Bank Income and Adjustment to Debit Card Interchange Regulation

Abstract

The Durbin Amendment to the Dodd–Frank Act yielded regulations that cap debit card interchange fees for banks with over $10 billion in assets. Using a difference-in-differences identification strategy, we document and quantify the resulting decline in interchange income for treated banks. We further find that treated banks offset more than 90% of the lost interchange income through increases in deposit fees for account holders. These results are robust when limiting the sample to banks near the asset threshold or using control banks with low direct competition with treated banks. Treated banks neither reduced costs nor strategically avoided the $10 billion threshold.

Keywords: Durbin Amendment, Debit Cards, Dodd-Frank, Bank Competition, Retail Banking

JEL Classification: G21, G23, G28, L51