Bernanke Says Interchange Rule May Result in the Failure of Small Banks

On May 12 Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that there is “good reason to be concerned” about how the interchange rule will effect small banking institutions, a point he has continued to make when questioned by Congress on the potential impacts of the Durbin debit card rule.

The full exchange, with Senator Jon Tester (D-Montana), went as follows:

Senator Tester [on the proposed interchange rule]: I’m talking about rural America here. I’m talking about community banks and credit unions and if they go away, it’s another nail in our coffin. It’s really important. I think it’s really important. Is it going to work?

Chairman Bernanke: I can’t say with certainty. There is good reason to be concerned about it.

Senator Tester: Very good reason to be concerned about it. And if it doesn’t work, what’s the impact on rural America?

Chairman Bernanke: Well, it’s going to affect the revenues of the small issuers and it could result in some smaller banks being less profitable or even failing.

FDIC Chairman Sheila Bair added to the conversation, saying it is “questionable” if the exemption for community banks and credit unions would work and noted that it would “reduce revenues at a number of small banks.”

Read EPC’s Statement on Bernanke’s Concern »

Organizations concerned about the rule »

Recent coverage on the issue »

• Fed warns politicians to raise US debt ceiling – The Associated Press
• Bernanke: Debit Card Fee Rule May Result In Some Small Banks Failing‎ – NASDAQ
• Regulators Defend Financial Revamp Efforts – The Wall Street Journal
• Regulators update Congress on financial overhaul  – The Washington Examiner
• Regulators assure Congress on Wall Street crackdown – Reuters
• Bernanke: Limits on debit card fees could hurt smaller banks – The Hill (On the Money)
• Bernanke: Debit-Card Rules May Bust Banks – Bloomberg