Finance

Federal Reserve unveils new banking regulation in Wall Street victory

Published

2 months ago

September 10, 2024

Federal Reserve Board Vice Chair for Supervision Michael S. Barr testifies at a Senate Banking, Housing and Urban Affairs Committee hearing on “Recent Bank Failures and the Federal Regulatory Response” on Capitol Hill in Washington, March 28, 2023.

Evelyn Hockstein | Reuters

A top Federal Reserve official on Tuesday unveiled changes to a proposed set of U.S. banking regulations that roughly cuts in half the extra capital that the largest institutions will be forced to hold.

Introduced in July 2023, the regulatory overhaul known as the Basel Endgame would have boosted capital requirements for the world’s largest banks by roughly 19%.

Instead, officials at the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have agreed to resubmit the massive proposal with a more modest 9% increase to big bank capital, according to prepared remarks from Fed Vice Chair for Supervision Michael Barr.

“This process has led us to conclude that broad and material changes to the proposals are warranted,” Barr said in the remarks. “There are benefits and costs to increasing capital requirements. The changes we intend to make will bring these two important objectives into better balance.”

The original proposal, a long-in-the-works response to the 2008 global financial crisis, sought to boost safety and tighten oversight of risky activities including lending and trading. But by raising the capital that banks are required to hold as a cushion against losses, the plan could’ve also made loans more expensive or harder to obtain, pushing more activity to non-bank providers, according to trade organizations.

The earlier version brought howls of protest from industry executives including JPMorgan Chase CEO Jamie Dimon, who helped lead the industry’s efforts to push back against the demands. Now, it looks like those efforts have paid off.

But big banks aren’t the only ones to benefit. Regional banks with between $100 billion and $250 billion in assets are excluded from the latest proposal, except for a requirement they recognize unrealized gains and losses on securities in their regulatory capital. That would likely boost capital requirements by 3% to 4% over time, Barr said.

That appears to be a response to the bank failures last year of midsized banks caused by deposit runs tied to fear over unrealized losses on bonds and loans.

This story is developing. Please check back for updates.

Finance

Visa & Mastercard execs grilled by senators on high swipe fees

Published

7 hours ago

November 19, 2024

Business Finance News

The Senate Judiciary Committee convened on Tuesday for a hearing on the alleged Visa–Mastercard “duopoly,” which committee members from both sides of the aisle say has left retailers and other small businesses with no ability to negotiate interchange fees on credit card transactions.

“This is an odd grouping. The most conservative and the most liberal members happen to agree that we have to do something about this situation,” committee chair and Democratic Illinois Sen. Dick Durbin said.

Interchange fees, also known as swipe fees, are paid from a merchant’s bank account to the cardholder’s bank, whenever a customer uses a credit card in a retail purchase. Visa and Mastercard have a combined market cap of more than $1 trillion, and control 80% of the market.

“In 2023 alone, Visa and Mastercard charged merchants more than $100 billion in credit card fees, mostly in the form of interchange fees,” Durbin told the committee.

Durbin, along with Republican Kansas Sen. Roger Marshall, have co-sponsored the bipartisan Credit Card Competition Act, which takes aim at Visa and Mastercard’s market dominance by requiring banks with more than $100 billion in assets to offer at least one other payment network on their cards, besides Visa and Mastercard.

“This way, small businesses would finally have a real choice: they can route credit card transactions on the Visa or Mastercard network and continue to pay interchange fees that often rank as their second or biggest expense, or they could select a lower cost alternative,” Durbin told the committee.

Visa and Mastercard, however, stand by their swipe fees.

“We consider them incentives, some people might consider them penalties. But if you can adopt new technology that reduces the risk and takes fraud out of the system and improves streamlined processing, then you would qualify for lower interchange rates,” said Bill Sheedy, senior advisor to Visa CEO Ryan McInerney. “It’s very expensive to issue a product and to provide payment guarantee and online customer service, zero liability. All of those things, and many more, senator, get factored into interchange [fees].”

The executives also warned against the Credit Card Competition Act, with Sheedy claiming that it “would remove consumer control over their own payment decisions, reduce competition, impose technology sharing mandates and pick winners and losers by favoring certain competitors over others.”

“Why do we know this? Because we’ve seen it before,” Mastercard President of Americas Linda Kirkpatrick said, in reference to the Durbin amendment to the 2010 Dodd-Frank Act, which required the Fed to limit fees on retailers for transactions using debit cards. “Since debit regulation took hold, debit rewards were eliminated, fees went up, access to capital diminished, and competition was stifled.”

But the current high credit card swipe fees for retailers translate to higher prices for consumers, the National Retail Federation told the committee in a letter ahead of the hearing. The Credit Card Competition Act, the retail industry’s largest trade association wrote, will deliver “fairness and transparency to the payment system and relief to American business and consumers.”

“When we think of consumer spending, credit card swipe fees are not the first thing that comes to mind, yet those fees are a surprisingly large part of consumer spending,” Notre Dame University law professor Roger Alford said. “Last year, the average American spent $1,100 in swipe fees, more than they spent on pets, coffee or alcohol.”

Visa and Mastercard agreed to a $30 billion settlement in March meant to reduce their swipe fees by four basis points for three years, but a federal judge rejected the settlement in June, saying they could afford to pay more.

Visa is also battling a Justice Department lawsuit filed in September. The payment network is accused of maintaining an illegal monopoly over debit card payment networks, which has affected “the price of nearly everything,” according to Attorney General Merrick Garland.