Kay, Benjamin S. and Manuszak, Mark D. and Vojtech, Cindy M., Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment (April 2, 2014). Available for download at SSRN: http://ssrn.com/abstract=2449027

“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 noninterest income and total bank income would fall but that account fees would rise to offset the loss of income. 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 debit interchange fee income and noninterest income falls for treated banks. We also find evidence that banks were able to partially offset this loss with deposit fees. We find no evidence of cost reduction by treated banks nor that banks strategically avoided the $10 billion threshold. We argue that these effects are consistent with predictions from theory.”