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Bernanke Good reason for interchange concerns
WASHINGTON (5/13/11)—Federal Reserve Chairman Ben Bernanke yesterday reiterated that he is not sure that the small institution exemption in pending interchange fee cap regulations would work as planned, adding that there “is good reason to be concerned” about its effectiveness. Appearing before a Senate Banking Committee hearing on the implementation of the Dodd-Frank Wall Street Reform Act, the Fed Chairman, in response to questions from Sen. Jon Tester (D-Mont.), added that the pending interchange cap would affect revenues of smaller issuers and “could result in some smaller [financial institutions] being less profitable or even failing” if the proposed exemption for institutions with under $10 billion in assets does not work. Tester is the author of Credit Union National Association (CUNA)-backed legislation to delay the proposed interchange rules for two years to allow further study. Federal Deposit Insurance Corp. Chairman Sheila Bair later told legislators that the interchange changes would likely result in higher fees for financial services customers, and said that the income cuts for small issuers would cause significant stress for those institutions. Under requirements of the Dodd-Frank Wall Street Reform Act, the Federal Reserve Board has proposed a debit card interchange limit that would top such fees at 12 cents. The law intends to exempt credit unions and other small institutions with assets of $10 billion or less from fee cap. However, the effectiveness of the proposed exemption has been hotly debated, and many analysts agree that the statutory exemption will not work as intended. CUNA supports House and Senate legislation that would delay the implementation of the interchange regulations and order a study of their impact on consumers, financial institutions, and merchants. Bair and Bernanke were joined during the hearing by U.S. Treasury Deputy Secretary Neal Wolin, Securities and Exchange Commission Chairman Mary Schapiro, Commodity Futures Trading Commission Chairman Gary Gensler, and Acting Comptroller of the Currency John Walsh. Bernanke in prepared testimony added that the Fed would further address the separate issue of too-big-to-fail banks by “developing more-stringent prudential standards for large banking organizations” such as “enhanced risk-based capital and leverage requirements, liquidity requirements, and single-counterparty credit limits.” The standards, which Bernanke said are expected to be released for comment this summer, will also require systemically important financial firms to create “living wills.” Bernanke said that the Fed’s goal “is to produce a well-integrated set of rules that meaningfully reduces the probability of failure of our largest, most complex financial firms, and that minimizes the losses to the financial system and the economy if such a firm should fail.”
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