Banks would win big with tax reform; Online lenders thrive

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What a relief: Banks “stand to be the among the biggest winners” from the tax bill unveiled by House Republicans on Thursday, the Wall Street Journal reports, “on track for big tax cuts” but avoiding “some of the biggest potential downsides” of the proposal.

If the 20% corporate tax rate becomes law, the five biggest banks alone would have saved $11.5 billion in 2016, “the biggest sum for any sub-industry group tracked by S&P.” The bill would also enable banks to continue to deduct interest costs if they spend more on interest than they take in, which most do. The American Banker asks if the plan will hurt growth.

The package “would reduce or eliminate virtually all of the tax incentives of homeownership,” potentially hurting home builders, real estate agents and mortgage lenders, not to mention homebuyers, which in turn can impact banks' bottom line.

“It’s one step removed from the worst-case scenario, and that’s a small step,” Isaac Boltansky, director of policy research at Compass Point Research & Trading, told the Journal. “It is basically the sum of all [the industry’s] realistic fears.” Wall Street Journal, Financial Times, New York Times, American Banker

Powell’s the man: As widely expected, President Trump nominated Jerome H. Powell to be the next chair of the Federal Reserve, “turning to a replacement who is expected to stay the course on monetary policy if the economy continues its steady growth.” In bypassing Janet Yellen for a second term, the nomination of Powell is “the first time in nearly 40 years that a new president hasn’t asked the incumbent Fed leader to stay on for another term.” Wall Street Journal here and here, New York Times here and here, Washington Post here and here, American Banker

Yellen’s four years as Fed chair have been a success “by most conventional measures,” the New York Times says, but her positions on financial regulation may have done her in.

“Unemployment fell steadily during her term, inflation stayed in check and the Fed began backing gradually away from the extraordinary steps it took in the wake of the financial crisis,” it says. But Republicans “accused the Fed under her leadership of imposing burdensome regulations on the financial industry — a complaint that may have contributed directly to Mr. Trump’s decision not to reappoint her.”

By contrast, Powell’s “expertise in regulation could be significant,” writes John Authers, the FT’s investment editor. Powell, he says, brings “a Wall Street perspective and a great interest in regulation to the post. Banking regulation is, if possible, an even hotter political potato than monetary policy. There is a long record of unpredicted consequences from changes to bank rules.”

Wall Street Journal
AML fine: The Treasury Department said Texas-based Lone Star National Bank violated anti-money laundering laws by not doing enough due diligence on one of its customers. The department said the bank failed to understand the risks it faced when it opened a correspondent account for a Mexican bank, whose owner has allegedly been involved in securities fraud.

“Smaller banks, just like the bigger ones, need to fully understand and follow the due diligence requirements if they open up accounts for foreign banks. The risks can indeed be managed, but not if they are ignored,” said Jamal El-Hindi, acting director of the Financial Crimes Enforcement Network.

What’s in your chatbot?: Capital One turned to Audra Koklys Plummer, who created characters at Pixar Animation Studios, to help develop its artificially intelligent chatbot. “I was convinced that [we] could create a connection on an emotional level that we haven’t seen before in this industry,” Koklys Plummer told the Journal.

Financial Times
Still on track: Despite recent scandals and other setbacks, online lenders are still doing a brisk business, the paper reports. The companies originated $15 billion of personal loans in the first half of the year, accounting for nearly a third of the total market and a bigger share than banks, credit unions or other traditional lenders. The online lenders “have sought to capitalize on consumers’ loss of trust in big finance and post-crisis regulation that has curbed banks’ ability to take on risk,” the paper says.

Let’s talk: The Communications Workers of America “has trained its sights” on the American unit of Santander, the Spanish bank whose employees are unionized everywhere except in the U.S. The union wants Scott Powell, the U.S. unit’s CEO, to sign a neutrality pledge that would allow organizers to speak to workers without them fearing reprisals.

“He’s strong, he’s committed, he’s smart. Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy through any challenges that our great economy will face.” — President Trump introducing Jerome Powell as his nominee for Federal Reserve chair.

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