Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment
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 ...
Bitcoin Is Not a New Type of Money
Bitcoin, and more generally, cryptocurrencies, are often described as a new type of money. In this post, we argue that this is a misconception. Bitcoin may be money, but it is not a new type of money. To see what is truly new about Bitcoin, it is useful to make a distinction between “money,” the asset that is being exchanged, and the “exchange mechanism,” that is, the method or process through which the asset is transferred. Doing so reveals that monies with properties similar to Bitcoin have existed for centuries. However, the ability to make electronic exchanges without a trusted ...
What Can We Learn from the Timing of Interbank Payments?
From 2008 to 2014 the Federal Reserve vastly increased the size of its balance sheet, mainly through its large-scale asset purchase programs (LSAPs). The resulting abundance of reserves affected the financial system in a number of ways, including by changing the intraday timing of interbank payments. In this post we show that (1) there appears to be a nonlinear relationship between the amount of reserves in the system and the timing of interbank payments, and (2) with the increase in reserves, smaller banks shifted their timing of payments more significantly than larger banks did. This result ...
The Song Remains the Same
Remarks at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop, New York City.
Consumer Payment Choice in the Fifth District: Learning from a Retail Chain
This paper studies payment variation across locations and time using five years of transactions data from a large discount retail chain with hundreds of stores across the Fifth District. The results show that the median transaction size, demographics, education levels, and state fixed effects are the top factors in explaining cross-location payment variation in the sample. We also identify interesting time patterns of payment variation, particularly the longer-term decline in the cash share of transactions largely replaced by debit.
Addressing Traditional Credit Scores as a Barrier to Accessing Affordable Credit
Affordable credit enables consumers to better manage their finances, cope with unexpected emergencies, and pursue opportunities such as entrepreneurship or higher education. However, many consumers face difficulties obtaining the credit they need. A major impediment is lenders’ reliance on traditional credit scores to assess consumers’ creditworthiness. These credit scores affect not only loan approval decisions but also the interest rates consumers pay on their loans. While credit scores are intended to help lenders make informed decisions about consumers’ risk of default, they do not ...
Measuring consumer expenditures with payment diaries
As the 2012 Diary of Consumer Payment Choice (DCPC) illustrates, there are advantages to measuring consumer expenditures by tracking the authorization of payments by instrument type (cash, check, debit or credit card, etc.). The main advantages of payment diaries appear to be the following: 1) the ability to measure expenditures by payment instrument aggregated into lumpy purchases (?shopping baskets?), 2) relatively low respondent burden, and 3) effective random sampling. Three notable results emerge from comparing the 2012 DCPC estimates with estimates from other reputable estimates of the ...
Recent Global Developments and Central Bank Responsibilities in a Changing Risk Landscape
Remarks at the Official Sector Service Providers (OSSP)-Bank Negara Malaysia (BNM)-South East Asian Central Banks (SEACEN) Research and Training Centre Forum on Central Bank Foreign Currency Operations.
Fostering Payments Innovations
The Federal Reserve Bank of Chicago hosted its 14th annual Payments Symposium on September 25?26, 2014. Industry leaders met to discuss ways to make the U.S. payment system faster, more convenient, and more secure as a whole. Participants evaluated emerging domestic payments trends and examined other countries? recent experiences with payment system upgrades to help develop a U.S. framework for future innovations
Barriers to network-specific innovation
We examine incentives for network-specific investment and the implications for network governance. We model an environment in which participants that make payments over a network can invest in a technology that reduces the marginal cost of using the network. A network effect results in multiple equilibria; either all agents invest and network usage is high or no agents invest and network usage is low. When commitment is feasible, the high-use equilibrium can be implemented; however, when commitment is infeasible, fixed costs associated with use of the network-specific technology result in a ...