CFPB promotes fintech; Zions closer to losing SIFI tag

Receiving Wide Coverage ...

Innovation station: The Consumer Financial Protection Bureau has launched what acting Director Mick Mulvaney calls a “regulatory sandbox” to encourage financial technology firms to develop products and services. The initiative will be led by Paul Watkins, a former lawyer in the Arizona attorney general’s office who helped set up a similar program in that state, the nation’s first.

Mulvaney told the Wall Street Journal “he expects the bureau’s new innovation office to look closely at cryptocurrencies, other financial technologies based on blockchain, private currencies and microlending. The office also could help companies explore alternatives to traditional credit-scoring methods, such as considering rent and mobile-phone payments, consumer shopping behavior and social-media activity in credit decisions.” Wall Street Journal, American Banker

Speaking of cryptocurrencies, Civil Media Company, a New York-based software firm, said it plans to sell $32 million in digital currency tokens to finance an online marketplace for media projects.

In other CFPB news, the Senate Banking Committee will hold a confirmation hearing on Thursday for Kathleen Kraninger, President Trump’s nominee as the permanent head of the CFPB.

Earnings review: Morgan Stanley “stood out for its across-the-board performance” in the second quarter, demonstrating that CEO James Gorman’s “years-long restructuring and repositioning of the bank has worked,” the Journal says. The bank’s earnings report also “shows its stock has plenty of upside when markets are cooperating, while offering more downside protection when they aren’t.”

A single number in Goldman Sachs’s second quarter earnings report may be “sending a signal about its future,” the New York Times reports. That number is the firm’s compensation ratio, or the percentage of revenue it spends on pay and benefits. It fell to 37%, “well below the 41% for the same period last year and … the biggest drop in years.” Does that mean “the bank is now more willing to hold dollars back from employees to satisfy shareholders?”

Here’s a rundown on how the six biggest banks did in the second quarter.

Looking up: American Express reported a 21% increase in second quarter earnings as revenue rose 9%. The credit card company also raised its revenue forecast for the year based on higher card spending and loan growth. The second quarter was the company’s first full quarter under CEO Stephen Squeri. Wall Street Journal, Financial Times, American Banker

Wall Street Journal

Almost there: The Financial Stability Oversight Council approved Zions Bancorp’s plan that would lead to it being removed as a systemically important financial institution. The company said it would scuttle its bank holding company in an effort to be freed from SIFI designation.

“The council conducted a careful analysis of Zions’ business and found that there is not a significant risk that Zions could pose a threat to U.S. financial stability,” Treasury Secretary Steven Mnuchin said.

"If the FSOC approves the dedesignation," American Banker says, "it will be free of any SIFI restrictions once the merger is complete, according to a release from the Treasury Department." That could happen within two months.

Profit warning: European banks appear be trying to increase profits by using risk-transfer deals with hedge funds to insure some of their higher yielding loans rather than holding extra capital against them. “That could mean higher returns for shareholders, but with intensified risks. Shareholders should be sure what sort of growth they are backing — and how they are paying for it.”

Financial Times

Spirits in the material world: UBS is using a computer-cloned version of Daniel Kalt, its regional chief economist and chief investment officer, to deliver video messages to clients. It’s “part of a UBS project into the future of banking. By cloning him using the computer gaming industry’s latest animation techniques, he could serve many more account holders.”

Mea culpa: Danske Bank said it will donate all profits reaped as a result of its money laundering scandal in Estonia for “the benefit of society.”

“It is clear that we did not live up to our own standards or the expectations of society at large when it came to preventing our Estonian branch from being used for potentially illegal activities,” said Thomas Borgen, CEO of Denmark’s biggest bank. The bank also said it plans to hire Deutsche Bank’s global head of anti-financial crime and anti-money laundering as its chief compliance officer later this year.

Quotable

“You can make a strong argument ... that new technology actually offers new and innovative ways to protect consumers. You are moving light years beyond the complaint hotline to where you can really see things happening in real time.” — CFPB acting director Mick Mulvaney about the agency’s new “regulatory sandbox.”