Credit card demand slumps; stimulus bill would revive PPP loans

Wall Street Journal

Stricter is better

MoneyGram International, “one of the largest money-transfer companies, is putting its weight behind an effort by regulators that would require financial institutions to collect and pass along sender and receiver details on more transactions,” a proposal “that has raised concerns at many firms about compliance costs.”

The company “says a more stringent standard would help the money-transfer industry improve protections to customers against fraud and other illicit activities, similar to what the company already has set up internally. The Financial Crimes Enforcement Network and the Federal Reserve Board in October proposed an amendment to anti-money-laundering rules that would require financial institutions to collect, retain and transmit to other institutions certain information related to international transfers and transmittals of funds above $250, down from $3,000.”

Ripple effect

In what “would be one of the highest-profile SEC actions against a cryptocurrency pioneer,” the Securities and Exchange Commission is planning to sue Ripple, claiming “the company violated investor-protection laws when it sold a bitcoin-like digital asset called XRP.” Ripple CEO Brad Garlinghouse said the SEC is “wrong in matter of law and fact” and that Ripple plans to defend itself.

“The lawsuit revolves around whether XRP, a digital asset that the company launched in 2012, is actually a security that should have been registered with the SEC.”

Not out of the woods yet

The U.S. Treasury Department’s Office of Foreign Assets Control has closed its investigation into the money laundering scandal at Danske Bank’s Estonia branch, the Danish lender said. But “the closure of the probe” by the agency, “which is responsible for civil enforcement of U.S. sanctions, doesn’t signal an end to legal woes stemming from the Estonia scandal.”

“Danske remains under investigation by the U.S. Justice Department, U.S. Securities and Exchange Commission and by criminal law enforcement and regulatory agencies in Denmark and France, the bank said. Danske came under investigation for money laundering after admitting that it failed to appropriately vet about $230 billion in transfers by non-Estonians through its branch in Tallinn, Estonia, primarily by Russians, between 2007 and 2015.”

Financial Times

No thanks

“Demand for consumer credit in the U.S. has fallen dramatically during the Covid-19 crisis, with credit card applications falling to multiyear lows,” the Federal Reserve Bank of New York’s survey of consumer expectations says. “The proportion of households applying for any form of credit over the past 12 months fell by 11 percentage points, to 35%, between February and October. But the drop in demand was most acute for new credit cards, where the application rate fell 10 points to just under 16%, the lowest level since the Fed began collecting application data in 2013.”

“Credit card balances held by U.S. banks have fallen by about $100 billion to $750 billion since the pandemic began, and credit card networks recorded lower spending for much of the year as lockdowns have crimped activity — although Visa and Mastercard said there had been an almost full recovery in U.S. payment volumes by October.”

Ban BaFin?

Germany should shut down its financial regulator, BaFin, following its failures in the Wirecard scandal, an FT op-ed argues.

“Not only had BaFin failed to supervise Wirecard effectively. It had actively frustrated critics’ attempts to expose the fraud. With an unprecedented short-selling ban, it had barred a growing group of skeptical investors from betting that Wirecard’s share price would fall. And it had launched a criminal complaint against journalists at the Financial Times, who had spent years unearthing the scandal.”

“Now more details have emerged about BaFin’s shortcomings in the affair. Dozens of staff had been trading Wirecard shares, some in accordance with the regulator’s disclosure rules, some in breach of them. In recent months, understandable questions have been raised by parliamentarians about whether BaFin’s chief executive Felix Hufeld should stay in his job. But is it also time to abolish BaFin itself?”

New York Times

Second helping

The $900 billion stimulus bill being negotiated in Congress would “commit $285 billion for additional loans under the Paycheck Protection Program and allow particularly hard-hit companies to get a second loan.” It would also “do away with the restriction that left more than $100 billion unspent over the summer.”

“According to outlines of the bill circulating among congressional officials on Monday, hotels and food-service businesses would be eligible for bigger loans this time, up to 3.5 times their average monthly payroll. Other borrowers would again be limited to 2.5 times their payroll. The new bill would also expand the list of expenses that a loan could be used to pay, which previously were limited mostly to payroll, rent and utilities.”

“But the biggest change would reopen the program to some businesses that had already received help. Many business owners who had received money said they would gladly take another loan, but the program’s rules prevented them from getting a second helping. The new relief bill offers a second cash infusion for those who meet stricter terms.”

The new version of the PPP “checks off most of the items on bankers’ wish lists,” American Banker reports.

Reprieve extended

The Department of Housing and Urban Development “has extended a moratorium on evictions and foreclosures on home mortgages it insures against default through Feb. 28. It had been set to expire at the end of the month.”

“The foreclosure moratorium applies to mortgages backed by the Federal Home Administration. HUD is also extending the deadline for cash-strapped homeowners to seek a reprieve from making full mortgage payments for up to six months.”

Elsewhere

Banks rally

Led by Goldman Sachs and Morgan Stanley, which both rose about 6%, “U.S. bank shares outperformed the broader market on Monday after the Federal Reserve said stress test results meant the sector could resume stock buybacks for the first time since the coronavirus-led downturn.”

“The regulator’s decision came quicker than many investors had expected and suggested Morgan Stanley and Goldman Sachs investors were in line for bigger buybacks than the majority of the sector,” Piper Sandler analyst Jeffery Harte told Reuters. “Overall, the amount of share buybacks the Fed’s math suggests the big banks will be able to make in the first quarter of 2021 is good news for the group,” he said.

Quotable

“A lot of the government money that has been given to individuals is sufficient to pay down credit card and auto debt.” — Charles Peabody, bank analyst at Portales Partners, explaining the reduced demand for consumer credit in the U.S.