WASHINGTON -- Bank card companies are hoping that the Republican take over of Congress will pave the way to privatization of some Federal Reserve payment system services.
While Republicans customarily have supported the Fed's independence in implementing monetary policy, the GOP also has favored turning government services over to the private sector.
This is good news for bank card companies looking to undertake some tasks customarily provided by the nation's central bank, such as automated clearing house services.
"Traditional Republican principles have called for the privatization of economic services being performed by government agencies when the private Sector is willing and able and anxious to provide those services itself," said Lamar Smith, vice president of government affairs for Visa U.S.A. "If we're willing to do it, I think the Republicans would support us doing it instead of a government agency."
Mr. Smith came to Visa in December 1992 after serving for five years as Republican staff director of the Senate Banking Committee.
Although it will not become an immediate priority for GOP lawmakers, a Republican House Banking Committee aide confirmed that the atmosphere in the upcoming Congress will favor Fed service privatization
"Although I can't see the committee acting very quickly on this, it most definitely has a better chance now than before," he said.
Automatic clearing houses act as clearing and settlement facilities for the interchange of debits and credits among banks. Corporations use them for direct deposit and other services that require the gathering or distribution of funds.
Visa is especially interested in privatization because, working with the New York Automated Clearing House, it is the Fed's sole competitor in providing a nationwide Computer-based clearing house, Mr. Smith said.
And although Visa's primary competitor, MasterCard International, does not run a clearing house service, MasterCard spokeswoman Charlotte Rush said that her company is interested.
"We are not currently advocating any changes, but we'll watch with a lot of interest any proposals that would come from Congress or the Fed itself because we are a broad-based payments transfer corporation," Ms. Rush said.
However, measuring up to the Fed's reputation for reliability will be no simple task, according to Karen Shaw, president of ISD/Shaw Inc.
"The Fed need only whisper the words 'payment system stability.'" for lawmakers to hesitate in pushing for privatization, Ms. Shaw said. "The enduring caution of any members of Congress to challenge the central bank's austere power is a problem."
In addition, the sheer size and momentum of the Fed will make any inroads into the payment system by private corporations a slow process, according to Edward Furash president of Furash & Co., a bank management consulting firm here.
"The critical mass that the Fed has means that its cost advantages are very substantial -- it doesn't pay to go head-to-head with the Fed," Mr. Furash said. "There will be significantly more opportunities for competition with the Fed in payment systems, but they will just have to be focused on specialty areas."
Private companies will make the first encroachments into Fed territory in "niche areas" such as bill payment systems and electric data interchange systems, Mr. Furash said.
However, privatizing any of the Fed's payment system functions is a notion that does not sit well with independent and community bankers, who fear the private sector will never cater to their needs the way the Fed does.
"Without the Fed, we don't get equitable access," said Diane Casey, executive director at the Independent Bankers Association of America. "Getting service to remote and rural end points is not a business that your commercially based provider is going to get into."