Bank regulation focus to shift under Biden; still life for cash?

Receiving Wide Coverage ...

Das boot

Felix Hufeld, president of Germany’s financial regulator, BaFin, and his deputy Elisabeth Roegele were dismissed Friday “after months of intensifying criticism over the agency’s handling of the Wirecard scandal,” the Wall Street Journal reported. “BaFin has been under fire from investors and opposition politicians for dragging its feet before investigating Wirecard, initially targeting whistleblowers, traders and journalists instead of questioning the company’s senior management, and tolerating widespread trading in Wirecard shares by the agency’s staff.”

“The Wirecard scandal has revealed the need to reorganize German financial supervision so that it can fulfill its oversight role more effectively,” Finance Minister Olaf Scholz said in a statement. Wall Street Journal, Financial Times

Wall Street Journal

Changes in attitude

“Financial regulators are expected to emphasize racial equity as they focus on consumer protection and expanding access to financial services in keeping with President Biden’s focus on helping minorities and people with low and moderate incomes. That would mark a departure from the last time Democrats controlled the White House and Congress at the start of the Obama administration.”

“In practice, that will translate into tougher rules on payday lenders and stronger enforcement of fair-lending requirements. Biden’s team will also push to establish a government-backed consumer credit firm as an alternative to the companies that create credit reports. Mr. Biden’s choices for top regulatory posts highlight his push to protect consumers from what some Democrats view as predatory behavior by financial firms.”

Cash comeback?

“Many U.S. consumers are shunning cash for a number of reasons, including convenience and a desire to avoid bills and coins as potential sources of coronavirus transmission. Still, while shoppers’ embrace of digital commerce looks likely to last, economists say it is too soon to know if U.S. consumers’ shift to cashless payments will as well, for several reasons.”

“To start, U.S. household spending overall remains below its pre-pandemic level. As spending rebounds, so might cash payments. Also, much of the shift was forced. Business closures and other restrictions pushed much shopping online. It is unclear whether people will readily reach for bills and coins again once more widespread vaccinations enable them to return to stores.”

Not appropriate

Wells Fargo CEO Charles Scharf took a 12% pay cut last year after “the bank’s profitability and stock both declined sharply as the pandemic took a heavy toll on the economy. The bank’s board of directors decided it wouldn’t be appropriate to use the performance goals for 2020 in determining his compensation, given the impact of the pandemic.”

Scharf earned about $20.3 million last year, “including a $2.5 million base salary, cash incentive compensation of $4.4 million, and $13.5 million in long-term incentive compensation.”

Financial Times

No more free lunch

“With interest rates ultra-low,” banks in the U.K. “will seek new ways to make money from retail customers,” the FT says. In past profit squeezes, banks chose to cut fees rather than risk losing customers, “subsidizing the new ‘free’ accounts by lending out customers’ deposits at high rates and levying expensive penalties against those who made mistakes such as unexpectedly dipping into an overdraft.”

“This time around, banks don’t have the same option. With interest rates at record lows, revenue from traditional lending is under pressure, while the Financial Conduct Authority has made clear that it disapproves of business models that rely on overcharging a minority of customers, for example, for unarranged overdrafts. Even the smaller challengers are feeling the pinch and looking for new ways to raise revenue.”

I’m free

Tom Hayes, “the former UBS and Citigroup trader who was jailed for conspiring to rig the Libor benchmark interest rate, has been released after five-and-a-half years in prison. Mr. Hayes was the first person in the world to be found guilty by a jury over the Libor scandal after a two-month trial in 2015, serving around half of his 11-year sentence. He was charged by British and U.S. prosecutors who accused him of being a key participant in a global conspiracy to manipulate Libor, which at the time was used to price hundreds of trillions of assets worldwide.”

I'm cleared

A Hong Kong court Monday acquitted Catherine Leung, JPMorgan Chase’s former vice chair of Asian investment, of “bribery charges connected to the bank’s hiring of well-connected Chinese ‘princelings’ to win business in the country. Ms. Leung was charged in 2019 with bribing the chairman of a logistics company nine years earlier by offering the executive’s son employment at JPMorgan’s Hong Kong office in order to help the U.S. bank secure work on the company’s initial public offering.”

New York Times

Now what?

“Stock market mania has made the headlines in recent days, but crypto [currency] prices are starting to go haywire again. [On Friday], Robinhood imposed restrictions on crypto trading, as it did for the stocks at the center of the market mayhem.”

“The crypto world has been ahead of the curve when it comes to platform outages, outsize volatility and trading based on memes. Tension between the establishment and the masses is at the core of cryptocurrency, which was born from a desire for decentralization. The latest resurgence comes with regulations in flux as a new U.S. administration takes over.”

“Affluent investors are increasingly seeing cryptocurrencies the way they see other high-risk assets, like private equity shares and venture capital,” the Times reports.

Quotable

“Obama looked at how to make the financial system stable. Biden is looking at, ‘How do we make the banking system just?’ That’s very different.” — Karen Petrou, head of Federal Financial Analytics, about what financial regulation will look like under President Biden.