Financial stocks were Tuesday's best performing equity segment, after receiving a boost from a surprising source: Senate Majority Leader Harry Reid.
Reid announced that he would allow a floor vote to delay implementation of the Durbin amendment, one of many controversial provisions in last year's Dodd-Frank "financial reform." The announcement generated especially strong moves in American Express (NYSE:AXP), Capital One (NYSE:COF), Master Card (NYSE:MA), Visa (NYSE:V), and TCF Financial (NYSE:TCB), among others.
Durbin caps fees that banks charge on debit card transactions, a boon to merchants, but a threat to the product itself. The Fed's proposed rule lowered fees to a level that doesn't cover costs .
Reid's decision, allowing a vote on a provision that he still supports, suggests widespread dissatisfaction with the amendment. In particular, it suggests that Reid's Democratic colleagues are feeling heat from the country's community banks. The Independent Community Bankers of America, their powerful trade association, supported Dodd-Frank; by now, most community bankers understand that Dodd-Frank threatens the viability of community banks by raising regulatory and compliance costs, capital requirements, and decreasing non-interest revenues.
There appear to be sufficient votes. Senator Tester (D-MT), the author of the Senate bill to delay Durbin, recently stated that he has the 60 votes necessary to pass cloture. Some 54 to 57 votes are guaranteed. Remaining votes will come from Democrats who originally supported the Durbin amendment, but now, with the benefit of hindsight and a boot in the pants from an important constituency, favor delay. The bill may be considered next week during the Senate's consideration of the Patriot Act's reauthorization and attached, if passed, to that legislation.
The vote is particularly noteworthy in that it marks the Congress' first retreat from its Dodd-Frank overreach and perhaps the end of the Congress' prolonged attack on our financial institutions.
Disclosure: I am long COF, DFS, JPM.