Federal Reserve officials yesterdayaddressed a Fed proposal to cap debit-card “swipe” fees at 12cents per transaction.

Fed Chairman Ben S. Bernanke told lawmakers that thecentral bank’s governors are uncertain that lenders with lessthan $10 billion in assets would be helped by an exemption fromthe rule.

“We are not certain how effective that exemption willbe,” Bernanke said yesterday at a Senate Banking Committeehearing on implementation of the Dodd-Frank Act. “It ispossible that because merchants will reject more expensive cardsfrom smaller institutions, or because networks will not bewilling to differentiate the interchange fee for issuers ofdifferent sizes, it is possible that the exemption will not beeffective in the marketplace.”

Fed Governor Sarah Bloom Raskin, in testimony prepared fora separate hearing yesterday before the House Financial Servicesa Committee, said the rule “may result in significant marketchanges.” Citing the “novelty and unusual complexity” of therulemaking, she said the central bank would “reserve judgment”on the final language until all the public comments werereceived.

Financial services lobbyists are counting on the Republicanmajority in the U.S. House to help them reopen the battle theylost to retailers over the proposed cap.

Large banks stand to lose more than $12 billion in revenueif the proposal as written by the Fed becomes final. Shares of Visa Inc. and MasterCard Inc., which set the fees and pass themoney to card-issuing banks, tumbled more than 10 percent afterthe proposed rules were made public on Dec. 16, amid investorconcern that the caps will damage their business model.

Retail groups representing 7-Eleven Inc. and Home Depot Incare pushing for the Fed to keep the proposal the same when itfinalizes the rule under an April 21 deadline. Financial-services groups speaking for firms including Visa and CitigroupInc. are calling for a suspension of the rulemaking until afederal study can be conducted on its effects.

Some of Wall Street’s top executives have gone directly toBernanke, urging him to withdraw the central bank’s proposal.The Federal Advisory Council, a group of 12 bankers who consultand advise the Fed, told Bernanke and his fellow governors in aFeb. 4 meeting that the proposal “misinterprets andmisapplies” the Dodd-Frank provision, according to a summaryposted on the Fed’s website.

For more, click here. To view the hearings, click here andclick here.

OCC’s Walsh Says Credit-Rating Ban May Block Basel III

The Dodd-Frank Act ban on references to credit ratings infinancial-industry rules should be amended to keep it fromblocking adoption of international capital and liquiditystandards, a top banking regulator told lawmakers.

“Precluding undue or exclusive reliance on credit ratings,rather than imposing an absolute bar to their use, would strikea more appropriate balance,” John Walsh, the acting Comptrollerof the Currency, said in testimony prepared for a Senate hearingyesterday on the financial-regulation overhaul enacted lastyear.

Dodd-Frank requires regulators to replace references tocredit ratings with an “appropriate” standard for measuringcreditworthiness. Unless that provision is amended by Congress,the U.S. will have difficulty meeting the Basel III capital andliquidity framework adopted last year, Walsh said in commentsprepared for the Senate Banking Committee.

Developing a new credit standard has been challenging forregulators, Federal Deposit Insurance Corp. Chairman Sheila Bairtold lawmakers in her prepared remarks.

Credit-rating firms, including Moody’s Corp. and McGraw-Hill Cos.’ Standard & Poor’s unit, were targeted by lawmakersafter they issued top rankings to mortgage-backed securitieswhose collapse helped spark the financial crisis.

Senators called Walsh and Bair to testify along withregulators including Federal Reserve Chairman Ben S. Bernanke ata hearing marking the half-year since passage of Dodd-Frank, thebiggest financial rules overhaul since the 1930s. Agencies aredrafting scores of measures to boost oversight of derivatives,executive pay and systemically important financial firms.

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Fed Tells U.S. Banks to Test Capital for Recession

The Federal Reserve ordered the 19 largest U.S. banks totest their capital levels against a scenario of renewedrecession with unemployment rising above 11 percent, said twopeople with knowledge of the review.

The banks stress-tested the performance of their loans,securities, earnings, and capital against at least threepossible economic outcomes as part of a broader capital-planningexercise. The banks, including some seeking to increasedividends cut during the financial crisis, submitted plans lastmonth. The Fed will finish its review in March.

“They’re essentially saying, ‘Before you start returningcapital to shareholders, let’s make sure banks’ capital basesare strong enough to withstand a double-dip scenario,’” saidJonathan Hatcher, a credit strategist specializing in banks atNew York-based Jefferies Group Inc. Regulators don’t want to seebanks “come crawling back for help later,” he said.

Executives at banks such as JPMorgan Chase & Co. in NewYork and PNC Financial Services Group Inc. in Pittsburgh haveasked regulators for permission to increase dividends. The Fedhas told banks that it expects dividends and share buybacks tobe “conservative” and allow for “significant accretion ofcapital,” according to a November notice. Some capital payoutplans may be rejected as “inappropriate,” the notice said.

Federal Reserve spokeswoman Barbara Hagenbaugh declined tocomment on the specifics of the Fed’s parameters.

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Ex-Hevesi Adviser Gets Up to 4 Years in Pension Case

Former political consultant Henry “Hank” Morris, whopleaded guilty to a felony count of securities fraud in a probeof corruption at the New York state pension fund, was sent toprison for as long as four years.

Morris, once chief political adviser to former stateComptroller Alan Hevesi, was ordered yesterday to serve 1 1/3 tofour years by New York state Supreme Court Justice Lewis Bart Stone in Manhattan. Morris admitted in November that theinvestment process at the pension fund was manipulated tobenefit him, his associates and contributors to Hevesi’scampaign.

Morris, 57, was the first to be sentenced of about eightdefendants who pleaded guilty in connection with a probe of“pay-to-play” at the New York pension fund under Hevesi, whoresigned in 2006 after serving four years. In October, Hevesiadmitted to approving pension fund investments in exchange foralmost $1 million in gifts. He is scheduled for sentencing March10. The probe was conducted by former New York Attorney GeneralAndrew Cuomo, a Democrat who is now the state’s governor.

Yesterday’s sentencing “marks the beginning of the end ofcriminal proceedings arising out of a massive fraud against theNew York State pension system” during Hevesi’s tenure, Stonesaid in a written decision, part of which he read from thebench. “Morris was Hevesi’s principal legal consultant, thesubstantial architect of his political career and a centralfigure in the illegal scheme.”

As part of his plea, Morris agreed to forfeit $19 millionin fees Cuomo said he received through 23 state pension-fundinvestments for which he acted as an undisclosed placementagent, or middleman.

“My actions undermined the integrity of New York state’sgovernment,” Morris told the judge yesterday before he wastaken into custody. “For too long I was blind to that truth.”

The case is People v. Morris, 0025/2009, New York StateSupreme Court, New York County (Manhattan).

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Stanford Sues U.S. Prosecutors, SEC and FBI Agents

R. Allen Stanford, the indicted financier, sued U.S.prosecutors and agents of the FBI and Securities and ExchangeCommission, accusing them of “abusive law enforcement” andseeking $7.2 billion in damages.

Stanford, who has been held without bail since beingindicted in 2009, filed the lawsuit on Feb. 16 at the U.S.courthouse in Houston. He is accused of leading a $7 billionsecurities fraud scheme and has pleaded not guilty.

“Mr. Stanford contends the named and unknown agentsundertook illegal tactics to prosecute Mr. Stanford, startingwith a civil prosecution by the SEC,” according to thecomplaint. The SEC sued him two years ago.

The Texas financier alleges the federal government has usedmore than $51 million of his own assets to pursue cases againsthim. “The agents have engaged in unfair, abusive law-enforcement methods and tactics,” he alleged.

Kevin Callahan, an SEC spokesman, declined in an e-mailyesterday to comment on Stanford’s lawsuit. Citing a court-imposed gag order in the criminal case, Laura Sweeney, a JusticeDepartment spokeswoman, also declined to comment.

Shauna Dunlap, public information officer for the FBI’sHouston office, where the Stanford investigation is based,didn’t immediately return calls to her office and cell phone.

The case is R. Allen Stanford v. Stephen Korotosh, 11cv582,U.S. District Court, Southern District of Texas (Houston).

The criminal case is U.S. v. Stanford, 09cr342, U.S.District Court, Southern District of Texas (Houston). The SECcase is Securities and Exchange Commission v. StanfordInternational Bank Ltd., 09cv298, U.S. District Court, NorthernDistrict of Texas (Dallas).

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BofA Unit’s Utah Foreclosures Violate Law, State Says

A Bank of America Corp. unit is conducting homeforeclosures in Utah in violation of state law, the Utahattorney general’s office said in a federal appeals court case.

ReconTrust Co., a subsidiary of Bank of America, thebiggest U.S. lender by assets, can’t conduct trusteeforeclosures in Utah because it isn’t a member of the state baror a title insurance company, Utah Attorney General MarkShurtleff wrote in papers filed Feb. 16 with the U.S. Court ofAppeals in Denver.

“ReconTrust Co. N.A. is a non-depository national bankinitiating approximately 4,000 home foreclosures in Utah eachyear in violation of Utah law,” the attorney general said.

The court filing was made in a homeowner’s lawsuit againstReconTrust and Bank of America. The homeowner, Peni Cox, saidReconTrust doesn’t have authority to conduct foreclosure salesin the state, according to a court filing.

Jumana Bauwens, a spokeswoman for Bank of America, didn’timmediately respond to an e-mail seeking comment.

The case is Cox v. ReconTrust Co., 10-04117, U.S. Court ofAppeals for the 10th Circuit (Denver).

U.S. Said to Examine New Apple Service for Antitrust Violations

The U.S. Justice Department and the Federal TradeCommission are beginning to examine whether Apple Inc.’s newmedia subscription service violates antitrust laws, according totwo people familiar with the matter.

The agencies haven’t decided whether to pursue a moreformal investigation as the examination is at a preliminarystage, said the people, who requested anonymity because thematter is confidential. The Wall Street Journal reported todayon the preliminary probes.

Justice Department spokeswoman Gina Talamona declined tocomment, as did an FTC spokeswoman. Steve Dowling, a spokesmanfor Apple, didn’t respond immediately to an after-hours e-mailor phone call for comment. Jill Tan, a Hong Kong-based Applespokeswoman, didn’t immediately return two calls to her officeand mobile phone seeking comment.

Apple on Feb. 15 said it was starting a subscriptionservice for publishers to sell newspapers and magazines on theiPad and other devices through the company’s online App Store.Cupertino, California-based Apple will take a 30 percent cut ofany subscription purchased through the App Store. Publishersthat participate will have to offer their lowest subscriptionrates within Apple’s store.

The following day, Google Inc. unveiled a rival service inwhich the company would keep 10 percent of fees charged bypublishers.

The FTC has been reviewing separate allegations that Appleis engaging in anti-competitive tactics to restrict rivals inthe mobile-advertising market. The Justice Department is lookinginto Apple’s business practices regarding its iTunes digitalmusic service.

Barclays Deregisters U.S. Unit After Capital Requirement Change

Barclays Plc, the U.K.’s third-largest bank, deregisteredBarclays Group U.S. as a bank-holding company, partly tosidestep capital requirements mandated by the Dodd-Frank Act.

“The purpose of the restructuring was to better align thebusinesses with the appropriate capital regimes,” the London-based lender said in an e-mailed statement today.

The U.S. Dodd-Frank Act of 2010 will require the U.S.holding companies of overseas banks, such as Barclays, to complywith the same capital rules as domestic lenders. They werepreviously exempt as long as their foreign parents wereregulated by a U.S.-recognized entity.

Without the move, Barclays would have needed to add $12billion to the U.S. bank-holding unit, according to the WallStreet Journal, which reported the move earlier today.

Before the change, Barclays Capital was held withinBarclays Group U.S. Inc., which was subject to federal capitalrequirements. It will now be subject to Securities and ExchangeCommission regulation instead.

A Barclays spokesman in London declined to comment beyondthe statement. The bank disclosed the restructuring when itreported earnings this week.

Judge Gives U.S. 30 Days to Act on Gulf Drill Permits

U.S. offshore energy regulators have 30 days to act on fiveGulf of Mexico drilling permits that have been unreasonablydelayed by the Obama Administration’s offshore drill bans, a NewOrleans judge ruled.

“The government is under a duty to act by either grantingor denying a permit application within a reasonable time,” U.S.District Judge Martin Feldman ruled yesterday in New Orleans.“Not acting at all is not a lawful option.”

Feldman ordered offshore energy regulators to act within 30days on five permit applications filed by companies that havedrilling contracts with Ensco Offshore Co., the Louisianadrilling company leading the legal challenge to the government’soffshore drilling bans.

He said these permits have been delayed anywhere from fourto nine months by drilling suspensions imposed by regulators inthe wake of the worst offshore oil spill in U.S. history. Beforethe spill, permits were typically processed within two weeks.

“We are aware of the ruling and are reviewing it,” WynHornbuckle, a Justice Department spokesman, said in an e-mailyesterday. “We have no further comment at this time.”

Sean O’Neill, Ensco’s spokesman, didn’t immediately returna call seeking comment.

President Barack Obama temporarily halted all drilling inwaters deeper than 500 feet in May, following the explosion andsinking of the Deepwater Horizon drilling rig off the Louisianacoast. After offshore companies and regional business andpolitical leaders sued in June, Feldman threw out the ban asoverly broad and punitive to the Gulf Coast economy.

Interior Secretary Kenneth Salazar promptly announced hewould find a new way to block offshore drilling and, in July,imposed an almost identical ban. When that ban was alsochallenged in court, Salazar withdrew it before Feldman couldrule on its validity.

The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941,U.S. District Court, Eastern District of Louisiana (NewOrleans).

More Than 100 Charged in Largest U.S. Medicare Fraud Roundup

Federal agents charged more than 100 suspects in ninecities with Medicare fraud — the most ever in one day — in thelatest U.S. effort to crack down on schemes to bilk the health-care program for the elderly and disabled, according to theJustice Department.

At least 112 suspects, including doctors, nurses andcompany owners, were charged yesterday in various cases, andsearches and arrests are continuing, said Alisa Finelli, adepartment spokeswoman. The cases involve more than $225 millionin alleged false billings.

“We are pleased to announce the largest federal health-care fraud takedown in our nation’s history,” Attorney GeneralEric Holder said at a news conference in Washington yesterday.

Strike forces, used by the Justice Department and Healthand Human Services Department to crack down on Medicare fraudsince 2007, have charged more than 990 people who falsely billedMedicare for more than $2.3 billion, the Justice Department saidin a statement yesterday.

The strike forces, which operate in seven cities, areexpanding to include Dallas and Chicago, Holder said.

Suspects were charged with various health-care fraudcrimes, including conspiracy to defraud Medicare and moneylaundering. Suspects allegedly participated in schemes involvinghome health care, physical and occupational therapy and durablemedical equipment, according to the Justice Department.

U.S. Ends Antitrust Probe of Siemens Transmission

The U.S. Justice Department ended an antitrust probe into Siemens AG, Europe’s biggest engineering company, concerningflexible alternating-current transmission systems, according toa company spokesman.

The Justice Department reviewed allegation similar to onesthat were investigated by the European Union, Alexander Becker,a spokesman for the Munich-based company, said in an interviewyesterday. Becker didn’t specify the reason why the U.S. casewas closed. The EU’s regulators dropped their investigation inSeptember.

Siemens and ABB Ltd., the world’s biggest power-gridsupplier, were being investigated by the European Commission,the EU’s executive, over the issue last year. The commission andnational officials conducted raids in January 2010 overallegations some companies may have fixed prices.

SEC Names New Deputy Director in Corporation Finance

Lona Nallengara, a partner in the New York office ofShearman & Sterling LLP, will become the new deputy director forlegal and regulatory policy in the U.S. Securities and ExchangeCommission’s Division of Corporation Finance, the SEC saidyesterday. Nallengara, 39, has worked in mergers andacquisitions as well as capital markets since arriving atShearman in August 1998. Nallengara, who will relocate toWashington, will be “starting soon” in the new job, he said bytelephone.

Warren Hires Former Pay Rent Chief for Consumer Bureau

Elizabeth Warren, the White House adviser charged withsetting up the U.S. Consumer Financial Protection Bureau, hiredCorey Stone to head a unit that will write rules for credit-information firms.

Stone, 54, is the former chief executive officer of PayRent, Build Credit Inc., a company designed to allow consumersto build credit histories by documenting rent and bill payments,rather than by incurring debt.

“I’m excited about being here,” Stone said in a telephoneinterview confirming the appointment.

The consumer-bureau unit will help write rules to regulatecredit-reporting companies such as Equifax Inc., Experian Plcand TransUnion LLC, and debt-collection firms such as PortfolioRecovery Associates Inc., Encore Capital Group Inc., AstaFunding Inc. and Asset Acceptance Capital Corp., according tothe agency’s draft organizational chart.

Jennifer Howard, a spokeswoman for Warren, declined tocomment.

To contact the reporter on this story:Ellen Rosen in New York at .

To contact the editor responsible for this story:John Pickering at .