Brainard has eye on imbalances; Discount window forsaken

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Wall Street Journal

Risk intolerant

Federal Reserve Gov. Lael Brainard said “she doesn’t think the central bank is doing enough to counter growing financial imbalances in an environment of low interest rates and heightened economic uncertainty.” Brainard told CNBC that “policy makers aren’t doing as much as she’d like to cushion the impact of potential shocks to the economy.”

“I’ve proposed turning on the countercyclical buffer,” which requires banks to hold more capital if the economy shows signs of overheating, she said. “It was intended to be used for precisely these kinds of circumstances — [but] others haven’t shared my assessment. I do worry about financial imbalances rising in this environment.” The Fed earlier this year debated using the buffer but decided against it; Brainard dissented from that decision.

Incomplete

Shares of Wirecard, the German payments company whose accounting practices in Asia are under investigation, dropped more than 3% Wednesday “after it emerged that an auditor hadn’t fully signed off on its Singapore arm’s most recent accounts. The company, which denies all allegations of improper accounting practices, said the lack of a final opinion from Ernst & Young for Wirecard Singapore’s accounts didn’t affect the audit of the parent firm for 2017 and 2018.”

Sweet deal

PayPal said it will pay $4 billion to buy Honey Science, a shopping and rewards platform that helps consumers find discount codes online and enables merchants to target customers by developing personalized offers. PayPal said the deal, its biggest ever, “would help drive deeper engagement with its 300 million customers while helping merchants target new customer segments.”

Avoiding stigma

“Banks have all but abandoned the Federal Reserve’s discount window, and it is straining Wall Street’s postcrisis infrastructure,” the paper reports. “Borrowing from the discount window, the Fed’s only channel for lending directly to banks, has plummeted. Through October, banks are on pace to borrow just $750 million from the Fed this year, half of last year’s total and well below the record low of $940 million set in 1961.”

“Banks are desperate to avoid the stigma attached to accessing the window, which is designed to help them weather short-term funding crunches. It is one reason they are hoarding cash at levels well above what regulators require, ensuring that they won’t be caught short if markets go awry.”

Financial Times

Storm down under

Westpac, Australia’s second largest bank, “is facing a record fine and potential leadership shake-up after the country’s financial crime watchdog accused it of a huge breach of money-laundering laws. Brian Hartzer, Westpac chief executive, told reporters on Wednesday that he would not resign as a result of the compliance failures, which the Australian Transaction Reports and Analysis Centre said in a court filing may have included transfers linked to child exploitation. Austrac is concerned that pedophiles may have been able to use Australia’s payments systems to direct and livestream the sexual abuse of children in southeast Asian nations.”

“Several analysts said the scale of the alleged infringement — which included 23 million violations of anti-money laundering rules — along with the regulator’s stinging criticism of Westpac’s senior management and board suggested a change of leadership was likely.”

Tapping in

Investors, including Visa, “have poured almost $400 million into payments companies based in Nigeria in the past week, in a sign of how seriously venture capital firms are taking the opportunity to build financial networks across the continent.”

“The growth in the payments space is probably like no other on the continent at the moment,” said Segun Agbaje, chief executive of Guaranty Trust Bank, Nigeria’s largest bank. “There is so much untapped potential. This is a space where people are growing 20-30%, month on month — that tells you why the money is pouring in.”

New York Times

Cut!

Apple canceled the Thursday premiere of “The Banker” at the American Film Institute’s annual festival in Los Angeles. The movie, which stars Samuel L. Jackson, “is based on the true story of Bernard Garrett and Joseph Morris, two African-American entrepreneurs who sought to financially empower black Americans by buying homes in white neighborhoods for them to rent and offering loans to black-owned businesses. Trying to get around discrimination by the banking establishment, they recruited a working-class white man as their frontman. The pair later expanded their ambitions, acquiring banks in the South. In 1965, Mr. Garrett and Mr. Morris testified at a congressional hearing on misconduct in the federally insured banking system, and they were later convicted of misusing funds,” the paper reports.

“Last week some concerns surrounding the film were brought to our attention,” Apple said Wednesday. “We, along with the filmmakers, need some time to look into these matters and determine the best next steps.” The company had planned to put it in theaters early next money and then make it available on its new streaming service in January.

Apple, which "acquired the movie in July," planned to release it in theaters on Dec. 6.

Washington Post

Old friends

Office of Management and Budget Director Mick Mulvaney’s former chief of staff “has been a key lobbyist for one of the country’s largest payday lenders, giving the industry access to the White House at a time it is fighting to roll back industry regulations,” the paper reports. Over the past 2½ years, Al Simpson, now a lobbyist for Advance Financial, “has met repeatedly with Mulvaney, whom he worked for on Capitol Hill until 2017. They have had dinner several times, and Simpson has been a frequent visitor to the OMB. The visits to the OMB overlap with the period Mulvaney was acting director of the Consumer Financial Protection Bureau, which has oversight of the payday lending industry.”

“Consumer advocates say their relationship illustrates the industry’s influence on the administration and the lengths to which it has gone to undermine tough regulations.” A White House official countered: “Not once has Simpson lobbied Mick in any of his official roles, whether at OMB, CFPB, or as White House chief of staff.” The official said “Al Simpson is one of Mick Mulvaney’s oldest and closest friends” and that their visits were “solely for social purposes.”

Elsewhere

Scandal redux

Swedbank CEO Jens Henriksson vowed to “get to the bottom” of allegations by Swedish public service broadcaster SVT that the bank transferred funds for a Russian arms company, which the station says may have violated U.S sanctions. “SVT alleged Swedbank transferred more than 1 million euros ($1.1 million) from Kalashnikov Group to a U.S. subsidiary via the business network of a Russian oligarch who is a shareholder in the Russian arms firm,” Reuters reports.

“The allegation risks opening a new front in a scandal which has hammered Swedbank’s shares and rocked the region’s banks. The Swedish bank is already under investigation by U.S. authorities for its role in the Baltic money laundering scandal, but the new information risks exposing Swedbank to greater scrutiny from the United States.” The bank’s shares were down more than 3% on the report.

Out of breath?

Aspiration, “a digital bank that raised $110 million from venture capital funds and celebrities including Leonardo DiCaprio, is scrambling to find funding, a potential sign that investors are cooling on risky start-ups after the WeWork debacle,” CNBC reports.

“Part of a new breed of online-only banks, the Los Angeles-based start-up has celebrity backers including DiCaprio and Orlando Bloom, rapid growth and a trendy socially-responsible model that brought it plenty of media coverage. But Aspiration, which allows its customers to choose how much they pay for services, has so far failed to convince enough investors to participate in its latest fundraising round. Last month, the company laid off 15% of its employees and has been withholding some payments to vendors since at least the summer.”

Quotable

“It is not just chief executive Brian Hartzer that may have to go as a result of these allegations but also directors who sit on the bank’s risk committee. The allegations suggest directors were asleep at the wheel and management swept these problems with money-laundering controls under the carpet.” — Elizabeth Sheedy, a financial risk expert at Macquarie University, about the allegations of massive money laundering tied to child abuse at Westpac, Australia’s second largest bank

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