New Finance Regulations will be imposed on banks in the coming weeks as an extension of provisions in the Dodd-Frank bill which are set to cut-back fees banks charge to merchants on debit card transactions. The target is for transaction fees to be reduced from current average of 44 cents to a more reasonable 12 cents. The loss in revenues is expected to be substantial for many large financial institutions who derive significant portions of their income from these fees.
Given the failure of the “Durbin Amendment” which would have granted the banks another 60 days of amnesty, the new rules for debit card transactions are set to go into full effect next month.
According to RBC Capital some banks are more vulnerable than others in their reliance on income from debit cards, here are some stats on exposure from Barron’s Avi Salzman, “At JPMorgan Chase (NYSE:JPM) for instance, about $1.1 billion in net income, or 5% of annualized net income, is at risk because of the new debit card rules. Bank of America (NYSE:BAC) has $1 billion at risk, or 13% of net income. Zions Bancorporation (NASDAQ:ZION) has 18% of net income at risk; SunTrust Banks (NYSE:STI) has 16% of net income at risk; and M&T Bank has 11%, according to RBC. But none of them are as exposed as TCF Financial (NYSE:TCB), where a whopping 45% of income is endangered by the rules.”
Initially lenders will be hardest hit by the new rules, but eventually the effects are expected to trickle down to credit card providers such as MasterCard (NYSE:MA), Visa (NYSE:V), and American Express (NYSE:AXP) as well.