US lawmaker backs small banks on debit card battle
* Small U.S. banks in Washington to lobby Congress
* Small bankers to lobby consumer bureau, Fed, FDIC
* Treasury: regulators working to strike right balance
WASHINGTON, May 2 (Reuters) - A key Republican lawmaker on Monday urged hundreds of tiny U.S. banks to "slay the dragons" when they battle Congress over new limits on debit card fees that could hurt their profits.
Speaking to the bank executives before they set out to lobby lawmakers this week, Representative Spencer Bachus told them the outcome of the controversial "interchange" rule was "up to them."
"Go ye to the hill and slay the dragons," said Bachus, the chairman of the House Financial Services Committee that is helping to oversee the implementation of the Dodd-Frank regulation bill.
As required by the legislation, regulators are crafting the "interchange" rule that will crack down on fees banks charge merchants on debit card transactions.
The provision is detested by small banks as well as the big card networks Visa Inc (V.N) and MasterCard Inc (MA.N) and big Wall Street banks such as Citigroup (C.N) and JPMorgan Chase & Co (JPM.N).
The Federal Reserve in December proposed capping the fees at about 12 cents per transaction -- a 75 percent cut. At the Fed's proposed level, the cap would cost the bank industry about $13 billion in annual revenue, CardHub.com has said.
The law specifically exempts banks with less than $10 billion in assets from the crackdown but community bankers say they are skeptical about how that part of the law will work in practice.
Deputy Treasury Secretary Neal Wolin, who along with Bachus spoke at a meeting of the Independent Community Bankers of America, said regulators were working to strike the right balance. "They're working to make sure that regulations protect the system but don't hurt small banks or prevent them from doing their job," Wolin said at the meeting.
The small banks already have an ally of sorts with Federal Reserve Chairman Ben Bernanke, who has said the Fed will do everything possible to keep the proposed rule from hurting them.
The association convened a meeting in Washington to send their small bank executives to lobby Congress, the Fed and the Consumer Financial Protection Bureau --- which is still being established by the Obama administration. (Reporting by Rachelle Younglai; editing by Leslie Adler)