Banks battle fintechs over installment sales; Barclays deck cleared

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Easy does it
Federal regulators announced two major steps “to dial back scrutiny of big U.S. banks, asset managers and insurance companies, easing policies set up after the financial crisis.” The Federal Reserve said it would stop giving banks pass-or-fail grades on the “qualitative portion” of their annual stress test, although foreign banks would continue to receive pass-fail grades. "The qualitative portion of the test is a subjective assessment of a bank’s internal data, how the firm assesses its own risks and the role of its board of directors in overseeing operations," according to the Wall Street Journal. The changes “reflect how Fed officials have grown more comfortable with big U.S. banks’ risk management after the 2008 crisis exposed significant weaknesses. The change also would decrease the possibility that the Fed could surprise bankers and financial markets with bad news about U.S. firms.”

At the same time, the Financial Stability Oversight Council “proposed raising the bar by which it would designate nonbanks, such as insurance companies or asset managers, to stricter supervision.” The council “said it would aim to review potentially risky activities in business sectors rather than individual nonbank firms.” Wall Street Journal, Financial Times, New York Times, American Banker here and here

Separately, the Financial Stability Board has begun an examination of the $1.4 trillion leveraged loan market. “The focus of the FSB’s review, which is expected in the autumn, will be on so-called collateralized loan obligations. The FSB wants to identify the holders of CLOs around the world and assess the risks that investors could pull money from exposed institutions during a severe downturn. Among the investors in CLOs are banks, investment funds and insurers.”

POS battle
Banks and fintechs are in battle at the point of sale. Fintechs are “using technology to revive the old model of retailer payment-by-installment plans.” But banks aren’t sitting back. “JPMorgan Chase announced that it was entering the installment plan business, offering fixed monthly payment plans for purchases more than $500 by its cardholders — a tacit acknowledgment that defending its turf in consumer finance may require moving beyond traditional credit-card lending. JPMorgan’s move sets up a direct bank-versus-fintech clash reminiscent of the competition between the wildly popular payments app Venmo and Zelle, a copycat product backed by JPMorgan as part of a consortium of other banks. Fights like this are popping up all over finance, from consumer lending to car insurance.”

Separately, Square Capital chief Jackie Reses said the company’s “point-of-sale system gives them more details about a firm that a bank or other traditional lenders can't see.” Reses said Square Inc.’s small business lending unit “has leveraged data to serve businesses that aren't well capitalized” and lack access to traditional financing. “By using point-of-sale data of its small business clients, Square Capital can lend money more effectively.”

Wall Street Journal

Settled
The new owner of Bankrate, the financial services and marketing company, agreed to pay $28 million to settle a Justice Department investigation into accounting fraud by former finance executives. Baton Holdings, which bought the company in November 2017 and took it private, admitted “former finance executives artificially inflated the company’s earnings, causing shareholders to suffer at least $25 million in losses.” Bankrate’s former CFO Edward J. DiMaria and Hyunjin Lerner, its former vice president of finance, pleaded guilty and were sentenced to prison last year.

Financial Times

Preemptive strike
Mike Turner is the latest Barclays director to announce his resignation, joining four others, including chairman John McFarlane, who “have either stepped down or will leave at its annual meeting in May.” The “boardroom clear-out [is] designed to head off pressure from activist investor Edward Bramson” and give incoming chairman Nigel Higgins, a long-serving Rothschild banker, a chance “to make his mark at a time when Mr. Bramson is trying to force his way on to the board.”

Elsewhere

All in
Radius Bank CEO Mike Butler discusses the bank’s 2012 decision to close all of its branches and go fully digital in this video.

Quotable

“Today’s proposal would make significant improvements to how the [Financial Stability Oversight] council identifies, assesses, and responds to potential risks to U.S. financial stability.” — Treasury Secretary Steven Mnuchin.

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