March 28, 2024

Common Sense: Uncertainty at the Fed as Markets Oscillate

“He’s already stayed a lot longer than he wanted or he was supposed to,” President Obama told Charlie Rose in an interview that was broadcast on June 17 on Bloomberg TV, all but confirming that he wouldn’t reappoint Mr. Bernanke when his term expires at the end of this year.

The best the president could muster was that Mr. Bernanke was an “outstanding partner along with the White House” in warding off “what could have been an economic crisis of epic proportions.”

A White House spokesman said Mr. Obama meant that as praise, but supporters of the chairman, and even many who have disagreed with him on policy issues, were quick to question both the timing and substance of the comment.

Not only did the comment come across as faint praise for a long-serving public servant who guided the nation’s monetary policy through a severe crisis, but its timing could also hardly have been worse. Mr. Bernanke was in the midst of important Federal Open Market Committee meetings and that very week began the delicate task of communicating the Fed’s plans to “taper” its latest round of quantitative easing. Markets went into convulsions and interest rates shot up. While no one blames Mr. Obama for that, adding another element of uncertainty about Fed policy may have contributed to the volatility.

Others were critical of the president’s choice of the word “partner” to describe the Fed chairman’s role, since the Federal Reserve is an independent agency overseen by Congress. “Any Fed chairman would bristle at the idea they were a partner with a president,” Senator Bob Corker, the Tennessee Republican who serves on the Senate Banking subcommittee on financial institutions and consumer protection, told me this week. “I can understand why people who want to protect the independence of the Fed would be concerned.”

Others pointed out that the Fed has taken the lead in efforts to stimulate the economy as Congress blocked the White House from further stimulus measures, and thus “partner” overstates the White House’s role in the recovery.

By contrast, although history hasn’t been kind to the legacy of Mr. Bernanke’s predecessor, Alan Greenspan, he received a send-off commensurate with his record five terms of service. The Fed itself announced Mr. Greenspan’s decision to retire, and in late October 2005, President George W. Bush announced his choice of Mr. Bernanke at a White House news conference where he lavished praise on the departing chairman as a “legend” who had “dominated his age like no central banker in history” while Mr. Greenspan looked on. On the same occasion, Mr. Bernanke said Mr. Greenspan “set the standard for excellence in economic policy making.”

With many economists and investors fixated for months on the question of when and how quickly the Fed would curtail its extraordinary efforts to stimulate the economy, Mr. Bernanke’s suggestion, just two days after the president’s comments, that the Fed might taper its bond-buying earlier than expected sent markets reeling. Stocks fell across the globe and interest rates rose, with 10-year Treasuries hitting their highest yields since 2011. The volatility index, which was already rising the week before the president’s remarks, leapt to a new high for the year.

Mr. Obama “instantly made Ben a lame duck before the end of his term,” said one economist, who may be a future candidate for Mr. Bernanke’s position and, like many people I interviewed, asked not to be named. “He undermined his credibility both inside the Fed and in financial markets.” While Mr. Bernanke tried to reassure markets that the Fed would monitor the economy and respond as appropriate, this person said, “Part of the negative reaction in asset prices was because market participants have confidence in Ben, but now he won’t be around to oversee that.”

People close to Mr. Bernanke told me that the chairman took the president’s comments in stride, but said he was concerned about the severe market reaction. “He wouldn’t want to feed stories about this when he’s trying to articulate a complex message about monetary policy,” one adviser said.

The people close to the chairman said he had already told the president he wanted to leave at the end of his term. He is expected to return to teaching and research at Princeton, where he delivered this year’s baccalaureate address. He quipped in the speech that his remarks had “nothing whatsoever to do with interest rates” and observed that life was unpredictable.

This article has been revised to reflect the following correction:

Correction: June 28, 2013

An earlier version of this column misstated the occasion of Mr. Bernanke’s speech at Princeton. It was the baccalaureate service, not the commencement.

Article source: http://www.nytimes.com/2013/06/29/business/unexpected-distraction-makes-bernankes-job-harder.html?partner=rss&emc=rss

Banks Defeated in Senate Vote Over Debit Card Fees

The debit card rules were a major part of the Dodd-Frank financial regulation law passed last year. The Senate vote on Wednesday afternoon was the first major challenge to the new law.

Although 54 senators voted in favor of the delay, the measure, which was sponsored by Senator Jon Tester, a Montana Democrat who is facing a tough re-election battle next year, and Senator Bob Corker, a Tennessee Republican, failed to garner the 60 votes that were required for it to pass under Senate rules. Forty-five senators voted against the measure.

Even with the defeat, the vote represented a remarkable come-from-behind lobbying campaign by banks to recover from the drubbing they took during the anti-Wall Street atmosphere that prevailed last year. The debit card measure, sponsored by Senator Richard J. Durbin, an Illinois Democrat, passed last year by a two-to-one ratio after little debate and no hearings.

The Wednesday vote, which followed a vigorous floor debate, was a victory for retailers, who have complained that banks and the companies that control the largest debit card networks, Visa and MasterCard, have consistently raised the fees on debit card transactions even as the market has grown rapidly and technology costs have declined.

Those fees topped $20 billion last year, according to industry reports.

The Federal Reserve, as guided by the new law, had proposed rules that would cut the average debit card processing fee to 7 to 12 cents per transaction, from 44 cents currently. Though Congress exempted small banks with less than $10 billion in assets from the new limits, banking regulators warned that such a two-tiered fee system among banks would not be competitive. Opponents of the delay said that all but 100 banks and three credit unions would be exempt from the fee restrictions.

The new regulations are scheduled to take effect by July 21, and the Federal Reserve, which received more than 11,000 comments on its proposals, has said that it intends to meet the deadline.

The vote also provided a victory for Senator Durbin. Mr. Durbin, who sponsored the original measure to roll back the fees that banks are able to charge on debit transactions, was opposed in the effort by Senator Charles E. Schumer of New York, whose constituency includes Wall Street and major banks.

Mr. Durbin said that a delay of the debit rules would have kept fees at current levels and given banks “a windfall of profit that they do not deserve.”

By coming close to victory, banks are likely to be emboldened to fight other regulations being drawn up under the Dodd-Frank bill. Those include rules that would subject derivatives to increased margin requirements and force derivative trades through a central exchange. Bankers and business lobbies are also opposed to the structure of the new Consumer Financial Protection Bureau, which is scheduled to take over regulation of mortgages and other consumer-related areas from other banking regulators.

“This shows the banking industry has mounted a very effective fight,” Bill Allison, editorial director for the Sunlight Foundation in Washington, which monitors lobbying activity, said in an interview.

Both sides sought to portray the fight as pitting big, well-financed interests against small-town retailers or banks. Bank lobbyists said that the rule would most harm small community banks and credit unions, while benefitting giant retailers like Wal-Mart and Home Depot that account for most of the nation’s debit card transactions.

Similarly, a coalition of retailers framed the debate as the giant banks that issue the most debit cards — JPMorgan Chase, Bank of America and Wells Fargo — against mom-and-pop retailers who were trying to scrape by on meager profit margins.

There were elements of truth to both arguments. Home Depot executives, for example, told financial analysts on a conference call this year that a cap on debit fees could save the company $35 million a year.

Banks, in a flurry of ads in subway cars and on television, portrayed the debit fee reduction as a $12 billion gift to retailers. “Bureaucrats want to take away your debit card!” read a print ad that tried to argue that the fee cuts would make debit cards so unprofitable that smaller banks and credit unions would either charge for debit cards or raise fees on checking accounts or other consumer services to make up the loss.

Similarly, independent business owners testified before Congress that debit fees had raised their costs. 

The Federal Reserve had already missed an April deadline to complete the debit card rules, and lobbyists on both sides of the issue said that Fed officials expressed a desire for Congress to take the issue out of their hands.

Though the major card companies said they would work to put a system in place that allowed for two tiers of charges — one for big banks subject to the limits and another for smaller banks that were exempt — the top banking regulators at the Fed and the Federal Deposit Insurance Corporation each expressed doubts that such a system would work, because market forces would guide transactions to the lower-cost option.

“It’s going to affect the revenues of the small issuers,” Ben S. Bernanke, the chairman of the Federal Reserve, told a Senate committee earlier this year, “and it could result in some smaller banks being less profitable or even failing.”

The Sunlight Foundation said in an April report that 24 lobbying firms had been hired last year to influence action on the debit card rules. Eighteen of those firms were registered as representatives of the two major debit card networks, Visa and MasterCard. A large portion of those lobbyists have gone through the revolving door between government and industry:  68 of the 79 people who registered as lobbyists for Visa or MasterCard previously worked in government, according to the Center for Responsive Politics in Washington.

Among the heavy-hitters who worked to influence votes on the debit card measure were Richard A. Gephardt, the former House majority leader and a Democrat, who represented Visa. The retailers had Don Nickles, the former Republican senator from Oklahoma, in their corner.

Article source: http://feeds.nytimes.com/click.phdo?i=8c7f398273f930e786cdbc6f864ab4a5