Court says CFPB structure is unlawful; Stress tests aced

Receiving Wide Coverage ...

Unconstitutional: A federal judge in New York ruled the structure of the Consumer Financial Protection Bureau is unconstitutional, contradicting a ruling by the U.S. Court of Appeals in Washington in January which upheld the agency’s single-director structure. In Thursday’s case, Judge Loretta Preska of the U.S. District Court for the Southern District of New York “recommended eliminating entirely the section in the 2010 Dodd-Frank financial law that established the CFPB, a step that would in practice mean shutting down the agency,” the Wall Street Journal says.

"Preska's ruling will have a limited effect since it is not binding on other judges in the southern district or elsewhere, and does not affect two decisions by the U.S. Court of Appeals for the D.C. Circuit that have upheld the CFPB's structure," American banker reports. Wall Street Journal, Washington Post, American Banker

While these two opposing rulings must be eventually reconciled, liberal Democrats in the Senate are planning to put up a fierce fight against Kathy Kraninger, President Trump’s nominee to succeed acting Director Mick Mulvaney as head of the agency. They plan to “pounce on her lack of experience in financial regulation.”

No sweat: All 35 of the nation’s largest banks passed the first round of the Federal Reserve’s annual stress tests. The Fed said the banks were “strongly capitalized” and could continue lending during a severe economic crisis. “The positive scorecard indicates most of the banks are likely to win the Fed’s approval next week to increase dividends after a second round of tests,” the Journal comments.

“Despite a tough scenario and other factors that affected this year’s test, the capital levels of the firms after the hypothetical severe global recession are higher than the actual capital levels of large banks in the years leading up to the most recent recession,” Fed Vice Chairman for Supervision Randal Quarles said. Wall Street Journal, Financial Times, New York Times here and here, American Banker

But Goldman Sachs and Morgan Stanley “barely passed” their tests due to their leverage ratios, “raising doubts about their ability to grow dividends and buybacks over the next year.”

Perhaps the banks’ strong position is enabling them to pay out more to depositors, or at least to attract new ones. Some banks are offering new customers hundreds of dollars for deposits. “While some lenders have been giving deposit bonuses for years, the pitches have grown larger and more common," the Journal reports. ‘The average bonus at regional lenders, which likely spend millions of dollars a year on the cash incentives, has risen to almost $300 from less than $200 over a similar period.” But some banks are offering as much as $500.

Wall Street Journal

Do it right: The Supreme Court ruled the Securities and Exchange Commission’s current method of appointing administrative law judges to hear cases against Wall Street defendants is unconstitutional. The high court said the judges must be appointed directly by the SEC’s five-member commission, not staffers.

More shuffling: Deutsche Bank is dismantling its global corporate strategy team as part of the bank’s reshuffling of senior executives under CEO Christian Sewing.

Financial Times

Fighting fraud: British banks are using a new “banking protocol” to notify local law enforcement when they suspect a customer is being victimized by a scam artist, such as when they ask to withdraw a large amount of money. “Almost 200 criminals have been arrested and £25 million of fraud has been prevented by the initiative,” which gets priority response from the police.

Printing money: A project that creates and sells reproductions of money as art to help pay off payday loans is highlighted in a nearly six-minute video in which economist Ann Pettifor explains the real financial system and how money is created.

New York Times

Their pound of flesh: Some consumers burned by last year’s Equifax data breach aren’t waiting to get recompense from a class action suit, most of which would probably go to lawyers anyway. They’re taking the credit bureau to small-claims court — and winning. “Many who try don’t succeed, but a few have reached confidential settlements.” One plaintiff, Christina Bernstein, won $7,440. “Those who have won against the company in court say that the key to their success was being prepared and having proof of the harm they experienced. Document everything.”

Rogue’s gallery: David Drumm, the former CEO of Anglo Irish Bank sentenced to six years in prison for fraud and false accounting, has “joined an exclusive club” of senior banking executives convicted of crimes committed during the financial crisis. But the club is a tiny one. The paper lists some of them.

Washington Post

Naughty or nice?: People who live in African-American neighborhoods pay more for basic banking services, such as checking accounts, according to a study by New America. And “small community banks, whose wholesome image and limited geographic scope have allowed them to largely escape scrutiny,” are mainly to blame, the report claims.

“If we care about racially disparate patterns in costs and fees and want to eliminate those in the financial system, our oversight has to include small and community banks where these practices are prevalent,” said Terri Friedline, an associate professor at the University of Michigan and a co-author of the report.

Quotable

“Mother Teresa could have been nominated, and Senator [Elizabeth] Warren still would have objected because the [CFPB] is about advancing her political ambitions rather than confirming a director who will effectively lead the Bureau.” — White House spokeswoman Lindsay Walters, defending President Trump’s nomination of Kathy Kraninger to head the CFPB.