3 ETFs Impacted By Durbin Amendment

The Durbin Amendment seeks to reduce credit and debit card networks from imposing anti-competitive restrictions and high transaction fees on small businesses, merchants and government agencies and could provide positive support for some large-cap and regional banks. 

More specifically, the Durbin Amendment is aiming at preventing both MasterCard (MA) and Visa (V), who constitute roughly 80 percent of all credit and debit card transactions, from continuing to increase debit card interchange fee rates.  To regulate the fee structure, the amendment would direct the Federal Reserve to issue regulations to ensure that interchange fees imposed are “reasonable and proportional” to the cost incurred in processing the transaction.  Read more of this post

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Three ETFs Influenced By Fed’s Stress Tests

In an attempt to ensure that US financial institutions are financially stable, the Federal Reserve recently announced a new round of stress tests, influencing the Financial Select Sector SPDR Fund (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF) and the Vanguard Financials ETF (VFH).

These tests are expected to prove a financial institutions ability to withstand another economic recession, in that they would illustrate enough capital reserves to absorb potential losses over the next two years.  As a result of this, large financial institutions that are overseen by the Federal Reserve, like Bank of America (BAC), Wells Fargo (WFC), JP Morgan Chase & Co. (JPM) and Citigroup will likely have to forego significant increases in dividend payments to shareholders to keep cash on their balance sheets.     Read more of this post

Financial ETFs May Be Hit By Slim Bank Profits

Nearly two years after the unfolding of the global financial crisis, U.S. financial companies are struggling to grow revenue streams and are witnessing increased operating costs, resulting in slimmer profits which could lead to slimmer returns for the Financial Select Sector SPDR (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF), the Vanguard Financials ETF (VFH) and the KBW Bank ETF (KBE).

According to Bradley Keoun of Businessweek, first-half operating expenses at the six largest U.S. financial companies increased by $7.92 billion, or 5.9 percent over the same period last year, while revenues decreased by $5.6 billion or 2.2 percent.  It’s not hard to see that revenues are not keeping up with expenditures and this imbalance will eventually erode profit margins.  Read more of this post