April 2, 2023

Fed Chairman Reaffirms Economic Plan

Mr. Bernanke said that the Fed expected the economy to gain strength in the coming months, potentially allowing the Fed to decelerate its stimulus campaign not because it has changed its goals but because it has begun to achieve them.

But he warned that Congress itself remains the greatest obstacle to faster growth. Federal spending cuts are reducing growth this year by about 1.5 percentage points, he said. While the Fed expects the impact to diminish next year, he said there was a risk Congress would create new problems for the economy.

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” Mr. Bernanke said during a biannual appearance before the House Financial Services Committee.

Wednesday may have marked the last time that Mr. Bernanke will appear before the committee to report on the Fed’s conduct of monetary policy. He will conclude his second term as chairman at the end of January and is widely expected to step down. Members of both parties took the opportunity to praise him, although Republicans generally added that they opposed the Fed’s recent efforts.

“You acted boldly and decisively and creatively – very creatively, I might add,” said the committee’s chairman, Texas Republican Jeb Hensarling.

“You have never been boring,” said New York Democrat Carolyn Maloney.

Mr. Bernanke then did his very best to be boring, sending the message to markets that had been roiled by his comments last month that it was much ado about nothing.

The shabby condition of the economy has become the constant background for Mr. Bernanke’s public appearances. Unemployment remains stubbornly common, inflation has sagged to the lowest pace on record and growth is tepid.

Mr. Bernanke’s message Wednesday was that the Fed will begin to decelerate only if those problems continue to diminish. If unemployment stays high, the Fed will keep buying bonds. If inflation stays low, the Fed will keep buying bonds. If growth weakens, the Fed will keep buying bonds. Indeed, he revived a talking point from earlier this year in insisting that the Fed was willing to increase the volume of its monthly purchases if it decided that more stimulus was necessary.

“Because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” Mr. Bernanke told the committee.

Mr. Bernanke has adopted a stronger tone in particular on the subject of inflation. Fed officials insisted for much of the year that they were not concerned about the sagging pace of inflation, which has fallen to the lowest pace on record. Prices increased by just 1 percent during the 12 months that ended in May, well below the 2 percent pace that the Fed considers most healthy. In recent weeks, the Fed has shifted its tone, emphasizing that it wants prices to rise more quickly.

On Wednesday Mr. Bernanke put inflation alongside unemployment as the reasons for the Fed’s commitment to its stimulus campaign: “Our intention is to keep monetary policy highly accommodative for the foreseeable future,” he said, “because inflation is below our target and unemployment is quite high.”

The central bank says it plans to hold short-term interest rates near zero at least as long as the unemployment rate remains above 6.5 percent. It also is expanding its holdings of mortgage-backed and Treasury securities by $85 billion a month in an effort to accelerate the pace of employment growth.

Article source: http://www.nytimes.com/2013/07/18/business/economy/fed-chairman-points-finger-at-congress.html?partner=rss&emc=rss

DealBook: New York Fed Faces Questions Over Policing Wall Street

As the Federal Reserve Bank of New York faced criticism for missing a multibillion-dollar trading loss at JPMorgan Chase, the regulator convened a town hall meeting in May to bolster employee morale.

Two months later, the New York Fed staff huddled again, after lawmakers questioned why the regulator had failed to rein in banks that manipulated key interest rates.

“We were told to keep our heads down and stay focused,” said one person present at the July meeting who requested anonymity because the gathering was not public.

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The New York Fed, whose weaknesses were first exposed when the financial crisis hit, is undergoing a new trial by fire as it grapples with how to police Wall Street. While the regulator has revamped its approach to overseeing the nation’s biggest banks since the crisis, recent black eyes suggest that fundamental problems persist.

Lawmakers will most likely focus on the record of the New York Fed when Timothy F. Geithner, the regulator’s former president, testifies on Wednesday before the House Financial Services Committee. Mr. Geithner, now the Treasury secretary, will appear before a Senate panel on Thursday.

Libor Explained

The regional Fed bank, by virtue of its location in Lower Manhattan, is on the front line of financial regulation. With examiners stationed inside the banks, the regulator has a wide window into the inner workings of these institutions.

But the New York Fed does not have enforcement power like many American regulators. Instead, it reports potential wrongdoing to other agencies or the central bank, the Federal Reserve, and leaves its counterparts to dole out punishments if necessary.

The New York Fed’s mission, officials say, is to broadly protect the health and safety of the financial system — not to micromanage individual banks.

“They focus on safety and soundness of the banks, which ultimately means they are not particularly focused on market manipulation,” said Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, another regulator.

In recent years, the New York Fed has beefed up oversight. Under the president, William C. Dudley, the regulator has increased the expertise of its examiners and hired new senior officials.

Even so, the JPMorgan debacle and the interest-rate investigation have raised questions about the New York Fed. They highlight how the regulator is hampered by its lack of enforcement authority and dogged by concerns that it is overly cozy with the banks.

Mr. Geithner is expected to face questions from lawmakers on Wednesday about the rate-rigging inquiry that has ensnared more than a dozen big banks. In June, Barclays agreed to pay $450 million to authorities for manipulating the London interbank offered rate, or Libor.

Since the settlement, Mr. Geithner has heralded his efforts to reform the rate-setting process in 2008. But the New York Fed, which knew Barclays had been reporting false rates at the time, did not stop the actions.

And when Mr. Geithner briefed other American regulators about Libor in May 2008, he did not disclose the specific wrongdoing, according to people briefed on the meeting. In later briefings, New York Fed officials did warn their counterparts about “allegations of misreporting.”

“The regulator has an obligation to make a criminal referral if it suspects a crime may have occurred,” said Bart Dzivi, who served as special counsel to the Federal Financial Crisis Inquiry Commission. “How this doesn’t rise to that level, simply boggles the mind.”

The New York Fed has been engulfed by controversy since the financial crisis. Mr. Geithner was one of many regulators who had underestimated certain risks spreading through the financial system, saying in a May 2007 speech that “financial innovation has improved the capacity to measure and manage risk” while acknowledging that threats remained. In late 2008, the system nearly collapsed after Lehman Brothers failed.

This year, the New York Fed was again caught off guard when JPMorgan disclosed the trading losses, which have already exceeded $5 billion. The regulator has assigned about 40 examiners to the bank, but none of the officials kept close tabs on the chief investment office, the powerful unit that placed the ill-fated trade.

In the case of Libor, the New York Fed took a somewhat passive approach. Despite mounting evidence of problems, the agency focused on policy solutions rather than the wrongdoing.

People close to the Fed note that, at the time, the regulator was primarily concerned with saving Wall Street from collapse. And the regulator pushed harder than its British counterparts, records show. Mr. Geithner urged British authorities to “eliminate incentive to misreport” Libor, which affects the cost of trillions of dollars in mortgages and other loans.

Some New York Fed examiners are now focused on how the Libor investigation could damage the bottom line at banks like Citigroup and JPMorgan. The examiners, people briefed on the matter say, are assessing whether banks need to build reserves against the growing threat of lawsuits.

The concerns echo the New York Fed’s broader moves to enhance supervision. After the crisis, the Fed formed a special team to spot emerging risks. Mr. Dudley also appointed a new head of bank supervision, Sarah J. Dahlgren, who first joined the Fed more than two decades ago after working as a budget official at Rikers Island jail.

In recent years, the New York Fed has doubled the number of on-site examiners and dispatched some of its most senior officials to big banks. The lead supervisors at each bank are some of the most “battle tested” and sophisticated regulators who are comfortable challenging Wall Street executives, one regulator said.

The New York Fed also notes that it has delved deeper into internal bank data, focusing on business units that generate the most revenue and risk. To better prepare the industry for sudden losses, the regulator has pushed banks to build extra capital.

But there are limits to its power. Despite its leading role in policing the banks, the New York Fed cannot levy fines. When examiners do detect questionable behavior, they often push the company to adopt changes. If the wrongdoing persists, officials can pass along the case to the Federal Reserve board in Washington.

It is up to the central bank to take action. The Fed, which can impose fines and cease-and-desist orders, filed 171 enforcement actions last year. The cases are down 44 percent from the year before, but the actions have increased sharply from the precrisis era.

Some critics also contend there is a revolving door between Wall Street and the New York Fed. Mr. Dudley was formerly the chief domestic economist at Goldman Sachs, and his wife collects deferred compensation from her days at JPMorgan. After Bear Stearns collapsed in 2008, the New York Fed hired the firm’s chief risk officer.

The New York Fed does limit the influence of employees who depart for a career on Wall Street. Some former senior officials cannot discuss regulatory matters with the Fed for up to a year. As an extra measure, examiners rotate between banks every three to five years to prevent a clubby culture from forming.

But some experts say the problem is not solved.

“It’s a cultural problem at all the banking regulators,” said Ms. Bair, who is now a senior adviser to the Pew Charitable Trusts. “There’s not a healthy separation, and you can see that in their hiring practices.”

Article source: http://dealbook.nytimes.com/2012/07/24/new-york-fed-faces-questions-over-policing-wall-street/?partner=rss&emc=rss

DealBook: Libor Scandal Intensifies Spotlight on Bank Regulators

Paul Tucker, an official with the Bank of England, appeared before a British parliamentary committee on Monday.ReutersPaul Tucker, an official with the Bank of England, appeared before a British parliamentary committee on Monday.

As big banks face the fallout from a global investigation into interest rate manipulation, American and British lawmakers are scrutinizing regulators who failed to take action that might have prevented years of illegal activity.

Politicians in both London and Washington are questioning whether regulators allowed banks to report false rates in the run-up to the 2008 financial crisis and afterward. On Monday, Congress stepped into the fray, requesting information about the role of the Federal Reserve Bank of New York, according to people close to the matter.

The focus on regulators and other financial institutions has intensified in the last two weeks after the British bank Barclays agreed to pay $450 million to resolve its case. British and American authorities accused the bank of improperly influencing key interest rates to deflect concerns about its health and bolster profits.

The Barclays settlement is the first action stemming from a broad investigation into how banks set key benchmarks, including the London interbank offered rate, or Libor. The pricing of $350 trillion of financial products, including credit cards, mortgages and student loans, is pegged to Libor and other such rates.

Authorities around the world are now considering action against more than 10 big banks, including UBS, JPMorgan and Citigroup. The banks also face a raft of civil litigation from municipalities, investors and other financial firms that claim they lost money from the misreporting of rates. These lawsuits could end up costing the industry tens of billions of dollars, according to analysts.

On Monday, the oversight panel of the House Financial Services Committee sent a letter to the New York Fed seeking transcripts from at least a dozen phone calls in 2007 and 2008 between central bank officials and executives at Barclays.

“Some news reports indicate that although Barclays raised concerns multiple times with American and British authorities about discrepancies over how Libor was set, the bank was not told to stop the practice,” Representative Randy Neugebauer, a Texas Republican and the head of the House oversight panel, said in the letter, which was reviewed by The New York Times.

The political firestorm also escalated in London on Monday, where a British parliamentary committee grilled a top Bank of England official over his knowledge of wrongdoing at Barclays. British politicians chided Paul Tucker, deputy governor at the Bank of England, the country’s central bank, for not taking a more active role in Libor.

In November 2007, Mr. Tucker led a meeting in which some officials raised concerns that banks were underreporting Libor submissions to temper concerns about their health, a process known as lowballing. It was in the earliest stages of the market turmoil that would culminate in the 2008 financial crisis, and banks were loath to report high rates that pointed to weak financial footing.

“This doesn’t look good, Mr. Tucker,” Andrew Tyrie, the head of the parliamentary committee, said on Monday, referring to minutes of the meeting. “We have what appear to any reasonable person as the lowballing of rates.”

The Barclays settlement with the Commodity Futures Trading Commission, Justice Department and Financial Services Authority of Britain has been a black mark for the bank. The scandal has already prompted the resignation of the bank’s chairman, Marcus Agius; its chief executive, Robert Diamond; and a top deputy, Jerry del Missier.

As it tries to control the damage, Barclays is framing a defense around the notion that regulators approved the actions. Last week, the bank released information about dozens of conversations with the Bank of England, the New York Fed and other government agencies.

In one call with the Financial Services Authority, a Barclays manager acknowledged that the bank was understating its Libor submissions. “So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are,” the Barclays manager said, according to regulatory documents.

The bank also discussed its Libor rates twice with the Bank of England in fall 2008, according to documents Barclays released last week. Additional evidence has emerged that the British central bank first held discussions about Libor with Mr. del Missier a year earlier, in late 2007, said a person briefed on the matter, who spoke on condition of anonymity.

Authorities are also focused on Barclays’ conversations with the New York Fed, including discussions between senior bank employees and officials from the Fed’s trading desk, according to another person briefed on the matter, who also requested anonymity.

In the letter to the New York Fed, Mr. Neugebauer requested transcripts of the calls by Friday.

“The role of the government is to ensure that our capital markets are run with the highest standards of honesty, integrity and transparency” Mr. Neugebauer said on Monday. “The interest rate manipulation scandal clearly demonstrates that these principles were violated by Barclays and, from what we understand, other banks as well. My request to the New York Fed is a preliminary step to understanding what role, if any, the regulators played in this scandal.”

In a statement, a New York Fed spokeswoman said that during the financial crisis “we received occasional anecdotal reports from Barclays of problems with Libor.” Ultimately, the New York Fed made “further inquiry of Barclays as to how Libor submissions were being conducted” and offered “suggestions for reform of Libor” to British authorities.

Under sharp questioning by British political leaders on Monday, Mr. Tucker, considered a front-runner to succeed Mervyn A. King as the next head of the Bank of England, defended the central bank and his professional future. Committee members focused their questioning on a conversation that Mr. Tucker had with Mr. Diamond in October 2008.

According to an e-mail trail, Mr. Tucker contacted Mr. Diamond, saying he was “struck” that Barclays was paying a high interest rate on its loans.

Mr. Tucker testified that his conversations with Mr. Diamond were meant to convey that the financial markets were questioning whether the British bank had access to capital.

Barclays last week also released documents saying that at least some bank executives believed Mr. Tucker had instructed them to lower the Libor submissions. That belief, some regulators say, stemmed from a “miscommunication,” rather than instructions from Mr. Tucker. The bank also never explicitly told regulators that it was reporting false interest rates that amounted to manipulation, according to regulatory documents.

Mr. Tucker on Monday flatly denied that he authorized, or even knew about, any improper actions. “We were not aware of it, other than what is starting to come out in these investigations,” he said.

Underscoring the point, he noted that the Bank of England used the rate to set its Special Liquidity Scheme, in which the government lent local banks more than $310 billion from 2008 to 2011.

Still, British politicians criticized Mr. Tucker for not taking a more active role in policing the banks. When asked whether he was confident that the Libor manipulation had stopped, Mr. Tucker wavered.

“I can’t be confident about anything after learning about this cesspit,” he replied.

Article source: http://dealbook.nytimes.com/2012/07/09/libor-scandal-intensifies-spotlight-on-bank-regulators/?partner=rss&emc=rss

S.E.C. Refers Ex-Counsel’s Actions on Madoff to Justice Dept.

Mr. Becker had financial ties through his family to an account with Mr. Madoff that he inherited with his brothers in 2004 and quickly closed. The Beckers have since been sued by the trustee overseeing the Madoff case, who is seeking to recover about $1.5 million in gains they received. Mr. Becker’s work at the S.E.C. in 2009 included advising on the compensation of Madoff victims, including how much they could recover.

The referral was part of an investigation into whether it was appropriate for Mr. Becker to work on Madoff-related matters at the commission given his financial tie. The 119-page report on Mr. Becker’s actions was undertaken by H. David Kotz, the inspector general of the S.E.C. Mr. Kotz wrote that he is referring the matter to federal prosecutors after consulting last month with the Office of Government Ethics and receiving its recommendation to do so.

The report is another black eye for an agency already under scrutiny for missing the Madoff scandal and more recently for routine destruction of some enforcement documents that may have been useful in later investigations.

Mr. Becker was involved in developing the S.E.C.’s recommendations for the distribution of money among Madoff victims, the report said.

The report, which was obtained by The New York Times, will be at the center of a joint hearing on Thursday of the House Financial Services Committee and the Committee on Oversight and Government Reform. Mary L. Schapiro, the chairwoman of the S.E.C., is expected to testify alongside Mr. Kotz and Mr. Becker.

Based on extensive e-mails, interviews and memorandums, the report says that Mr. Becker was treated differently from other S.E.C. employees who had ties to the Madoff family, and that Mr. Becker was allowed to advise on the commission’s recommendations related to the Madoff case despite his own financial interest.

Randy Neugebauer, the Texas Republican who chairs the oversight and investigations subcommittee of the financial services committee, said on Monday that the hearing “will examine whether there needs to be process improvements at the commission to vet conflicts of interest in a way that gives the public confidence. The Becker matter raises serious questions about the decision-making by senior management at the S.E.C.”

Ms. Schapiro said in a statement Tuesday morning that the commission will redo a critical vote on the way Madoff victims are compensated, as was recommended by the report.

 She declined to comment on the criminal referral but noted that she had asked Mr. Kotz to conduct the inquiry. And she said of Mr. Becker, who worked at the commission in two different periods: “I do want to state that I’ve known David for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three chairmen.”

William R. Baker III, a lawyer at Latham Watkins who spent 15 years as associate director of enforcement at the S.E.C., working alongside Mr. Becker at times, now represents him.

Mr. Baker declined to comment until he had read the report.

Ms. Schapiro is mentioned in several parts of the report. In one incident in 2009, Mr. Becker was preparing to testify before a House subcommittee that was holding a hearing on compensation of Madoff victims. After he told an S.E.C. staff member that he would want to disclose his mother’s Madoff investment if he testified, the staff member met with Ms. Schapiro and the pair decided that someone other than Mr. Becker should speak at the hearing.

The report concluded: “The decision that Becker would not serve as a witness was made in large part because he would have disclosed the fact that his mother had held a Madoff account.”

Mr. Kotz interviewed individuals who were at the commission while Mr. Becker was working on matters related to the Madoff victims. One person was William Lenox, the ethics official who reported to Mr. Becker and determined that his work on Madoff-related issues at the commission posed no conflict. Mr. Lenox indicated to Mr. Kotz that he did not keep records of his rulings on employees’ ethics questions because of the sensitive nature of the information that was disclosed to him.

This article has been revised to reflect the following correction:

Correction: September 20, 2011

An earlier version of this article incorrectly identified Luis A. Aguilar as a Republican. He is a Democrat.

Article source: http://feeds.nytimes.com/click.phdo?i=8c791c2da8cdb0dae4014908420b2c94

Bernanke Says Fed Would Consider New Stimulus Effort

The unexpected weakness is forcing the Fed to reconsider its determination early this year to refrain from new efforts to stimulate growth. While no additional actions appear imminent, Mr. Bernanke said in Congressional testimony Wednesday that the Fed would be prepared to act if necessary.

He described options including an explicit commitment to maintain its stimulus efforts for a longer period, the resumption of asset purchases and steps that would encourage commercial banks to use the reserves they currently keep on deposit with the central bank.

“I think we have to keep all the options on the table,” Mr. Bernanke said before the House Financial Services Committee. “We don’t know where the economy is going to go.”

Members of the Fed’s policy-making committee discussed the possibility of additional efforts at their most recent meeting, at the end of June, but they were divided regarding the costs and benefits, according to minutes of that meeting, which the Fed released on Tuesday.

Mr. Bernanke made clear Wednesday that a resumption of the central bank’s economic revival campaign faces a high hurdle. He said that the Fed would look for two conditions: economic weakness beyond current expectations and a renewed threat of deflation.

The first seems obvious to most people. The second, however, may the more important factor. The Fed’s decision to resume asset purchases last summer was made in large part because the central bank feared that prices might begin to decline, a phenomenon that can undermine growth because it causes people to delay purchases, fueling a downward cycle.

The pace of price increases since then has rebounded toward levels that economists consider healthy. Indeed, earlier this year, concern shifted to the possibility that prices were rising too fast. The Fed’s most recent forecast, last month, projected little risk of deflation.

Mr. Bernanke maintained his view, however, that a recent rise in inflation is unlikely to persist, consistent with his view that “this is still not a very strong recovery.”

Since he last spoke, however, the government reported that employment increased by only 18,000 jobs in June and that exports were weaker than expected. That has led a number of private forecasters to slash estimates of second-quarter growth. And Mr. Bernanke’s remarks on Wednesday reflected greater concern about the health of the economy.

Among the headwinds facing the economy is “the slow growth of consumer spending, even after accounting for the effects of food and higher energy prices,” Mr. Bernanke said in his prepared testimony. “The ability and willingness of consumers to spend will be an important determinant of the pace of the recovery in coming quarters.”

Later, Mr. Bernanke described the Fed’s economic projection for the rest of this year — growth of about 3.5 percent — and said, “We’ll see if that’s the case.”

Members of Congress questioned Mr. Bernanke repeatedly about the nation’s financial problems, seeking to draw him into agreement with their positions. Mr. Bernanke refused.

“I want to see the numbers add up,” he said. “I want to see the revenues and expenditures balanced. That’s your job and that’s why you get paid the big bucks.”

He warned, however, that Congress needs to raise the debt ceiling, the maximum amount that the federal government is legally entitled to borrow. Failure to do so, he said, would cause a “huge financial calamity.” And he compared the arguments against an increase to “having a spending spree on your credit card and then refusing to pay the bill.”

The hearing included a moment of early levity. Representative Ron Paul, a Texas Republican who favors closing the Fed and has often sparred with Mr. Bernanke, recently announced that he would not run for reelection next year. He opened his remarks Wednesday by suggesting that the news of his departure might have caused Mr. Bernanke to smile.

Amidst the ensuing laughter, Mr. Bernanke was unable to resist.

Article source: http://www.nytimes.com/2011/07/14/business/economy/fed-mulls-options-in-face-of-moderate-outlook-bernanke-says.html?partner=rss&emc=rss

Looking Ahead to Economic Reports This Week

CORPORATE EARNINGS Companies reporting results will include Best Buy (Tuesday); Kroger, Pier 1 Imports, and Smithfield Foods (Thursday).

IN THE UNITED STATES A House Judiciary subcommittee will hold a hearing on the merger of NYSE Euronext and Deutsche Börse (Monday); a House Financial Services subcommittee will discuss the effect of the Dodd-Frank Act on the concept of “too big to fail” (Tuesday); Treasury Secretary Timothy F. Geithner is scheduled to testify before the House Financial Services Committee on the state of the international financial system (Wednesday).

IN ASIA The Bank of Japan will conclude a policy-setting meeting, and China is scheduled to release data on inflation, retail sales and factory production (Tuesday).

Article source: http://feeds.nytimes.com/click.phdo?i=b1270187447e0ccdecdab3fbf058357d

You’re the Boss: Small Banks and Small Businesses Battle Over Swipe Fees

The Agenda

Last week was a busy one for those following the battle over rules limiting the fees banks can charge to process debit card transaction. On Tuesday, the Federal Reserve chairman, Ben S. Bernanke, acknowledged that the board, swamped by public comments on its proposed rules, would miss its deadline for completing those rules. Meanwhile, some senators are trying to legislate a further delay in carrying out the rules with two more years of study on the issue, and grocery and convenience store owners have converged on Washington to try to keep efforts to delay, or repeal, the new rules at bay.

The new rules are required by a provision of last summer’s Dodd-Frank financial reform law, which directs the banking board to ensure that debit card transaction fees are “reasonable and proportional to the actual cost incurred.” Preliminary rules proposed by the Fed last December would cut fees earned by big banks by 70 percent to no more than 12 cents a transaction, an amount that banks and credit card networks insist is too low. Merchants have lobbied for years to place limits on what they call “swipe fees,” which they argue have grown too high too quickly, while banks and credit card networks respond that plastic helps merchants win over customers and provides other benefits as well.

Mr. Bernanke announced the Federal Reserve would miss the law’s deadline for the final rules in a letter to leaders of the House Financial Services Committee. “More than 11,000 commenters have provided us input on this proposed rule,” Mr. Bernanke wrote. “Many of the comment letters are quite detailed and extensive and address both specific issues related to the complexity of the U.S. debit card market in which this rule will operate.” The input, he added, “is quite helpful to us as we draft the final rule.” Mr. Bernanke vowed that the agency would nonetheless be able to finish its work before the new rules are set to take effect on July 21.

Some of the public comments are posted at the Federal Reserve’s Web site, and they reveal something curious about the lobbying effort: while the interests with the most at stake are the handful of national banks that control 85 percent of the debit card market and the national corporations that run most of the country’s cash registers, the battle is being framed as one that pits independent banks and credit unions against small businesses. (Both small banks and credit unions are meant to be exempt from the fee limits, but both fear that they’ll be susceptible to the price controls anyway.) Among the comments, credit unions and community banks hold a decisive numerical edge. Far fewer of the commenters identified themselves as merchants in support of the rules.

Credit union and small bank officials have also made the rounds on Capitol Hill, where they have found allies in both chambers. In the Senate, the effort to delay adoption of debit card rules is being led by Jon Tester, a Montana Democrat. His stand-alone bill has 16 co-sponsors; last Tuesday, as the Senate debated a small-business technology bill*, Mr. Tester and Senator Bob Corker of Tennessee, a Republican, introduced an amendment that would add his debit card provisions. In the House, West Virginia’s Shelley Moore Capito, a Republican, has proposed a one-year delay.

Lately, though, small businesses have begun to stir. Two weeks ago, the Retail Industry Leaders Association sent more than 250 merchants to lobby Congress, said Brian Dodge, a spokesman. Local retail associations have run advertisements criticizing Mr. Tester and Mr. Corker, as well as Senator Mike Lee of Utah, another co-sponsor to Mr. Tester’s bill.

Last week, some 200 grocery and convenience store owners went to Washington to talk up interchange fee reform. And on Thursday, just a few minutes after Mr. Tester gave a speech on the Senate floor where he said that the debit fee limits would hurt small businesses because “America’s community banks and credit unions are the backbone of her small businesses,” the senator sat down with two small-business owners, a husband and wife from Chester, Mont.

Mike and Margaret Novak have owned Mike’s Thriftway Travel Center, a grocery store, gas station and fast-food franchise on the road to Glacier National Park, since 1979. They employ 13 people full time and 13 more part time. In the last 15 years, they’ve seen debit and credit card transactions mushroom — and they’ve watched transaction fees increase, too. In 2010, fees represented just over 2.5 percent of total debit and credit card sales, and 0.73 percent of all sales. That’s nearly triple what it was in 2005, according to Ms. Novak.

The couple said that their net profit margin, like that of most grocery stores, is at best 2 percent of sales, and often less — in 2010, they said, their profit was less than $75,000. “When you have a technology-driven network, costs typically decline over time,” said Mr. Novak. “But we have no negotiating power with the large banks.”

The Novaks claim to be on a first-name basis with all of their representatives in Congress, including Mr. Tester. “Whenever John is in the area, he always stops in,” said Ms. Novak. And so she and her husband opened the books for the senator (and for Montana’s other senator, Max Baucus, in a separate meeting). “I took them my spreadsheets, took them our bank statements, showed him the A.C.H. charges imposed by our banks,” she said. “We showed them how long the delay is between the time the card is swiped in our stores and the time the money is in our accounts. As far as we know, we’re the first constituents to open up and show exactly how much this costs us.”

Ms. Novak said that she and her husband did not ask the senator to reconsider his bill. “We felt that our role was simply to provide information,” she said. “We didn’t want to strong-arm anybody.” For his part, Mr. Tester made no promises to do so. He did, Ms. Novak added, listen attentively and ask intelligent questions. “We don’t think he’s going to appease us simply because he’s our friend. We know he has integrity and he represents all of Main Street.”

Reached Friday by phone on the road in central Montana, Mr. Tester said that the Novaks’ predicament “tells me the system is not fair right now. And that’s why I advocate that before we do something that creates another whole set of problems — potentially — we step back and study this. If we put caps on these fees, and these caps prevent credit unions and community banks specifically from being able to offer financial instruments that compete on the landscape, it’s going to put them out of business, and that also has a very negative impact on small business.

“I don’t want to see the Novaks put out of business — they’re dear friends of mine, and besides that, they’re the kind of businesses that create jobs that help build rural America. So let’s figure out how to fix both of those problems.”

*This bill would reauthorize the Small Business Investment Research program. The last Congress could not reconcile the two different versions that passed the House and Senate. We’ll have more on this latest effort to renew S.B.I.R. soon.

Article source: http://feeds.nytimes.com/click.phdo?i=bd81a7f929240f7434ab83907da5fb33