industry's campaign to overturn the Durbin amendment has been gaining momentum, with House and Senate lawmakers introducing bills to delay its implementation. But time is quickly running out for Congress to act; the Fed is expected to issue a final rule by April 21.
Cam Fine, the ICBA's chief executive, said in a roundtable discussion with the news media Tuesday that the odds of delaying the rule through legislation are still long in the Senate, where bills need 60 votes to advance. "All that said, I think over the last two weeks we have gotten some traction on this issue, and I think we have a fighting chance," he said.
Fine said the ICBA has been speaking with Fed officials about taking a "second look" at the rule.
Banks may also find relief with the judicial process. The ICBA, along with other national trade associations, filed an amicus brief on a lawsuit filed by TCF Financial Corp. seeking an injunction against implementation. The group argued that the proposal was too narrowly defined. A hearing on the lawsuit is set for April 4.
Bernanke also tried to allay concerns about new capital requirements under Basel III. How to implement those rules for small banks that are not systemically important or internationally active continues to be a crucial issue, he said.
"We recognize the importance of striking the right balance between promoting safety and soundness throughout the banking system and keeping the compliance costs for smaller banking firms as low as possible," Bernanke said.
The focus so far has been on new requirements for larger institutions, Bernanke said. He said the committee also agreed to allow long transition periods for the implementation of the new rules in part to minimize the impact of the rules on credit availability.
"We do know and we do understand that it's going to take time both for regulators to get a good grip on those changes and also for banking institutions to implement them," he said.
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