This week’s “wild, mysterious ride in short-term funding markets isn’t good news for Wall Street trading desks,” the Wall Street Journal says. “Big global investment banks have a love-hate relationship with volatility. With the right kind of price swings, or so-called good volatility, clients see opportunities and start making trades. That is helpful to banks with trading operations. But with the bad kind of volatility, clients retreat from trading out of fear.”
The latter is what may have happened this week. “For one thing, it is clear that some clients somewhere are in trouble. The timing of the repo spike is noteworthy: When repo rates surge at the end of a quarter, it is often tied to banks trimming balance sheets for regulatory purposes. But this spike came two weeks before quarter-end. That suggests clients or dealers, not banks themselves, are driving the drama.”
Banks were by far the biggest buyers of repurchase agreements again on Wednesday, the Journal says, “in a second day of intervention meant to ease a crunch in overnight funding markets.” Another injection of $75 billion is planned for Thursday, the paper reports.
Also on Wednesday, the Federal Reserve, as expected, “cut its benchmark interest rate by a quarter-percentage point for the second time in as many months," the paper reported. "Fed Chairman Jerome Powell left the door open to additional cuts and repeatedly cited the costs of rising trade-policy uncertainty. But central-bank officials were split over Wednesday’s decision and the outlook for further reductions.” Seven of the 10 voting members of the Fed’s monetary policy committee voted to lower the federal-funds rate to a range between 1.75% and 2%, while two preferred to hold rates steady and one favored a larger, half-point cut.
“In an extremely unusual move, President Trump blasted the Fed’s announcement just 25 minutes after it was made public, targeting Fed Chair Powell’s leadership in particular,” the Washington Post reports. “Jay Powell and the Federal Reserve Fail Again,” Trump wrote on Twitter. “No ‘guts,’ no sense, no vision! A terrible communicator.”
Wall Street Journal
Cleanup continues
Nordea Bank, the Finnish bank that has “faced significant scrutiny in recent years over its anti-money-laundering controls, similar to the scrutiny faced by several of its peers,” said Christopher Rees, its chief financial officer and head of group finance and treasury, is leaving the bank next year. The move “comes amid a wider shake-up of the bank’s management under new Chief Executive Frank Vang-Jensen."
Separately, Sweden-based Swedbank said it has appointed Ingrid Harbo as permanent chief compliance officer, “as investigations into its anti-money-laundering work continue. The bank came under scrutiny in February after a Swedish broadcaster reported that billions of dollars of illicit funds may have passed through its Estonian branch in a link to money laundering at Danske Bank.”
And the winner is …
Google Pay has emerged as the “leading player in the battle for mobile payments in India,” ahead of better-known rivals like Alibaba, Tencent, Apple, Visa and PayPal. Google’s “booming new business in the world’s largest untapped digital market could be the engine of expansion that it has been looking for. The company has one of its fastest-growing hits ever with Google Pay, a two-year-old app that millions of consumers are using to spend and transfer tens of billions of dollars.”
Financial Times
Another issue
In yet another scandal, Deutsche Bank “faces the threat of a European Central Bank investigation after buying and selling its own debt for more than three years without regulatory approval. Employees at Germany’s biggest lender forgot to apply for the necessary approval to buy and sell its additional tier 1 (AT1) bonds between 2014 and 2017, which it did to help ensure liquidity in the securities. A formal investigation by the ECB would join a long list of litigation and misconduct cases that have cost Deutsche Bank billions of euros in fines and settlements.”
Separately, Deutsche bought a €50 million, 4.9% stake in open-banking start-up Deposit Solutions, making it the second most valuable German fintech after N26. “Deposit Solutions operates software that links retail clients and lenders, allowing banks to collect deposits from people across Europe who are not their direct customers. It is a rival to Berlin-based Raisin, which among other investors is backed by PayPal.”
The future is now
Citigroup’s former CEO Vikram Pandit says “growing support for central bank-backed digital currencies could finally pave the way for change [in the banking industry] by spurring the creation of 21st century regulation. Although banks have been going digital for years, and ‘fintechs’ have been around for a while, the industry has not fundamentally changed,” he writes in an op-ed. “That is because disruption can happen only as quickly as regulators allow it. The pace is limited not only by valid safety and soundness considerations but also the painfully slow speed of regulatory innovation. We are trying to regulate a digital world with 20th century architecture that was designed for physical assets.”
“We’re bringing….leading technology, analytics and governance experts together to create a solution that will make lenders competitive quickly, while transferring critical know-how so that they become self-dependent in the long run,” said Vikram Pandit, chairman of EXL and former CEO of Citi.
Andrew Harrer/Bloomberg
Updated regulation driven by digital currencies, he says, “can do more than just disrupt the industry, it can tackle oligopolistic banking, too big to fail, systemic efficiency, and fulfill the promise of finance.”
Back on top
New York has ended London’s “five-year stint as the world’s premier financial capital, as extended uncertainty over Brexit and the City of London’s relationship with the EU has damaged the attractiveness of the UK capital.”
New York Times
Remaining public
The Consumer Financial Protection Bureau “said it will continue to publish its database of consumer complaints about financial companies, ending — for now — a battle over public access to one of the agency’s most powerful tools.” Kathleen Kraninger, the bureau’s director, “said the database would remain public and the bureau would add new features to help consumers contact companies and research answers to common questions. The bureau will also release data visualization and analysis tools to help people interpret the data in context.”
“These are the kind of tools that our researchers already use internally and I think making them available to the public will greatly improve the functionality of the database,” Kraninger said. Lenders “have complained that the database unfairly harms their reputations by spreading unverified negative information, but consumer advocates say it’s a vital tool for spotting problems and patterns of bad conduct.”
The CFPB has ratcheted up investigations and enforcement actions in the past few months, an apparent shift by the agency under Kraninger, who had initially signaled that supervision would be her primary focus, American Banker reports.
Mnuchin speaks
Treasury Secretary Steven Mnuchin discusses the economy and more in a excerpts from an interview. Among the topics: Should banks get involved in the gun control debate?
Quotable
“The database is here to stay.” — CFPB director Kathleen Kraninger, announcing that the bureau’s complaint database would remain public despite criticism from lenders
The Sandy, Utah-based credit union said it opted to part with its two New Mexico branches to focus on other geographies. At least one expert expects an uptick in branch sales as more credit unions seek to "right-size" their networks.
Micro-, small- and medium-sized businesses have traditionally been a tough nut to crack when it comes to serving up actionable insights. Payment data is helping to change that.
Median growth among small U.S. lenders was 1.2% for the third quarter. Bankers are hoping lower interest rates will boost demand, but borrowers aren't jumping.
The Knoble, a nonprofit that brings banks, credit unions, payment networks and law enforcement together to detect elder and child exploitation and human trafficking, has worked with more than 600 banks.
The president-elect had billed his hardline stance on the border and promised deportations as a solution to tight housing markets. Experts say those policies, at least in terms of housing, could do more harm than good.
