Currencies

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Categorized | Financial

Banks hit by debit card cap fee ruling


Posted on July 31, 2013

The Federal Reserve was criticised on Wednesday for being too soft on the financial industry after a judge ruled that limits on debit card fees charged to retailers were not tough enough.

Richard Leon, a district judge, found that a cap on “interchange fees” paid by retailers on debit card transactions had been set too high and should be lowered, in a decision that the American Bankers Association warned would have “disastrous consequences” for the banks.

    Visa shares fell more than 10 per cent immediately after the ruling.

    US Congress introduced the limit in 2010 and told the Fed to set the cap at an appropriate level. The original provision was fiercely opposed by the banks, which have since suffered a multibillion-dollar hit to revenues.

    But retailers said the cap had been set too high and Judge Leon agreed on Wednesday. He said the Fed had taken account of too many costs when setting the cap, including that of dealing with fraud, and it should be lowered.

    Dick Durbin, the Democratic senator who sponsored the cap, celebrated the court’s decision. He attacked the Fed for being too soft in its original “decision to bend to the lobbying by the big banks and card giants”.

    A spokesperson for the Fed said it was “reviewing the judge’s opinion”.

    The ABA said it was “deeply disappointed” and attacked the “price controls” as “further lining the pockets of our nation’s big-box retailers at their own customers’ expense”. The ABA said the Fed should deploy “all legal means” to fight the decision.

    MasterCard, which is less reliant than Visa on debit cards and which reported improved results on Wednesday, fell more than 4 per cent following the ruling, but closed up 1.5 per cent in New York. Visa closed down 7.5 per cent.

    The Fed had argued that it was free to consider costs not specifically banned by the law.

    “Not quite!” wrote the judge at the district court in Washington. “If I were to accept the Board’s argument, then every term in the statute would have to be specifically defined or otherwise be deemed ambiguous. This result makes no sense, and more importantly, it is not the law.”

    He found the Fed’s interpretation of the law “utterly indefensible” and said it had “shoehorned a whole array of excluded costs into the interchange fee standard”.

    The case was brought by a collection of retailers and trade associations, including NACS, the convenience store lobby group, and the National Retail Federation.

    Banks have considered introducing fees to consumers to make up for the revenue shortfall but both Bank of America and Wells Fargo have dropped the idea amid fears of a consumer backlash.

    Alan Greenspan, the former Fed chairman, has criticised the limit as an undue interference in free markets.

    The court ruling comes as the European Commission takes aim at fees with its own caps. MasterCard has argued that the “coerced reduction of interchange fees” in various countries has backfired, with cards becoming more expensive while retail prices barely change. In Australia, “the merchant pocketed the reduction”, it argued to the commission.

    The payments network reported a 19 per cent year-on-year increase in second-quarter net income to $848m on Wednesday on revenue that rose 15.2 per cent to $2.1bn.