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Federal Reserve Board publishes report containing summary information on debit card transactions in 2013

September 19, 2014 Comments off

Federal Reserve Board publishes report containing summary information on debit card transactions in 2013
Source: Federal Reserve Board

The Federal Reserve Board on Thursday published a report containing summary information on the volume and value, interchange fee revenue, certain issuer costs, and fraud losses related to debit card transactions in 2013. The report is the third in a series to be published every two years pursuant to section 920 of the Electronic Fund Transfer Act (EFTA).

The Board’s Regulation II (Debit Card Interchange Fees and Routing), which implements this provision of the EFTA, provides that a debit card issuer subject to the interchange fee standard (a covered issuer) may not receive an interchange fee that exceeds 21 cents plus 5 basis points multiplied by the value of the transaction, plus a 1-cent fraud-prevention adjustment, if eligible. The interchange fee standard does not apply to debit card issuers with consolidated assets of less than $10 billion, certain government-administered debit cards, and certain prepaid cards. The interchange fee standard became effective on October 1, 2011.

As in prior years, covered issuers’ costs of authorizing, clearing, and settling (ACS) debit card transactions, excluding issuer fraud losses, varied greatly across respondents in 2013, with the median issuer having an average ACS cost of 14.9 cents and the issuer at the 75th percentile having an average ACS cost of 42.2 cents. Issuers with the highest debit card transaction volume generally had the lowest ACS costs per transaction as reflected in an overall average of 4.4 cents per transaction, down from 5 cents per transaction in 2011. Conversely, issuers with the smallest debit card programs generally had the highest ACS costs per transaction.

The Board estimated debit-card fraud losses to all parties (merchants, cardholders, and issuers) to be $1.57 billion in 2013, with an average loss of approximately 8 basis points as a share of transaction value, up slightly from 2011. The median covered issuer’s average fraud loss as a share of transaction value was 5 basis points, up slightly from 4.7 basis points in 2011. The median covered issuer had average fraud prevention and data security costs of slightly more than 1.4 cents per transaction.

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CRS — Systemically Important or “Too Big to Fail” Financial Institutions (August 8, 2014)

August 18, 2014 Comments off

Systemically Important or “Too Big to Fail” Financial Institutions (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Although “too big to fail” (TBTF) has been a perennial policy issue, it was highlighted by the near-collapse of several large financial firms in 2008. Financial firms are said to be TBTF when policy makers judge that their failure would cause unacceptable disruptions to the overall financial system, and they can be TBTF because of their size or interconnectedness. In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail create moral hazard—if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm’s riskiness because they are shielded from the negative consequences of those risks. If so, they could have a funding advantage compared with other banks, which some call an implicit subsidy. S.Con.Res. 8, passed by the Senate on March 22, 2013, and H.Con.Res. 25, as amended and passed by the Senate on October 16, 2013, create a non-binding budget reserve fund that allows for future legislation to address the TBTF funding advantage.

There are a number of policy approaches—some complementary, some conflicting—to coping with the TBTF problem, including providing government assistance to prevent TBTF firms from failing or systemic risk from spreading; enforcing “market discipline” to ensure that investors, creditors, and counterparties curb excessive risk-taking at TBTF firms; enhancing regulation to hold TBTF firms to stricter prudential standards than other financial firms; curbing firms’ size and scope, by preventing mergers or compelling firms to divest assets, for example; minimizing spillover effects by limiting counterparty exposure; and instituting a special resolution regime for failing systemically important firms. A comprehensive policy is likely to incorporate more than one approach, as some approaches are aimed at preventing failures and some at containing fallout when a failure occurs.

CRS — The Effectiveness of the Community Reinvestment Act (July 25, 2014)

August 15, 2014 Comments off

The Effectiveness of the Community Reinvestment Act (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

The Community Reinvestment Act (CRA) addresses how banking institutions meet credit needs in low- and moderate-income (LMI) neighborhoods. The federal banking regulatory agencies— the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency—currently implement CRA. The regulators conduct examinations to evaluate how banks are fulfilling the objectives of the CRA and issue performance ratings. Having a satisfactory or better CRA rating is desirable when banks request to merge with other banking institutions.

The CRA, which was enacted in 1977, was subsequently revised in 1989 to require public disclosure of bank CRA ratings and for the CRA examination to have a four-tiered system of descriptive performance levels (i.e., Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance). In 1995, the CRA examination was customized to account for differences in bank sizes and business models. In 2005, the bank size definitions were revised and indexed to the Consumer Price Index. The definition of community development was also modified to expand CRA opportunities for public welfare investments. In addition, the CRA has evolved to include consumer and business lending, community investments, and low-cost services that would benefit LMI areas and entities.

Congressional concerns regarding the CRA stem from various perceptions of its effectiveness. There are concerns that the CRA creates incentives for banks to make loans to unqualified borrowers likely to have repayment problems, which can translate into losses for lenders. On the other hand, there are concerns that the CRA is not generating sufficient incentives to increase credit availability to qualified LMI borrowers, which may impede economic recovery for some following the 2007-2009 recession.

This report informs the congressional debate concerning the CRA’s effectiveness to incentivize bank lending and investment activity to LMI borrowers.

Data point: Checking account overdraft

August 12, 2014 Comments off

Data point: Checking account overdraft
Source: Consumer Financial Protection Bureau

Our data point reports are prepared by our Office of Research to provide an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse. This third data point provides analysis of consumers’ experience with checking account overdraft.

The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game

August 5, 2014 Comments off

The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game (PDF)
Source: Harvard Business School Working Papers
From Harvard Working Knowledge op/ed:

During the 2008 financial crisis, small businesses were hampered in securing bank credit because of a perfect storm of their falling sales and weakened collateral, and growing risk aversion among lenders. Those days are not over. While lingering cyclical factors from the crisis may still be constraining access to bank credit, there are also structural barriers that seem to be preventing banks, both large and small, from ever fully returning to the small business market.

New From the GAO

July 31, 2014 Comments off

New GAO Reports and Testimonies
Source: Government Accountability Office

Reports

1. Air Force Working Capital Fund: Actions Needed to Manage Cash Balances to Required Levels. GAO-14-480, July 31.
http://www.gao.gov/products/GAO-14-480
Highlights – http://www.gao.gov/assets/670/665138.pdf

2. Large Bank Holding Companies: Expectations of Government Support. GAO-14-621, July 31.
http://www.gao.gov/products/GAO-14-621
Highlights – http://www.gao.gov/assets/670/665163.pdf
Podcast – http://www.gao.gov/multimedia/podcasts/665108

3. Defense Health Care Reform: Actions Needed to Help Realize Potential Cost Savings from Medical Education and Training. GAO-14-630, July 31.
http://www.gao.gov/products/GAO-14-630
Highlights – http://www.gao.gov/assets/670/665157.pdf

4. Defense Management: DOD Needs to Improve Future Assessments of Roles and Missions. GAO-14-668, July 31.
http://www.gao.gov/products/GAO-14-668
Highlights – http://www.gao.gov/assets/670/665191.pdf

5. Defense Health Care: US Family Health Plan is Duplicative and Should be Eliminated. GAO-14-684, July 31.
http://www.gao.gov/products/GAO-14-684
Highlights – http://www.gao.gov/assets/670/665150.pdf

6. Healthcare.gov: Ineffective Planning and Oversight Practices Underscore the Need for Improved Contract Management. GAO-14-694, July 30.
http://www.gao.gov/products/GAO-14-694
Highlights – http://www.gao.gov/assets/670/665178.pdf

7. Active and Reserve Unit Costs: DOD Report to Congress Generally Addressed the Statutory Requirements but Lacks Detail. GAO-14-711R, July 31.
http://www.gao.gov/products/GAO-14-711R

Testimonies

1. Healthcare.gov: Contract Planning and Oversight Practices Were Ineffective Given the Challenges and Risks, by William T. Woods, director, acquisition and sourcing management, before the Subcommittee on Oversight and Investigations, House Committee on Energy and Commerce. GAO-14-824T, July 31.
http://www.gao.gov/products/GAO-14-824T

2. Department of Homeland Security: Continued Actions Needed to Strengthen Oversight and Coordination of Research and Development, by David C. Maurer, director, homeland security and justice, before the Subcommittee on Research and Technology and the Subcommittee on Oversight, House Committee on Science, Space, and Technology. GAO-14-813T, July 31.
http://www.gao.gov/products/GAO-14-813T
Highlights – http://www.gao.gov/assets/670/665129.pdf

3. Aviation Manufacturing: Status of FAA’s Efforts to Improve Certification and Regulatory Consistency, by Gerald L. Dillingham, Ph.D., director, physical infrastructure issues, before the Subcommittee on Aviation Operations, Safety, and Security, Senate Committee on Commerce, Science, and Transportation. GAO-14-829T, July 31.
http://www.gao.gov/products/GAO-14-829T
Highlights – http://www.gao.gov/assets/670/665132.pdf

4. Large Bank Holding Companies: Expectations of Government Support, by Lawrance L. Evans, Jr., Ph.D., director, financial markets and community investment, before the Subcommittee on Financial Institutions and Consumer Protection, Senate Committee on Banking, Housing and Urban Affairs. GAO-14-809T, July 31.
http://www.gao.gov/products/GAO-14-809T

OECD releases full version of global standard for automatic exchange of information

July 24, 2014 Comments off

OECD releases full version of global standard for automatic exchange of information
Source: OECD

Taking an important step towards greater transparency and putting an end to banking secrecy in tax matters, the OECD today released the full version of a new global standard for the exchange of information between jurisdictions.

The Standard for Automatic Exchange of Financial Account Information in Tax Matters calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. The Standard, developed at the OECD under a mandate from the G20, endorsed by G20 Finance Ministers in February 2014, and approved by the OECD Council.

The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations. The new consolidated version includes commentary and guidance for implementation by governments and financial institutions, detailed model agreements, as well as standards for harmonised technical and information technology solutions, notably a standard format and requirements for secure transmission of data.

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