Dividends ahead All 18 of the nation’s largest banks passed the Federal Reserve’s stress tests, meaning they “could weather an extreme market shock — including double-digit unemployment and a 50% U.S. stocks decline — and still have enough capital to continue operating," The Wall Street Journal says. "The positive scorecard signals the banks are likely to get a green-light to increase dividend payouts and buy back shares when the second round of test results are released [this] week.”
Under a worst-case-scenario, the banks “would lose $410 billion if there were another severe global recession, but would maintain enough capital to keep lending to companies and individuals," according to the Financial Times. "The results will allow banks to continue making record dividend payouts.” Wall Street Journal, Financial Times, American Banker
Reaction redux The Bank for International Settlements said big tech companies, like Facebook, could “rapidly establish a dominant position” in global finance and “pose a potential threat to competition, financial stability and social welfare.” As a result, regulators may have to “revamp” rules.
Separately, the Financial Action Task Force, which sets global standards for anti-money-laundering laws, “called on countries to apply more scrutiny to virtual currency firms that transfer customer funds,” including Facebook. The group said “countries should adopt regulations requiring virtual currency companies — including exchanges and wallet providers — to collect information about their customers and share it with other institutions, including other crypto firms, that receive fund transfers.”
Facebook’s Libra “could be insanely profitable in real money,” both for the social media giant and its financial partners. “The profits would come from interest on the reserve backing Libra, designed to keep Libra’s value stable. All interest is diverted to the companies backing Libra’s governing body, while holders of Libra itself earn nothing — giving the founders profits akin to the seigniorage made by central banks.”
But one of those partners, PayPal, saw its stock drop more than 2% on Friday. While some of that decline may have been in response to the news that Bill Ready, its chief operating officer, plans to leave by the end of the year, “the stock’s fall comes as the future of payments is potentially changing.” Libra, for example, could be “a threat or an opportunity for PayPal. Payments companies have been anxious that a tech heavyweight could eat away at their business, but participating in Libra can allow them to watch Facebook’s ambitions and potentially gain from it. [Still], the prospect of regulatory scrutiny has swirled around Facebook’s Libra project and the entire social-media operation, which could weigh on shares of the company and its payment partners.”
Meanwhile, bitcoin on Friday rose over $10,000 for the first time in over a year, before climbing above $11,000 the following day, “riding a new wave of optimism about the value and future of digital currencies. Investors have been buying bitcoin on the expectation that Libra is going to bring digital currencies to mainstream users, a goal that so far has eluded bitcoin itself. The digital currency’s turnaround this year has offered hope that the worst is over after last year’s steep slump.”
Another partner, Mastercard, says regulators and the Libra consortium are on the same page. "Our objectives are aligned," an executive says.
Facebook’s plan may be “flawed, derided and feared … but might it end up blowing the financial system wide open anyway?” the Financial Times asks.
In a BankThink opinion article, Karen Shaw Petrou says, "policymakers need to quickly determine whether Libra is more than an astute way to bypass growing U.S. antitrust, privacy and content-regulation challenges. "
Case dismissed Former Barclays CEO John Varley, “the only chief executive of a major bank to face a jury over events during the financial crisis,” was acquitted of fraud charges in a U.K. court. Varley was accused of trying to obtain investment funds from Qatar in order to avoid a bailout from the British government. The Court of Appeal said the Serious Fraud Office failed to provide sufficient evidence against Varley. Wall Street Journal, Financial Times
John Varley, outgoing chief executive officer of Barclays Plc., poses for a photograph at the company headquarters in Canary Wharf, London, U.K., on Tuesday, Sept. 7, 2010. Barclays Plc, Britains third-largest bank, named Diamond as chief executive officer to succeed John Varley. Photographer: Chris Ratcliffe/Bloomberg *** Local Caption *** John Varley
Chris Ratcliffe/Bloomberg
Financial Times
Tell us more The Federal Reserve wants to know more about Deutsche Bank’s plan to create a “bad bank” that would hold up to $50 billion in assets and be part of its move away from investment banking.
New York Times
Overdraft review The Consumer Financial Protection Bureau is reviewing federal rules on bank overdrafts. Under the current rule, “banks must get their customers’ express permission before charging a penalty for overspending, whether through most debit card purchases or ATM withdrawals. If customers don’t accept overdraft coverage, banks simply decline transactions that would drop an account balance below zero. If customers do “opt in” to overdraft coverage, the bank approves the purchase or cash withdrawal and charges a fee — typically about $35. Consumer advocates say they are watching carefully for any proposed changes in the rule, which they credit with helping people avoid excessive penalties. The consumer bureau’s own research found in 2014 that consumers who choose overdraft coverage pay seven times as many fees as those who forgo it.”
Washington Post
That's a lot of doughnuts Demand for wedding loans is “giving rise to an industry of personal loans marketed specifically to brides and grooms.” Volume at online lenders such as Prosper, Upstart and Earnest has quadrupled in the past year as consumers borrow an average $16,000 to pay for their weddings.
“Couples are picking up the tab for their own nuptials, either by choice or by necessity. The loans are often marketed as a way to fund extras like custom calligraphy, doughnut displays and ‘Instagram-worthy’ venues, though some borrowers say they rely on the loans to fund their entire wedding.” Interest rates range from 7% to 18%, although some charge as much as 30%.
Quotable
“The results confirm that our financial system remains resilient. The nation’s largest banks are significantly stronger than before the crisis and would be well-positioned to support the economy even after a severe shock.” — Federal Reserve Vice Chair for supervision Randal Quarles on the results of the bank stress tests
Customized perks, AI-driven solutions and even freelance employees are all in play at banks as human resource managers confront the challenge of recruitment and retention.
The Arkansas Republican, who could be the next chairman of the top banking panel in the House, could find some areas of agreement with Democratic Senate Banking Committee ranking member Elizabeth Warren on issues like failed bank resolution reform.
The incoming Trump administration is expected to prioritize an activities-based oversight approach to nonbank entities, just as the Biden administration has. It may also leave its designation power intact, but unused.
