So, Why Are the Banks Supporting Tester?

UPDATED POST 2:15 PM May 12th, 2011

For those following this whole swipe fee debate, Sen. Jon Tester’s (D-MT) office is floating around a scripted exchange between Senator Tester and Fed Chairman Ben Bernanke today.  Sure makes the Senator look like he is fighting for community banks in Montana.  In fact, the Senator’s staff made sure to stress in the headline of their press release that “Swipe fee price-fixing could cause rural banks to fail.” 

The media will of course take the bait and say “Jon Tester is fighting to save community banks in Montana.”  The real story:  Jon Tester voted for the very bill which contained the provision enacting these swipe fee limits in the first place.  If we are to believe the press release that the Tester Camp sent out- Jon Tester is one of the very Senators who voted to pass the legislation which may cause rural banks to fail in the first place.   

The man who opened the barn door is yelling because the horse got out and is running all over the countryside. 

Nonetheless, from the release:

Tester also asked Bernanke about a supposed exemption in the new proposal for small banks and credit unions.  The federal banking officials charged with implementing the new plan have raised serious concerns about whether the exemption will work. 

“We’re still not sure whether it will work,” Bernanke told Tester.  “There are market forces that would work against the exemption.”


So, just why are the banks supporting Senator Jon Tester’s (D-MT) efforts to overturn the limit on swipe fees charged by banks and credit card companies?  We’re not talking about the big banks and credit card companies now- who are clearly supporting the Senator’s efforts (even though Tester voted for the bill which created the problem in the first place).  We’re talking about the smaller credit unions and so-called community banks.  They are specifically exempted from these provisions. 

Simon Johnson, the former Chief Economist for the International Monetary Fund (IMF),  explains in a blog post for The New York Times:

It’s much harder to understand why Independent Community Bankers of America, the trade group for small banks, is pushing so hard for the Tester bill (and effectively shielding big banks from political pressure), because community banks are explicitly exempted from having to lower their fees, and individual executives from at least some small banks publicly support the Durbin Amendment (see, for example, Senator Durbin’s letter to the I.C.B.A. last year).

The most plausible explanation is that I.C.B.A. is one of the country’s largest issuers of credit cards and debit cards — so the representatives from small banks actually have, in this regard, the incentives of a big bank. Although all of its members may be exempt from the debit-card fee provision, the association perhaps is not.

By some rankings, the I.C.B.A. Bancard is among the top 25 debit cards and credit cards in the country.

That explains a lot.  So it really does nothing for the credit unions in Montana….just their association’s credit card business?    

Meanwhile, The New York Post has this:

Call it the $15 billion Capitol Hill scramble.

The lawmakers’ full-court press comes as rumblings surface that the Federal Reserve, which has been mandated to set debit interchange rules, could make a definitive decision on where to set interchange fees before Memorial Day — a move that could nullify the Tester delay proposal.

Tester is racing to submit his bill for a vote on the Senate floor before Memorial Day, sources tell The Post.

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