Federal Reserve Panels Mull Interchange
The interchange cap, loan demand, compliance burdens and corporate pricing are all figuring in the early discussion of those newly named Federal Reserve panels composed of bank and credit union CEOs.
Initial reviews of the first meetings held last week of the Community Depository Institutions Advisory Councils conducted by district Fed banks showed the forums productive and helpful to CU leaders who took part, according to attendees.
CU executives, who were definitely in the minority on the panels dominated by community bank CEOs, said interchange concerns were a key topic, including expressions of alarm at the potential income loss and the financial impact on local communities.
With an eye on one upcoming CDIAC session at the Federal Reserve Bank of Kansas City, Charles Emmer, president/CEO of the $3 billion Ent FCU of Colorado Springs, said CUs may need to start thinking differently about the Fed because of its new regulatory powers under the Dodd-Frank Act.
Indeed, rulemaking on interchange pricing appears "to put the Fed in our future," forecast Emmer, who is one of two CU executives on the Kansas City Fed panel slated to meet March 24 and 25 with its Fed Bank President Thomas Hoenig. The other CU CEO is Michael Kloiber, president/CEO of Tinker FCU of Oklahoma City.
Interchange, said Emmer, is bound to come up. "We’ve already figured the interchange loss will cost us about $10 million in revenue, and that’s not a small matter."
Though corporate status was not mentioned by CDIAC participants at sessions of the Federal Reserve Banks of Boston and Richmond, Emmer said that apart from the ongoing fallout, the shock of the corporate crisis, now nearly two years old, may at last be wearing off and shedding a more positive light on some of the surviving corporates.
Emmer told Credit Union Times that he "never thought it possible when the NCUA first acted that we would consider recapitalizing our corporate, but now when you look at the alternatives and some of that pricing, they look pretty good." Based on service and liquidity pricing of alternative providers like the big money center banks, the pricing menu of the Denver-based SunCorp appears favorable, but Ent is still mulling provider decisions, he added.
Regarding the upcoming CDIAC meeting, Emmer said that advance materials sent him by the Kansas City Fed staff show a lengthy agenda, emphasizing loan conditions and queries on "loan pricing and the balance sheet plus the effect of interchange and additional revenue sources."
Carl Ratcliff, president/CEO of the $350 million APNB FCU of Chesapeake, Va., and a member of the Richmond Fed’s CDIAC, said a March 3 meeting, also dominated by a banker mix, was "very much introductory in nature with lots of explanations of business models."
"There was lots of displeasure expressed at over-regulation," noted Ratcliff, but he also found disparities with a number of bank CEOs who praised the increase to $250,000 in deposit insurance as highly beneficial, "but I had to sit there and think about yes, but what about the cost?"
Jan Roche, president/CEO of the $1.3 billion State Department FCU of Alexandria and also a Richmond CDIAC member, echoed a view held by others and said she was gratified that CUs were at last getting recognized within the Fed structure and that the March 3 session "did not turn into an ABA meeting."
She said the session was not exactly scripted, but there was an orderly format, as discussion on a variety of topics was followed by the 12 bank-CU participants.
"I think there was just one minor shot at us by the president of a small Maryland bank who brought up tax exemption and said something about his bank could not price as easily as a credit union because of the exemption," said Roche. Other than that, the four-hour session went smoothly.
Roche said she found that get- together idea appealing and she said she also intends to contact other CU execs who are CDIAC members at other regional Fed panels to share ideas.
Gail Krall, president/CEO of the $80 million Minnesota Power Employees CU of Duluth and a member of the Minneapolis Fed CDIAC, said a March 8 meeting provided plenty of interchange discussion. She said her own CU stands to lose $175,000 to $200,000 in revenue, "and that’s quite a hit for us."
William J. Rissel, president/CEO of Fort Knox FCU, Radcliff, Ky., and a member of the St. Louis Fed panel, maintained that his experience with the St. Louis Fed and with Fed Chairman Ben Bernanke’s comments to Congress suggest "the Fed understands that networks will not be willing to differentiate the interchange fee for smaller institutions and that smaller institutions will ultimately be affected."
One other CDIAC panelist, Michael L'Ecuyer, president/CEO of Bellwether Community CU in Manchester, N.H., said it was heartening to know "that regardless of charter, stock bank, mutual cooperative or credit union, we all face the same negative implications from the Durbin amendment."
At the Boston Fed meeting, "We had discussion about member business lending and how we have money to lend, but there are lots of companies out there whose financial condition may have worsened making them less than creditworthy borrowers and that’s tough."