Summary
Meredith Whitney's prediction of an impending liquidity crisis for the bankcard industry is bad news not only for profit strapped banks but also merchants whose survival depends on card transactions. To revive faltering economies by getting consumers to spend again, bank regulators in the US and EU are unlikely to ignore merchant demands for massive reductions in interchange fees -- especially after infusing hundreds of billions of capital into the banking system. A more likely result is that they will oblige the bankcard industry by taking efforts to support the interchange status quo.
Analysis
The silver lining in the financial crisis is that it will force bank regulators to block lawsuits (e.g., the interchange antitrust suit in New York) and other government actions (e.g., the EC's pressure on Visa and MasterCard) that might limit creditor revenue opportunities. Regulators cannot tolerate further harm to banking interests, especially those that fuel consumer consumption. The banking market is so fragile that it cannot bear the risk of a media headline annnouncing restrictions on creditor pricing options and duties to pay massive damages for past legal violations. This is a no-brainer even for the merchants -- and thus pressure on them to accept a tepid settlement or risk a worse result from regulators.
