Digital currency startup soars; Volcker Rule changes proposed

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Full Circle: Circle Internet Financial, a digital currency startup backed by Goldman Sachs, among others, has valued itself at $3 billion following a new funding round Tuesday, “making it one of the most highly valued financial technology startups in the U.S.,” according to the Wall Street Journal. The latest $110 million funding round, “one of the largest ever among crypto startups,” was led by Bitmain Technologies, a Chinese builder of computer chips for digital currency transactions.

The deal shows that, “despite a 40% decline this year, bitcoin is still making fortunes for companies that deal in the volatile currency,” the Journal said.

Circle uses blockchain technology to provide peer-to-peer mobile payment services as well as over-the-counter cryptocurrency trading. The company is set to launch a new type of token called a “stablecoin” that is backed by central bank fiat currency reserves in a bid to help make cryptocurrencies a mainstream payment method.

“The ability to send a digital currency to anyone with a digital wallet is revolutionary, opening up the world to totally new forms of commerce,” said Jeremy Allaire, Circle’s co-founder.

Separately, Coinbase, which operates the largest U.S. cryptocurrency exchange, said it plans to upgrade its systems to enable high-frequency trading, one of the first such exchanges to do so. The company also said it plans to let trading firms place their computer servers in Coinbase’s data center in order to minimize delays between traders and the exchange, making trading even faster.

Declaration of independence: Federal Reserve nominees Richard Clarida and Michelle Bowman told the Senate Finance Committee at their confirmation hearings that they “absolutely” support the Fed’s independence from politics. Clarida, President Trump’s choice to be Fed vice chair, said, “In no meeting, at no time, did I ever have any reason to question the independence of the Federal Reserve, absolutely not.” Wall Street Journal, Washington Post

Wall Street Journal

Seen better days: “One of the most profitable consumer-lending categories in recent years” — credit cards — “may become more of a middling player” going forward as issuers face “an uneasy future,” the Journal reports. “Rising loan losses and increased rewards expenses are putting pressure on card lenders’ returns,” the paper says. “While cards remain highly lucrative for banks, the benefits of a rising interest-rate environment have been muted lately. The added revenue of cardholders paying more in interest payments each month has also been offset by growing competition from lenders trying to poach card customers by offering lower rates.”

Volcker 2.0: Banks would be given more leeway to make certain types of trades under proposed changes to the Volcker rule. The changes, called Volcker 2.0, “are designed to lower the burden banks face to prove that short-term trades don’t violate the rule,” which restricts proprietary trading by banks. “Regulators are also seeking to alter the definition of permitted hedging and market-making activities, to limit the rule’s impact on non-U.S. investment funds, and to cut compliance requirements for banks with trading desks under a certain size,” the Journal said.

Financial Times

Anticipation: The House is expected to vote next week on the Senate-passed bill to bring relief from Dodd-Frank to small banks. In anticipation of its passage into law, banks “are gearing up to take advantage of new freedoms to pile into mortgages and other areas of lending.”

No thanks, we can manage (not): TSB, the British bank that bungled the transfer of thousands of accounts several weeks ago due to IT problems, apparently turned down an offer from Lloyds Banking Group, the former owner of the accounts, to help in the transfer. According to the FT, “Lloyds had made an open-ended offer to use its own expertise to help TSB, but TSB declined.” The botched transfers cost TSB’s CEO a large bonus while the bank was forced to raise deposit rates and offer other perks to keep customers.

Risky business?: Japan Post Bank, “an institution that once symbolized the nation’s financial conservatism,” is planning to launch a $1.5 billion in-house hedge fund as it “embraces a new level of risk in a quest for greater returns,” the FT reports. “The shift moves the bank from being a passive investor in externally managed funds to one that can actively hold, and potentially short-sell, individual stocks.”


The easy money has been made in card lending.” — Don Fandetti, consumer finance analyst at Wells Fargo.

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