Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment

47 Pages Posted: 17 Oct 2014

See all articles by Benjamin Kay

Benjamin Kay

Board of Governors of the Federal Reserve System

Mark D. Manuszak

Board of Governors of the Federal Reserve System

Cindy M. Vojtech

Board of Governors of the Federal Reserve System

Date Written: July 25, 2014

Abstract

The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 alters the competitive structure of the debit card payment processing industry and caps debit card interchange fees for banks with over $10 billion in assets. Market participants predicted that debit card issuers would offset the reduction in debit interchange revenue by increases in customer account fees. Some participants also predicted that banks would cut costs in response to the law by reducing staff and shutting down branches. Using a difference-in-differences testing strategy, we show that debit interchange fee income fell for treated banks, leading to a fall in noninterest income. We also find that banks only partially offset this loss with deposit fees. We document that treated banks neither reduced costs nor strategically avoided the $10 billion threshold.

Keywords: banks, debit cards, Dodd-Frank Act, Durbin Amendment, interchange fees, payments

JEL Classification: G21, G23, G28, L51

Suggested Citation

Kay, Benjamin and Manuszak, Mark D. and Vojtech, Cindy M., Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment (July 25, 2014). FEDS Working Paper No. 2014-77. Available at SSRN: https://ssrn.com/abstract=2503652 or http://dx.doi.org/10.2139/ssrn.2503652

Benjamin Kay

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/benjamin-s-kay.htm

Mark D. Manuszak

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Cindy M. Vojtech (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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