. while the board's proposed rule suggests that it could result in benefits to consumers, i am concerned that the costs of this fee cap revision for consumers - through the form of increased costs for banking products and services - will be real, while the benefits to consumers - such as lower prices at merchants - may not be realized. 5 at its heart, the proposal is unfair to many issuers and in some ways regressive in its impacts. the proposed rule acknowledges the varied size, business models, and product offerings of banks subject to the interchange fee cap and yet aims to achieve " rough justice " by establishing a single cap that applies to all covered issuers. larger issuers - those with the highest transaction volumes, greater negotiating power, and the most efficiencies that come from scale - would continue to have a significant competitive advantage under this rule. even the lower interchange fee may allow them to continue profitably operating their debit card programs. by contrast, smaller issuers subject to the cap - those with smaller transaction volumes, less negotiating power, and fewer efficiencies in scale - would likely be at a significant competitive disadvantage. retail banking is an essential, core function for many smaller issuers, so this pricing dynamic may not ultimately lead them to abandon their debit card programs. but it is certainly possible that banks will be forced to either pass costs through to customers or operate their debit card programs at a loss, which many banks do today. under the proposed rule, a staggering one - third of bank issuers would not be able to recover even 6 / 10 bis - central bankers'speeches the partial costs that factor into the interchange fee cap. for banks that operate debit card programs at a loss, presumably those costs will need to be recovered elsewhere, such as through higher borrowing costs for bank customers or through other fees for services provided, which are also targeted by the banking agencies for elimination. higher borrowing costs or fees could be particularly harmful for low - income customers who may not qualify for credit card products or other alternatives. the fees banks charge for provided services have been criticized by some regulators, but in many instances these fees - including interchange fees - support a bank's ability to offer low - cost or no - cost banking products or services to customers. if finalized as proposed, this revision may force banks to discontinue their lowest - margin products, including options designed to increase financial inclusion and access for lmi individuals and families. i sincerely hope

in nonbank entities and activities. while the causes of the crisis were complex, i will start by telling part of the tale of how nonbank distress was transmitted to the broader financial system. the story begins with nonbank mortgage companies, which were important originators of subprime and prime mortgage loans, typically securitizing them or selling them to investment banks to be securitized. rumors of troubles among these firms were circulating in 2006 as house prices started to decline, and a large firm filed for bankruptcy in december 2006. 2 then new century, at one point the second largest subprime lender, filed for bankruptcy in april 2007 because its funding had disappeared as a result of fears about losses. many more followed in 2007 and 2008. replacement of nonbank lenders ’ capacity to process mortgage applications and to fund mortgage loans occurred only partially and slowly. the views expressed are my own and not necessarily those of others at the board, on the federal open market committee, or in the federal reserve system. ownit mortgage solutions, one of the top 20 subprime mortgage originators nationally, filed for bankruptcy on december 28, 2006. virtually all such firms have since either failed or been acquired. bis central bankers ’ speeches next step : the distress in mortgage markets was amplified in the broader financial system in several ways, including something similar to a bank run but which instead occurred on assetbacked commercial paper ( abcp ) vehicles. these vehicles invested in private - label mortgage securitizations and other long - term debt securities but were funded with short - term commercial paper. buyers of the commercial paper issued by the abcp vehicles withdrew funding starting in the late summer of 2007. the volume of assets in the vehicles was large, about $ 700 billion, and after the run, the ability of the financial system to fund credit through many types of assetbacked securities became constrained. 3 the runs on abcp also put considerable pressure on the banking system because of the liquidity backstops that banks had provided to the vehicles. 4 some of the guarantors also insured mortgage - backed securities, and when doubts arose about the ability of the guarantors to pay claims on mortgage - backed securities, the credibility of their guarantees of municipal securities was also reduced. municipalities then found it more difficult and costly to issue debt even though their activities were otherwise unrelated to subprime mortgages. 5 next, the crisis spread to nonbank finance companies, which made a substantial fraction