Financial reform this week: Will Fed bow to banks’ demand to keep swipe fees high?

Introduction

Banks have spent more than $17 million on federal lobbying so far this year, and on Wednesday they will find out what kind of return they are getting on that investment.

The Federal Reserve Board will finalize its plan on Wednesday to limit how much banks can charge retailers to process debit card transactions, a highly lucrative business that now generates about $16 billion a year in revenue for the banks.

After analyzing the costs involved, the Fed in December proposed a 12 cent cap per debit transaction – a jaw-dropping 73 percent cut from the current average fee of 44 cents. The Dodd-Frank law ordered the Fed to set a limit on the processing fee, which has marched higher in recent years.

Since that Fed proposal, major banks and bank industry groups have rallied smaller banks and credit unions to join them in lobbying for a higher limit than 12 cents. Thousands of bankers’ emails and letters, phone calls and lobbying visits with members of Congress failed to win enough support for legislation to delay the cap.

The Fed, meanwhile, has also received plenty of emails and lobbying visits from both bankers and retailers. Most recently, Fed staff met this month with representatives of Amazon and the Retail Industry Leaders Association about fraud-prevention costs and other issues.

Retailers contend that major credit card issuers control the debit card market and are unwilling to negotiate swipe fees.

How much lobbying have banks done? Data collected by the Center for Responsive Politics shows that commercial banks, credit unions and related industry groups together spent about $17.3 million on lobbying in the first quarter of 2011. The biggest spenders were the influential American Bankers Association at $2.1 million; Wells Fargo at $1.9 million; and JPMorgan Chase & Co. with $1.8 million.

Other Congressional hearings, rulemaking deadlines and events related to the Dodd-Frank financial reform law this week:

Monday, June 27

Credit union exec pay – Effective date for the National Credit Union Administration’s new rule banning a federally-insured credit union from making golden parachute and indemnification payments to an employee who contributed to the insolvency of a credit union.

OTS transfer – Deadline for public comments on the Office of Comptroller of the Currency’s plan to amend its regulations as part of the transfer of the Office of Thrift Supervision responsibilities to the OCC.

Tuesday, June 28

Small banks – Senate Banking Committee holds hearing on small banks’ access to the secondary markets for housing finance. Testifying are representatives of the Independent Community Bankers of America, American Bankers Association, Community Reinvestment Association of North Carolina. Begins 1000 ET.

Consumer conference – Kansas City Fed President Thomas Hoenig speaks at financial reform policy conference sponsored by Americans for Financial Reform and other consumer groups. Begins 0930 ET at U.S. PIRG office.

Wednesday, June 29

Debit card fees – Federal Reserve meets to finalize rules capping how much banks can charge to process debit card transactions. In December, the Fed proposed a 12 cent limit. Meeting begins at 1530 ET and will be webcast here.

Swap trading – Senate Banking subcommittee holds hearing on the emergence of swap trading platforms as regulators prepare rules for the over-the-counter derivatives market. Testifying will be executives from Eris Exchange, Tabb Group, Bloomberg, Javelin Capital Markets, and Jefferies & Co. Begins 0930 ET.

Swap dealers’ conduct – Securities and Exchange Commission meets to propose rules setting business conduct standards for security-based swap dealers and traders. Begins 1000 ET.

Consumer finance – Federal Reserve Gov. Sarah Raskin speaks at New America Foundation event about government and community policies that could help low-income families better determine the value of a particular financial service. Begins 0930 ET.

Thursday, June 30

CFPB authority – Deadline for public comment on the Consumer Financial Protection Bureau’s enforcement power over existing rules issued by the Fed, Federal Deposit Insurance corp., Comptroller of the Currency, Office of Thrift Supervision, National Credit union Administration, Federal Trade Commission, and Housing and Urban Development Department.

FDIC swan song – Sheila Bair, the outgoing head of the Federal Deposit Insurance Corp., testifies at Senate Banking Committee hearing on deposit insurance, consumer protection and financial stability issues. Begins 1400 ET.