Banks moving to national charters; Cryan gets new post

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Metal manipulation

Three metals traders at JPMorgan Chase were charged by U.S. prosecutors with running a “massive, multiyear scheme” to manipulate markets. The prosecutors, who “warned they were continuing to probe higher echelons” at the bank, charged Michael Nowak, head of precious metals trading, and two underlings, Gregg Smith and Christopher Jordan, “on federal racketeering charges normally used to take down organized crime syndicates,” according to the Financial Times.

“The case will increase scrutiny over global precious metals markets and the dominance of large banks such as JPMorgan, with prosecutors indicating more senior executives and other banks are under investigation.”

“In addition to spoofing and other federal offenses, the indictment charged all three men with racketeering, a claim that is more typically found in cases against organized crime entities," the Wall Street Journal reports. "Authorities said it represents the first time that defendants accused of spoofing electronic derivatives markets have been charged with racketeering.”

The three “used multiple fake orders to manipulate the prices of precious metals futures … that became part of a spoofing and rigging campaign so expansive that federal authorities have likened it to a criminal enterprise operating inside the biggest U.S. bank,” American Banker reports.

The scheme, which went on from 2008 to 2016, “generated millions of dollars in profits for the bank,” said Brian Benczkowski, the head of the Justice Department’s criminal division.

Clueless?

The weekend drone strike on Saudi Arabian oil facilities prompted a renewed attack on the Federal Reserve by President Trump Monday, who questioned on Twitter whether the Fed would “ever get into the game.” He said the Fed and its chairman, Jerome Powell, “don’t have a clue” and “badgered” them to lower interest rates at this week’s monetary policy meeting. “And now, on top of it all, the Oil hit,” Trump wrote. “Big Interest Rate Drop, Stimulus!” Wall Street Journal, New York Times

Wall Street Journal

Hard times

Banks that have aggressively used high online savings rates to bring in customers may find that their “growth may stall” now that rates are falling. “Many banks started offering these accounts — which often paid interest rates of at least 2% — in the past couple of years to attract depositors. But some of those lenders, including PNC, Citizens Financial and CIT Group have recently started trimming their deposit rates.”

Yet, “those accounts still pay better rates than many lenders.” The paper quotes Citizens CEO Bruce Van Saun as saying "in an interview in mid-July that the flow of new money into those accounts could slow if the Fed cuts rates more than twice." They've cut once since then and are expected to cut again tomorrow.

Going national

Fifth Third Bancorp has become the latest bank to switch from state regulation to being overseen by the Office of the Comptroller of the Currency, which has “struck a friendlier tone with the industry.” It would be the sixth bank and the biggest to switch to a national bank charter since 2017.

“The national bank charter continues to have great value in providing banks a flexible regulatory framework,” said OCC head Joseph Otting, who has “praised national charters as a way to let banks operate more efficiently and be regulated more thoroughly.”

Financial Times

Back in the game

John Cryan, Deutsche Bank’s former CEO who was “ousted in April 2018, two years before his contract was due to end, following a leadership crisis,” has been named chairman of Man Group, capping a week of boardroom upheaval at the world’s largest publicly traded hedge fund group.” He will succeed Ian Livingston, who is leaving at the end of the year. Cryan has been an independent non-executive director on Man’s board since 2015.

Lots more to do

Swedbank, trying to overcome a $135 billion money laundering scandal in the Baltics, said it still has “shortcomings” in trying to prevent another such episode. The Swedish bank told a joint Swedish-Estonian investigation it had “not allocated sufficient resources and competence” to prevent money laundering. “The comments are the bank’s clearest yet on what went wrong in a scandal that has cost Swedbank more than a third of its market capitalization since February as well as the jobs of its chief executive and chairman. It is also facing multiple inquiries by U.S. regulators that investors fear could lead to large fines.”

Washington Post

Storm clouds

Financial institutions that are “’too big to fail’ are alive, well, and — thanks to Trump-era deregulation — getting more dangerous,” a report from nonprofit financial watchdog Better Markets says. The report, which was presented at a workshop at the Federal Reserve Bank of New York on Monday, “points to a slew of moves by Trump officials to ease strictures on the industry: Weakening capital requirements for big banks; watering down the stress test and living will requirements they face; allowing more risky trading; relaxing enforcement; and rolling back consumer protections, among others — and those public moves are just the ‘tip of the deregulatory iceberg.’”

Elsewhere

More deregulation

Federal regulators “are considering ripping up a rule that’s forced banks to set aside billions of dollars for swaps trades, one of [the] most consequential wins of the Trump era” for big Wall Street banks, Bloomberg reports. The Federal Deposit Insurance Corp. is holding a public meeting Tuesday to propose eliminating the requirement, while the Federal Reserve and the OCC are expected to go along.

“The move is the latest sign of how, bit by bit, watchdogs appointed by President Donald Trump are loosening the leash put on banks after the 2008 financial crisis.”

Quotable

“The most dangerous systemic and moral hazard risks in the financial system from [too big to fail] have been increased — some significantly — and the overall resilience of the financial system in the U.S. and globally has been reduced.” — Dennis Kelleher, president of nonprofit Better Markets, in a new report presented at the Federal Reserve Bank of New York

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