Fed to lift bank payout restrictions; Senate approves PPP application extension

Receiving Wide Coverage ...

Vote of confidence

The Federal Reserve “said it would lift restrictions on share buybacks and dividend payments for most U.S. banks after June 30, putting an end to limits it introduced in the early months of the pandemic,” the Financial Times reported. “The decision — which was made unanimously by members of the Fed board — will apply to banks that pass this year’s stress tests, in which the central bank gauges the resilience of individual institutions to a new economic shock. It reflects growing confidence at the Fed about the U.S. outlook and confidence that the biggest banks have weathered the economic storm triggered by the pandemic.” Wall Street Journal, Financial Times, New York Times

“If a bank does not meet the stress capital buffer target, it faces automatic limits on the amount of money it can pay out to shareholders,” American Banker reported.

Wall Street Journal

PPP extension

The Senate voted to “extend the deadline for applying for a Paycheck Protection Program loan to May 31, sending the legislation to the White House for President Biden’s signature days before the current March 31 deadline.” The legislation also requires the Small Business Administration process the applications by June 30.

“The House approved the extension last week with broad bipartisan support. The Senate approved the bill 92-7 after voting down two Republican amendments.”

Breaking the rules

“As economic pain in Europe drags on, negative interest rates remain—and they are getting lower. As a result, more borrowers in Portugal as well as in Denmark, where interest rates turned negative in 2012, are finding themselves in the unusual position of receiving interest on their loans.”

“The European Central Bank cut interest rates to below zero to reignite the continent’s frail economy in the midst of a sovereign-debt crisis. The negative rates helped everyone get cheap financing, from governments to small companies. It gave an incentive to households to borrow and spend. And it broke the basic rule of credit, allowing banks to owe money to borrowers.”

Financial Times

SPAC request

The Securities and Exchange Commission is asking banks to disclose “their work with special purpose acquisition companies, or SPACs. While the inquiries are so far preliminary, they could develop into a formal investigation.”

“Banks and law firms have enjoyed lucrative rewards and fees associated with the SPAC structure. But critics have highlighted concerns about investor protections, lack of transparency around incentives, and the sky-high valuations attributed to young companies.”

Late to the party?

“Central bankers are belatedly realizing that the reason” for recent innovations and speculation in digital currencies “is that entrepreneurs are responding to two big flaws in modern finance,” an FT op-ed argues. “One revolves around something that central bankers seem unwilling or unable to address: the risk that fiat currency is debased in the future by excessive supply, i.e., quantitative easing. The other is something central bankers do want to address: the clunky nature of the modern payments system.”

“Thus, what the Fed and others are now trying to do is a mild version of the ‘if you can’t beat ’em, join ’em’ strategy: instead of ignoring bitcoin or Facebook’s experiments, they hope instead to harness some of the ideas behind such innovations as blockchain ledgers on their own terms. Or, if you like, out-crypto the crypto kids. Will it work? There are reasons to be skeptical. One problem is style: asking stodgy central bankers to embrace the type of freewheeling creativity found in fintech is like asking grandpa to listen to rap. Another, even more daunting, issue is that CBDCs [central bank digital currencies] create huge policy headaches, such as the future role of private sector banks.”

We own a mall

JPMorgan Chase, Goldman Sachs and a group of real estate investors “are set to take a stake in Mall of America, the largest shopping center in the U.S., after its owner defaulted on another multibillion-dollar development in New Jersey. The banks were in the final stages of securing a minority interest in the Minnesota mall and have been in negotiations with its owner Triple Five Group, its lawyers and a consortium of other lenders.”

One job too many

Deutsche Bank CEO Christian Sewing “will give up direct oversight of the bank’s all-important investment bank, caving in to concerns from regulators over the chief executive’s excessive workload and potential conflicts of interest. Germany's largest lender will announce the change before its annual shareholder meeting on May 27, part of a wider reshuffle of its management board which is poised to be unveiled over the coming two months.”

Fraud in the U.K.

Online fraudsters “using fake texts about Covid-19 vaccines, lockdown fines and missed parcel deliveries” scammed U.K. consumers out of a record £479 million last year. “Investment scams made up the highest proportion of authorized fraud losses, with more than £135 million lost to increasingly sophisticated deceptions often involving cloned websites of investment providers and private banks. Last year also saw increased prevalence of cryptocurrency scams.”

On the positive side, “banks and finance providers were able to return 43% (£206.9 million) of authorized fraud losses to victims — over three-quarters more than the sum returned in 2019, the year a voluntary industry code on reimbursement was introduced.”

Elsewhere

Stress bonus

While Goldman Sachs has promised to give its overworked junior investment bankers Saturdays off, Credit Suisse is giving “more junior members of its capital markets and deal businesses a $20,000 ‘lifestyle’ allowance as it tries to maintain morale among staff feeling the strain from heavy workloads and remote working,” Reuters reported. Switzerland’s second-largest bank “is to award the extra cash to staff at the vice president level or lower, on top of pay rises being given to everyone with a director title or below.”

“Credit Suisse’s Capital Markets & Advisory management recognizes and wants to reward the efforts of our people who have not only managed to support our clients through unprecedented deal volume, but also increased our share of the market,” the bank said.

Quotable

“The banking system continues to be a source of strength, and returning to our normal framework after this year’s stress test will preserve that strength.” — Randal Quarles, the Fed’s vice chairman of supervision, announcing that the Fed will lift restrictions on bank dividends and buybacks if they pass the next round of stress tests.