Durbin Exempts Community Banks; Investors Do Not

The Durbin amendment carved out smaller banks from its mandate to restrict debit swipe fees, and at least one of the major networks is willing to oblige, but equity markets do not appear to have cut the group much slack.

On July 16, the day that Bank of America Corp. projected that rules limiting amounts levied against merchants when they accept debit card payments would wipe out about 70% of its $3 billion in annual debit revenue, the 5.71% fall in the KBW Bank Index was larger than the 3.81% fall in the ABA Nasdaq Community Bank Index (see chart).

But on Jan. 7, the day Visa Inc. told American Banker that it would introduce a dual interchange schedule setting different rates for banks with more than $10 billion of assets than for banks with less, the 1.48% fall in the ABA Nasdaq index exceeded the 0.94% fall in the KBW index.

To be sure, it is impossible to read single causes into moves in stock prices, and, indeed, the two indexes do not break neatly along the boundary drawn by the Durbin amendment: The KBW index is a measure of the performance of large-cap names, but the ABA Nasdaq index includes a large set of companies with more than $10 billion of assets.

So the relative impact of the Durbin amendment on large and small banks remains an open question.

In a report last month, the Oliver Wyman consulting unit of Marsh & McLennan Cos. estimated that the regulations the Federal Reserve proposed to carry out the Durbin amendment could eliminate $8.3 billion of revenue annually at large issuers. This would work out to a 0.08 percentage point reduction in return on assets, based on Federal Deposit Insurance Corp. data for the third quarter.

But debit revenue is relatively more important to smaller issuers, the report said — a proportional bite could eliminate $3.5 billion of revenue among the group, or a 0.12 percentage point reduction in ROA based on the FDIC data.

Even if the networks adopt a two-tiered interchange system, competition could "push all rates down to the regulated level," the report said. Moreover, the proposal to cap rates at 12 cents per transaction was based on costs for large banks, and, "without equivalent scale, the same costs for smaller issuers are much higher."

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