Receiving Wide Coverage ...
No extension
The Federal Reserve is ending at the end of the month “a yearlong reprieve that had eased capital requirements for big banks, disappointing Wall Street firms that had lobbied for an extension, ” the Wall Street Journal reported. “Friday’s decision means banks will lose the temporary ability to exclude Treasurys and deposits held at the central bank from lenders’ so-called supplementary leverage ratio. Without the exclusion, Treasurys and deposits count as assets. That will likely force banks to hold more capital or reduce their holdings of those assets, both of which could ripple through markets.”
The decision “could disappoint banks, which had been pushing for an extension of the capital relief,” the Financial Times said. “However, the central bank said it would explore a more permanent overhaul to the rules.”
In its decision, “the Fed took a middle road,” the New York Times said. “It ended the exemption but opened the door to future changes to how the leverage ratio is calibrated. The goal is to keep capital levels stable, but also to make sure that growth in government securities and reserves on bank balance sheets — a natural side effect of government spending and the Fed’s own policies — does not prod banks to pull back.”
U.S. government-bond yields rose sharply following Friday’s decision, “but then yields retreated as investors debated how significant the hit would be to debt markets,” the Journal said. “The impending end of capital relief for banks was one factor behind the rising volatility in U.S. government debt markets in recent weeks, according to investors and analysts. Shares of financial companies were among the worst-performing sectors in the S&P 500, losing 1.2%.”
The Fed’s rationale for its decision “is flawed,” the Journal commented. “With that capital requirement back in place, the Fed achieves nothing toward making the financial system safer while potentially raising headwinds to its other goal: stoking an economic recovery with easy credit conditions.”
The Fed decision is “a setback for the banking industry and a win for Democrats,” American Banker says.
Visa probed
The Justice Department “is investigating whether Visa is engaging in anticompetitive practices in the debit-card market, a probe that casts a cloud over a core part of its business,” the Journal reported. “The department’s antitrust division has been gathering information and asking whether Visa has limited merchants’ ability to route debit-card transactions over card networks that are often less expensive. The department is considering whether Visa’s practices are allowing it to maintain a dominant market share unlawfully. Many of the department’s questions have focused on online debit-card transactions, but investigators have asked about in-store issues as well.”
Separately, in Europe, Visa is planning to raise interchange fees on cross-border transactions between the U.K. and European Union in October, the FT said, which could put “fresh pressure on consumers and small businesses struggling to deal with the financial impact of the coronavirus pandemic.” Visa “also plans to increase so-called scheme fees on UK-EU transactions, as well as charge more for domestic payments using British company credit cards.”
Wall Street Journal
Looking back
Former Citigroup CEO Michael Corbat looks back on the “crises, leadership lessons and legacies of his eight-year tenure.” His proudest achievement?
“I guess I would have to say [new CEO] Jane [Fraser]’s ascendancy,” he said. “I was one of the people who hired Jane. I’ve been in and around at the decision points, so-to-speak, in terms of most of her job moves and in terms of preparing her for this. The fact that we can do this, and by the way, not do this because Jane is a female, but to do this because Jane is the most qualified person within our institution and we can put our hand on our heart and say that. I don’t think you’re going to get anyone within our firm to say otherwise or anyone who has spent time with her.”
Partners
JPMorgan Chase agreed to pay $410 million for a 10% stake in the wealth subsidiary of China Merchants Bank, “the first time a Chinese bank has opened up its wealth-management subsidiary to a foreign strategic investor.”
“Friday’s agreement builds on a partnership agreed in 2019, under which J.P. Morgan Asset Management and the Chinese bank said they would collaborate on product development and investor education.”
Financial Times
Played out?
“U.S. bank stocks have soared in recent months on expectations that profits will rise along with longer-term interest rates that track 10-year Treasury yields. But some analysts say the optimism may be overdone and bank profitability remains under pressure. Wall Street earnings estimates show big bank earnings in 2022 stuck near 2019 levels.”
