Deutsche tied to 1MDB; Powell's Libra comments resonate

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More trouble
Deutsche Bank, fresh off the announcement of a major corporate overhaul that will cost 18,000 people their jobs, now finds itself implicated in the 1MDB fund scandal, which has already ensnared Goldman Sachs. “The U.S. Justice Department is investigating whether the German lender violated foreign corruption or anti-money-laundering laws in its work” for the Malaysian fund. “The investigation into Deutsche Bank has been helped in part by a former Goldman Sachs executive, Tim Leissner, who is cooperating with authorities.” Leissner “pleaded guilty last year and admitted to earlier helping siphon off billions of dollars from the fund.” Wall Street Journal, Financial Times, New York Times

Separately, Deutsche Bank is planning to appoint Dagmar Valcárcel, a former Barclays legal executive, to its supervisory board. She would replace Stefan Simon, who is moving to the bank’s management board to deal with regulatory and legal affairs.

Powell on the Hill
Federal Reserve Chair Jerome Powell “sent a strong signal Wednesday that the central bank could cut interest rates later this month,” the Wall Street Journal says.

“The bottom line for me is the uncertainties around global growth and trade continue to weigh on the outlook,” he told the House Financial Services Committee, adding that weak inflation readings “strengthened the case for a somewhat more accommodative policy.”

“Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy,” he said. “Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.” Financial Times, New York Times, Washington Post

James Bullard, president of the Federal Reserve Bank of St. Louis and a long-time dove, said he favors a quarter-percentage-point rate cut at the next Fed meeting later this month, and possibly another before the end of the year. Bullard voted for a rate cut at the Fed’s June meeting.

Powell told the committee “he wouldn’t stand down from his job if President Trump attempted to fire him.”

Powell testifies before the Senate Banking Committee on Thursday.

The Fed also released the minutes of its June meeting on Wednesday, which showed “many officials were ready to cut rates if an economic outlook clouded by slower global growth, weaker-than-expected inflation and uncertainty over trade tensions didn’t soon improve.”

“Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook,” the minutes said. Wall Street Journal, Financial Times, New York Times

Also at Wednesday’s hearing, Powell sounded strong caution against Facebook’s plan to issue a digital currency to facilitate payments on its social media platform, saying it raised a host of “serious concerns” around “money laundering, consumer protection and financial stability.” New York Times, American Banker

Meanwhile, the Securities and Exchange Commission approved blockchain startup Blockstack’s plan “to sell bitcoin-like digital tokens, a first-of-its-kind offering that could give young cryptocurrency businesses a new fundraising template. The Blockstack offering is, in essence, a regulated version of initial coin offerings, unregistered public sales of digital tokens that exploded in 2017. Crypto ventures raised billions of dollars through ICOs before the SEC began a legal campaign against token sales that it said violated investor-protection laws.” Blockstack plans to begin selling $28 million of the tokens on Thursday.

Financial Times

Upping requirements
Australia’s financial regulator is forcing three of the country’s biggest banks — Westpac, ANZ Bank and National Australia Bank — to hold an extra A$500 million ($348 million) in capital “due to corporate culture and governance risks.”

“The decision came as Australia’s markets regulator sharply criticized 11 major banks and other lenders for mis-selling consumer credit insurance — the latest in a spate of scandals to hit the finance industry.”

Quotable

“I just think it cannot go forward without there being broad satisfaction with the way the company has addressed money laundering — all of those things — data protection, consumer privacy. All of those things will need to be addressed very thoroughly and carefully, and again, in a deliberate process that will not be a sprint to implementation.” — Fed Chair Jerome Powell on Facebook’s Libra cryptocurrency project, in testimony to the House Financial Services Committee

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