NEW YORK (

TheStreet

) -- The

Federal Reserve

is expected to meet Thursday afternoon to

draft guidelines for debit interchange fee restrictions

as required by the controversial Durbin regulation.

But analysts are saying that the financial impact of the changes is likely to be manageable on banks and payment networks - at least in the near term.

The Fed will be meeting on Thursday to discuss limitations to the debit interchange fees, which are required to be "reasonable and proportional" under the new rules. Final rules for the interchange regulation are due in April 2011, with a set date to become effective of July 2011.

The Durbin regulation has caused much uproar in the banking industry because it was seen by some participants as a last-minute addition to the overall Dodd-Frank financial reform bill. Many complained that consideration was not given for all the parties involved, including banks, merchants, consumers and payment networks.

Since the regulation passed over the summer, big banks have been grumbling over the fact that the fee changes will limit profitability of debit cards.

Bank of America

(BAC) - Get Report

took a charge of more than $10 billion during its third quarter earnings to account for lost debit fees.

JPMorgan Chase

(JPM) - Get Report

has said that it would no longer offer debit rewards programs beginning next year.

Even regional bank

TCF Financial

(TCF) - Get Report

took issue with the new rules,

filing a lawsuit against the government

in October.

Industry observers are also unconvinced that any savings incorporated by the merchant will actually be passed on to the consumer.

Investors are generally expecting regulators to cut debit interchange fees by 40% to 50%, with some estimates going as high as 80%.

However, analysts note that it is likely that regulators suggest a formula for determining the interchange rates under various scenarios rather than issuing a one-size-fits-all cap.

"While no bank has provided formal estimates of incremental debit processing costs, we believe that debit volumes will not fluctuate considerably from today and that annual debit processing costs are likely to remain at or near current levels," according to John McDonald, a large-cap bank analyst at Bernstein Research. "Therefore, in the short run, a simple lowering of rates by the Fed would essentially translate to a pure profit loss for most banks."

Banks will look to make up for lost profit elsewhere, including higher credit card interchange fees, among other areas. Credit card interchange was not addressed in the Durbin regulation.

That being said, debit interchange revenue makes up just a small portion of banks' total revenue, ranging from approximately 0.3% at Citigroup to roughly 3% at

PNC Financial Services

(PNC) - Get Report

and

U.S. Bancorp

(USB) - Get Report

, the Bernstein note says.

McDonald writes that Bank of America,

Wells Fargo

(WFC) - Get Report

, PNC and U.S. Bank have the largest potential earnings impact.

Payment networks, including

Visa

(V) - Get Report

and

MasterCard

(MA) - Get Report

, are more up in arms about the network exclusivity arrangements, or rather that the rules will now require merchants to have more than one network provider. So-called

network fees

are not included under the new rules.

FBR Capital Markets analysts write in a note to clients Wednesday that they expect while exclusivity arrangements under the new rules to be limited to pin-based debit card programs.

Neither Visa nor MasterCard are highly exposed to PIN-based debit cards in the U.S. Visa, while having the larger debit market share of the two firms in the U.S., and MasterCard are more focused on a "signature-based" debit program, according to the FBR analysts.

The analysts note though that while Visa is more exposed to loss of PIN debit market share as a result of the legislation's lack of exclusivity requirements, the impact will still be "manageable," they say.

U.S. PIN-based debit revenue as a percentage of total revenue is just 4% for Visa and 1.8% for MasterCard, according to the FBR note.

However, "should the Federal Reserve rule that there must be two networks available for both signature- and pin-based debit transactions, Visa would be the most negatively impacted given its dominant signature market share, followed by MasterCard, but would be viewed as positive for

Discover

(DFS) - Get Report

, which could potentially expand its signature platform," the note says.

By July, regulations regarding the number of networks on which an electronic debit transaction may be processed will also be put forth, according to a timeline by the Food Marketing Institute. Also in July, it is expected that the Fed will put forth a report discussing government prepaid cards and the fees charged with respect to such cards.

Prepaid cards are currently excluded from the Durbin regulations as are small community banks with less than $10 billion in assets.

A Visa spokesman declined to comment. A MasterCard spokesman did not return request for comment.

-- Written by Laurie Kulikowski in New York.

To contact the writer of this article, click here:

Laurie Kulikowski

.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.