The Fed caves in to banks, interchange edition

By Felix Salmon
June 30, 2011
decided to almost double the maximum permitted debit interchange fee.

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I could really do with a lot more transparency from the Fed on why exactly it’s decided to almost double the maximum permitted debit interchange fee. The bank lobby certainly had a lot to do with it — but the bank lobby always said that the Fed was simply doing what it was forced to do under the Durbin amendment to Dodd-Frank, and that therefore Dodd-Frank itself had to be changed.

When the Durbin amendment survived, however, suddenly the banks realized they had a Plan B — to lobby the Fed. And the Fed, it turns out, is even more susceptible to such lobbying efforts than Congress is. The sole dissent among the Fed governors was from Elizabeth Duke, who said that the new fee was too low.

Clearly the facts on the ground didn’t change between December, when the Fed came up with its 12-cent figure, and today. And now the Fed has proved itself susceptible to intense lobbying, you can be sure that the banks will keep their lobbyists active on all manner of rules and regulations which have to be promulgated under Dodd-Frank. Never mind what the law says, just make sure the regulators do what you want!

The optics of this are terrible — the Fed hasn’t even attempted to justify the hike, and indeed no matter how many times you read its press release, you’ll never be able to see that there was any hike at all. There’s talk only of the final fees, and no talk at all of the fact that they were raised substantially from the initial 12-cent proposal. The closest that we get is this, from Ben Bernanke:

We received input from more than 11,000 commenters on our proposed rule. We have taken the time needed to review these comments carefully; they have been very helpful to us and the final rule reflects changes suggested by commenters.

The message, here, is clear: keep on lobbying us! The more you lobby us, the more we’ll listen!

Why Bernanke’s sending that message, on the other hand, I have no idea.

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Comments
4 comments so far

What on earth did you include that last sentence for?

Posted by Foppe | Report as abusive

I’ve had it explained to me this way: doing business with the Fed is like making an agreement with someone who has absolutely no intention of following through with their part of the bargain. They are going to do whatever they want to do (whatever the banking industry wants them to do) no matter the law, the ramifications upon real people outside the Club or any inconvenient agreements they might have made previously, and who is going to make them do anything they don’t want to do anyway? If somebody doesn’t like it – tough!

Posted by Woltmann | Report as abusive

You could try reading the publicly-available staff memo, which lays out the Fed’s reasoning in detail, before you get all self-righteous about “transparency” and pretend to be some huge populist.

Posted by Than | Report as abusive

“Why Bernanke’s sending that message, on the other hand, I have no idea.”

I think you do….

Posted by maynardGkeynes | Report as abusive
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