The Federal Reserve is researching and providing guidance on ways to reduce climate risks and mitigating risks for bank debit card programs.
According to an article by the Federal Reserve, the institution has proposed amending the regulatory cap on debit card interchange fees, raising concerns among bankers about factors like fraud and the increased costs of supporting bank debit card programs. The proposed rule suggests that it could result in benefits to consumers, such as lower prices at merchants, but concerns remain that the costs of this fee cap revision for consumers will be real while the benefits to consumers may not be realized, according to the Federal Reserve. The rule is criticized as being unfair to many issuers and regressive in its impacts. It acknowledges diversity among banks subject to the interchange fee cap but aims at establishing a single cap applicable to all covered issuers which could potentially disadvantage lower-volume issuers. The impact may also affect community banks and small credit unions as they use similar payment rails. The likely outcome may shift costs from merchants to bank customers making these costs less transparent.
The Federal Reserve’s article further states that they along with the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have released guidance directing banks’ approach to climate-related financial risks. Michelle Bowman, Governor on the Board of Governors, believes that this climate guidance will create confusion about supervisory expectations and increase compliance costs without necessarily improving safety and soundness or stability of U.S financial institutions. “While the guidance adopts a specialized regime for climate risks, it does not explain why this unique treatment for climate risks is warranted,” said Bowman. It requires banks to monitor and measure climate-related risks over indefinite time horizons which could lead heavily influenced by underlying assumptions.
Bowman expressed concern about implementing such climate guidelines asserting that it is uncertain and expensive leading potentially towards higher costs for institutions and customers alike. She believes that such actions could discourage banks from lending to certain industries thereby increasing credit costs. While expected from banks with over $100 billion in assets, there’s a concern about this scope potentially trickling down to smaller institutions and increasing regulatory burdens. The guidance could also have unintended consequences for low-income communities, such as increasing credit costs or reducing credit availability. Bowman also mentioned that the Federal Reserve has limited mandates and responsibilities for climate policymaking which could be utilized to pursue climate policies despite the guidance’s focus on climate-related financial risks.
