Posts Tagged ‘Federal Reserve’

The results are in from the Federal Reserve’s 2012 Comprehensive Capital Analysis and Review (CCAR) and 15 of the 19 banks required to submit to the exam passed the stress test that included…

  • An adverse scenario of 13% unemployment.
  • A 50% drop in equity markets.
  • 21% decline in housing prices.

Most banks were expected to pass the Federal Reserve’s latest “stress tests,” which measure their ability to withstand another downturn. But that doesn’t mean they’ll make the grade with investing pros.

Four large banks failed the stress test.


The worst performance came from Ally, formerly the finance arm of General Motors known as GMAC: its tier one ratio fell to just 2.5 percent in the test from the actual 8.0 percent level reported in the third quarter of last year.


Citigroup — Failed the stress test with 4.9% capital ratio in something of a surprise. Fed rejected the firm’s proposal to increase capital return, which the bank plans to resubmit later in 2012, but did not object to it maintaining its dividend at current levels.


SunTrust Banks — Failed stress test with 4.8% capital ratio.


MetLife — Failed the stress test despite 5.1% minimum capital ratio, due to measure of risk-weighted capital. CEO Steven Kandarian said company is “deeply disappointed,” and that the Fed’s bank-based methodology is not a proper gauge of the financial strength of an insurer.

Some of the bigger banks that passed…

Wells Fargo

Wells Fargo –Passed stress test with 6% capital ratio, and added a 10-cent dividend to its previously announced first-quarter payout of 12 cents, an additional 83% that ups the firm’s quarterly dividend to 22 cents per share.

JP Morgan Chase

JPMorgan Chase — Passed stress test with 5.4% capital ratio under stressed scenario, including proposed capital actions through 2013. Increased its dividend 20% to 30 cents per share, from 25 cents, authorized a $15 billion stock buyback.

Topping that list of concerns is the European crisis. The balance sheets of American banks may be healthier than their counterparts on the continent, but they’re still not immune to the troubles there.

It’s not just European debt that investors are worried about, says Rodney Johnson, the president of HS Dent: Banks still aren’t being fully transparent about the value of other assets on their balance sheets. They are not “marking to market,” which means they’re not reporting the current market value of assets like mortgage-backed securities. “If you’re not marking your securities to market, then I don’t know what they’re worth, and I don’t believe you when you tell me what they’re worth,” he says. Johnson doesn’t own any large financial stocks. This applies to the Credit Union Corporates who still have massive exposure to mortgage-backed securities.

Investors may be better off at smaller banks, advisers say. Small banks are not exposed to risk from credit-default swaps.Small banks also have shortcomings, Johnson says. They make a lot of commercial real estate loans, some of which were written with sub-prime-like problematic terms, he says.

Banks and Credit Unions not “Marking to Market”, what is the real value of the asset? Your thoughts?


It started as a Facebook event page on Tuesday, and now it’s grown into a national movement. Saturday (Nov. 5) was Bank Transfer Day (BTD), a deadline activists set for transferring funds from for-profit banking institutions into not-for-profit credit unions closer to home.

Bank Transfer Day

Bank Transfer Day

Organized by Kristin Christian, her Bank Transfer Day Facebook page has attracted more than 81,900 RSVPs for the event since Tuesday (Nov. 1). Why? Kristen Christian wrote on the Bank Transfer Day Facebook page’s FAQ:

Facebook Page for Bank Transfer Day

“I started this because I felt like many of you do. I was tired — tired of the fee increases, tired of not being able to access my money when I need to, tired of them using what little money I have to oppress my brothers & sisters. So I stood up. I’ve been shocked at how many people have stood up alongside me. With each person who RSVPs to this event, my heart swells. Me closing my account all on my lonesome wouldn’t have made a difference to these fat cats. But each of YOU standing up with me… they can’t drown out the noise we’ll make.”

What’s the result of these social media-fueled protests? According to the Credit Union National Association, “at least 650,000 consumers across the nation have joined credit unions in the past four weeks.” That mass influx of credit union customers was further ignited on Sept. 29, when Bank of America announced it would begin charging consumers a $5-per-month fee for debit cards. Bank of America has since retracted that rate hike because of the public outcry. November 5th has come and gone. What’s your assessment?

  • Two years ago it took 15 banks to control 50% of the asset’s in this country. Today…5 banks control 50% of the assets, while the remaining 7500 banks and 7400 credit unions control the remaining 50%.
  • The number of Credit Unions across this country continue in decline. Once peaked at 23,866 in 1969. Over the past 5 years we’ve lost over 1,000 Credit Unions. Credit Unions like banks, the big just keep getting bigger.
  • Membership among Credit Unions with less than $100 million in assets has declined according to the recent CUNA Profile. So, it will be interesting to see what asset class of Credit Union benefited from this movement.
  • In researching this issue with CUNA, here is their statement.  The growth is particularly noticeable at larger credit unions–those with $100 million or more in assets, CUNA President/CEO Bill Cheney said.  They account for about 20% of all credit unions, but serve about 80% of credit union members.

Banks hold $12,284,305 in assets according to the Federal Reserve Bank while Credit Unions hold $954,757 according to CUNA.

Total Bank & Credit Union Assets 2011

Total Bank & Credit Union Assets 2011

The beneficiary of this movement seems to be the big Credit Unions. Hopefully the small banks, and small credit unions can step up their Social Media Marketing to take advantage of this opportunity.

What do you think will happen as a result of this movement?

After months of banter between bankers and retailers, both agree to dislike the new Federal Reserve cap on debit card swipe fees.

Swipe Fees

Last week, the Fed voted to cap the fees at 21 cents per transaction, up from an earlier proposed cap of 12 cents. Banks and credit unions say the cap is still too low to cover the cost of maintaining debit card networks. Retailers say the new cap is too high, particularly for small businesses with tight profit margins. The fee cap will take effect Oct. 1.

According to industry sources.

  • It will cost banks and credit unions approximately $10 Billion.
  • Free checking will continue to dwindle. Down 11% over the past year.
  • You will be required to have a higher minimum balance to avoid fees.
  • In September, Bank of America will start charging a $5 fee for lost debit cards.
  • On July 29, U.S. Bank will increase its annual fee for individual retirement accounts to $30 from $10.
  • Other banks are charging fees for everything from paper statements to talking to a customer-service rep.

Only 38% of bank branches complied with a simple request for a schedule of fees required by the Truth in Savings Act.

If you are charged with fees you deem unreasonable, by all means raise your concerns, you may get it waived. However, be sure that you have read all the fine print, including your monthly statements or any other correspondence.

As with any regulation assessed to banks, retailers or credit unions they are in business to make money. When government laws are passed to limit income, creativity and redistribution of new fees will be created on the part of banks, and credit unions to replace lost revenue. As regulation becomes more onerous, it will accelerate mergers and failures of institutions not strong enough to survive. Hence the big get bigger…and Too Big To Fail comes into play.

Here is the Credit Union Times article where the Banks and Credit Unions respond.

Credit unions and banks are looking to the courts for relief.

TCF Bank is challenging the legality of Fed’s rule and its lawsuit is pending in federal court. Both CUNA and NAFCU have joined friend-of-the-court briefs on behalf of the Minnesota-based bank.

TCF Financial Corp. Chairman/CEO William Cooper has said the Durbin Amendment is a $15 billion-a-year “raid on the banking business.”

The lawsuit hasn’t gone to trial yet, but so far a federal judge has rejected both the bank’s request to stop the Fed’s implementation of the amendment and has rejected the government’s request to dismiss the lawsuit.

The Fed’s rule is supposed to take effect on July 21. It issued a draft rule in December and was supposed to issue a final rule in May but that has been delayed.

According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer’s allowable costs divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.

Tester said during the Senate debate that that the Fed rules didn’t contain enough protections for small issuers, such as community banks and credit unions with assets of $10 billion or less. He predicted that some of those institutions could be less profitable or maybe even fail. He cited concerns about the inadequate protection raised by Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair.

Durbin countered that the protections for small issuers were adequate and that the Corker-Tester amendment would mainly help the big banks.

“The biggest banks make the biggest money in this process. Far and away,” he said.

NAFCU President/CEO Fred Becker praised the “valiant fight” by the banks and credit unions in lobbying on the issue and said that it proved how hard it is to get anything passed in the Senate, where 60 votes are needed for almost every bill.

Though Becker conceded that the short-term options for delaying the rule may be limited, he said NAFCU would work with lawmakers to ensure that they keep their promise to monitor the implementation to see if the new rule will hurt small debit card issuers.

CUNA President/CEO Bill Cheney said the vote is “going to create a train wreck that will affect every consumer with a debit card.”

The Corker-Tester amendment would have mandated financial regulators, including the Fed and the NCUA, to perform a six-month study to consider the costs to financial institutions of the new rules, whether the rules will adversely affect consumers, and whether the small issuer exemption is feasible. If any regulator found problems in one of those areas, the Fed would have had to rewrite the rule within six months.

In their attempt to persuade lawmakers to pass the amendment, credit unions and banks worked together.

CUNA, NAFCU and the Independent Community Bankers of America wrote lawmakers just before the vote and said that if the amendment fails “the millions of consumers served by the nation’s community banks and credit unions would be directly harmed and would end up paying more for their banking services.”

The Electronic Payments Coalition ran an extensive advertising campaign, which was matched by similar efforts by the retailers. These ads have appeared both in the Washington, D.C. area and in the home states of key senators.

National Retail Federation Senior Vice President for Government Affairs David French praised the efforts of the financial services lobbyists but said at the end the retailers had an easier case to make.

“It’s harder to get senators to change a law, which is what the banks wanted to do, than to get them to keep the status quo,” he said in an interview. “Ultimately, we made the case about transparency. When consumers swipe their debit cards they pay extra because of hidden fees and it is hard to justify that.”

While the retailers won the fight, Durbin noted during a Senate floor speech that the real winners were the lobbyists on both sides of the issue.

If this goes down in the courts, rest assured the Credit Unions and Banks will find a way to maintain the lost revenue by charging higher fees for various services. The new era of regulation, LESS is MORE.

Debit Cards

Visa and MasterCard control 80% of debit cards and – up until now – have set the fees, even though banks are on the receiving end of this money. The Federal Reserve proposed that debit card fees be capped at 7 to 12 cents, and Congress agreed yesterday to uphold that recommendation.

Most banks offer rewards programs encouraging customers to use debit cards more frequently – and they seem to be working. According to the Federal Reserve, in 2009, consumers used debit cards for nearly 38-billion retail transactions — and banks collected more than $16 billion in interchange fees on these purchases.

What does that mean for the consumer? Small Business? It is a win for them. What about the Banks? It is a loss for the banks to the tune of Billions. Banks were getting upwards of 63 cents per transaction. So, this begs the question…how will Banks and Credit Unions respond to make up the loss in revenue? The bigger institutions can afford to absorb these losses, however the smaller ones cannot, and as history shows, the trend is for Big to keep getting bigger, and the small/mid-size to merge or go under.  The more things change the more it remains the same.

Okay, let’s start with the basics. What’s an interchange fee? It’s the fee the merchant pays every time you swipe your debit card. If you swipe your card to spend $100 at the grocery store, you probably assume the store gets to keep the full $100.

  • They don’t. They only get $98.30, because an average of $1.70 covers the interchange fee, according to a report by the Federal Reserve. That money is divided between your bank, the grocery store’s bank, and the network that supplies the card swipe machine. Visa and MasterCard run the dominant networks, with American Express and Discover running a distant third and fourth respectively.
  • That $1.70 average fee charged for every $100 spent applies only to debit card transactions that the customer authorizes with a signature. These transactions occur over the major credit card networks. They cost retailers slightly less than the cost of processing credit card transactions. Alternatively, the customer can swipe the same debit card, but enter a PIN number instead of a signature. This type of transaction occurs electronically and immediately. These transactions are processed over different networks (such as Pulse, Star, or NYCE as well as MasterCard’s Maestro and Visa’s Interlink). This type of transaction costs retailers a lot less, usually around 15 cents.

[Related: Fed Proposal Would Cut Debit Card Fees by 70%]

Two different payment methods using the same card fosters plenty of jockeying between banks and retailers. Because PIN-based transactions cost retailers significantly less money, they try to encourage those purchases, often by automatically prompting customers to enter a PIN on the terminal where they swipe their cards. Meanwhile, banks offer rewards for signature-based transactions, and a few charge their customers a fee for every PIN transaction.

Either way, a debit purchase is like using a digital check, only it’s faster for consumers, merchants and banks.

The lobbying battle in Congress over interchange fees has focused largely on the effect of changing the interchange rules on small banks and their customers. In a survey by the Independent Community Bankers of America, a trade association, 93% of small banks said they will have to get rid of services like free checking if interchange fees go down.

“I am appalled that our members will shoulder tremendous financial burden and still be on the hook for fraud loss while large retailers receive a giant windfall at the hands of the government,” John P. Buckley Jr., president of Gerber Federal Credit Union in Fremont, Mich., testified before the House Financial Services Committee.

This is a $24 Billion dollar issue, so a lot is at stake…who will receive this windfall?

Intercfhange Fees Battle

Credit Unions and Banks rely on interchange fees for profitability. In an economic time when every revenue stream counts, this has far reaching consequences. As part of the Dodd-Frank Act, Congress enacted provisions that regulate the debit interchange rates and give merchants more control over a consumer’s use of debit cards and credit cards at the point of sale and the route through which the transaction is processed.  Further complicating matters, the Dodd-Frank language prohibits the Federal Reserve from taking into consideration all of the costs of the payment system when regulating the debit interchange fee to establish a debit rate that is “reasonable and proportional” to the “incremental” cost of the individual transaction.

Consider if you will…in an age of identity theft, think SONY recently 100 Million, usually the credit unions or banks absorb the cost of replacing the credit card or debit card. Sometimes to the tune of $25 or more per card. Credit Unions and Banks will find a way to pass on fees to consumers in light of continues regulatory burden. Unfortunately the high cost of regulatory burden will continue to be accelerated consolidation of credit unions and banks.

Legislation (H.R. 1081 / S. 575) has been introduced in both chambers of Congress to delay the Federal Reserve’s rule and study the impact of interchange fee regulation on consumers, merchants and financial institutions.

The Interchange Fee battle rages on…

A new federal law curbing fees on debit-card transactions could wipe out $9 billion in revenue annually for issuers.

The Durbin Amendment, which is part of the financial-overhaul bill enacted in July is one part of the reform. It calls for the Federal Reserve to determine that rates on debit-card transaction or interchange fees are “reasonable and proportional,” and that they cover the ” actual incremental cost” of the transaction. The Fed still has several months to set new terms. “The Durbin Amendment could significantly impact consumers by increasing the cost of their everyday debit card transactions, limiting their payment choices and impacting industry innovation,”Banks are scrambling to gain back some of the lost revenue from this and prior regulatory changes. Among the new tactics being considered:

  • Emphasizing prepaid cards, which are exempt from the new rules.
  • Adding new fees to existing products.
  • Having minimum balances for checking accounts.
  • Watering down debit card reward programs., estimates that if the Fed cuts interchange fees by half — considered a possible scenario by the industry — debit-card issuers will annually lose $9.1 billion, or $18.35 per debit card, in revenue.U.S. general purpose debit card purchases totaled $1.45 trillion in 2009, up 7.5% from 2008, according to the Nilson Report, which tracks the payment industry. Spending on U.S. Visa- and MasterCard-branded prepaid cards totaled $ 49 billion in 2009, accounting for 3.39% of all debit card purchase volume that year. Bank of America, Wells Fargo &Co. (WFC) and J.P. Morgan Chase & Co. (JPM) are the top U.S. issuers of debit cards. The three accounted for 38% of all debit card purchases in 2009, according to Nilson.

In August, Bank of America introduced its most basic checking account with a monthly fee of $8.95.

  • Customers may avoid this fee if they sign up for paperless statements and use automated teller machines or ATMs, and not bank tellers, for routine transactions such as deposits and withdrawals.
  • Last month, the firm took a $10.4 billion charge in its third quarter because of “limits to be placed on debit interchange fees … which will reduce future revenues.”
  • It is also testing different checking accounts, allowing customers to choose between a monthly maintenance fee or avoid this fee by using a Bank of America-issued debit or credit card or keeping higher account balances or a mortgage with the company.
Starting this month, Citigroup Inc. (C) will charge a monthly fee of $8 for its most basic checking account.
  • Customers can avoid this fee if they use their account at least five times in a month, including to pay bills and withdraw cash from an ATM. Monthly fees for Citigold — its fully loaded checking account with perks, including free paper checks and no annual fee on certain Citi credit and debit rewards cards — will be $30.
  • Customers may avoid this fee if they satisfy certain conditions, such as maintaining a minimum balance of $50,000 across their checking, savings and money market accounts.

Unintended consequences of financial reform always seem to raise the cost of doing business to the consumer, and the banks and credit unions still need to make their profits.

I wonder if the Free Toaster will be offered again for new accounts?

Let me know if you think these financial reforms are a good thing?