EU to regulate Libra; Robinhood joins online deposit war

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Federal Reserve chair Jerome Powell said the Fed will “soon increase its purchases of short-term Treasury securities to avoid a recurrence of the unexpected strains experienced in money markets last month.” In August the Fed stopped shrinking the assets on its balance sheet but never said when it planned to start growing it again. “That time is now upon us,” Powell said at a speech in Denver.

“Powell emphasized that the coming moves are aimed at maintaining a firm grip on very-short-term lending rates—and not to provide economic stimulus. “This is not QE [quantitative easing],” he said. “In no sense is this QE.”

Powell “did not specify the exact size of the new asset purchase program, but he said it would not be a resurrection of what they did after the recession 10 years ago.”

“I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis,” Powell said.

But Powell “demurred on whether the Fed will cut interest rates for a third time since July” at its next meeting later this month.

Wall Street Journal

Another blow to Libra

The European Union plans to “introduce legislation aimed at preventing Libra, Facebook’s proposed digital currency, from undermining Europe’s single currency and being used as a money-laundering tool—representing one of the toughest regulatory responses so far.” Valdis Dombrovskis, the European Commission’s vice president in charge of financial regulation, said Libra “posed a systemic risk to the euro, given the size of the companies that are behind the global cryptocurrency-based payments network. His comments deal a further blow to the social-media giant’s ambitions to transform financial services.”

Robinhood to the rescue

Online broker Robinhood said it plans to pay 2.05% on uninvested cash in customers’ accounts, “making it the latest fintech to use higher yields on cash to try to win business. To offer the relatively high yield on cash, Robinhood said it would sweep the money to a network of six partner banks, which in turn pay the interest that Robinhood passes back to customers. Through those partnerships, Robinhood—which isn’t itself a bank—said it is able to offer Federal Deposit Insurance Corp. protection on as much as $1.25 million in cash for each client.”

Mixed bag

Lending by large U.S. banks grew by 5% during the third quarter compared to the year earlier period, “the fastest [pace] since the end of 2016, while consumer loans hit their fastest year-over-year growth pace in seven years. But that is small comfort against the backdrop of sharply falling rates. Loan pricing is still reason for worry.”

Still, “banks aren’t totally bereft of opportunity. They still have plenty of money coming in, thanks to solid deposit growth.”

Financial Times

New policy

Barclays said it will no longer allow its customers in the U.K. to withdraw cash at Post Office branches starting early next year, “sparking criticism from the postal branch network as well as campaigners for rural and elderly customers.” The Post Office currently allows customers of 28 banks to withdraw money and deposit cash and checks. Starting January 8, Barclays will allow customers to deposit money but not to withdraw cash at Post Office branches.

“Barclays said it wants to reduce customers’ reliance on post offices as it invested in free-to-use cash machines and cashback services at local businesses. It said a new cashback scheme should make it easier for customers to withdraw money at businesses in remote towns and areas without a branch or ATM. The bank also pledged not to close branches in remote areas or where it was the ‘last bank in the town’ until at least October 2021.”

Separately, three former Barclays senior executives went on trial in London Tuesday on charges that they conspired to pay investors in Qatar £322 million avoid a bailout by the U.K. government during the financial crisis in 2008. Prosecutors said the three men lied about the arrangement in order “to preserve the future of the bank and to preserve their own positions.” The three are charged with conspiracy to defraud and other fraud offences, which carry maximum 10-year sentences.

German banks plan merger

Two large German banks — neither of which is named Deutsche Bank or Commerzbank — are “pushing ahead with merger talks that could create a financial powerhouse with €260 billion in assets and 11,000 staff.” The merger of Frankfurt-based Helaba and asset manager Deka “could become a driving force in future consolidation within Germany’s fragmented public banking sector, which is reeling from low interest rates, high costs and expensive bailouts for state-owned regional lenders. At a later stage, a merged Helaba-Deka could eventually be the vehicle for future mergers.”

Ready for anything

Goldman Sachs “has set up a disaster recovery trading floor in a WeWork office in London to enable the bank to continue operating in the event of a major disruption.” Goldman advised the office rental space company for its recently cancelled initial public offering.

Rejected

“In a rare move,” the European Central Bank and Germany’s financial regulator BaFin are “leaning towards rejecting Jürg Zeltner as a member of Deutsche Bank’s supervisory board on conflict of interest concerns, unless he resigns as chief executive of Qatari-backed European private banking group, KBL.” The regulators “are not convinced he will be sufficiently independent given that KBL competes directly with Deutsche in wealth management.” Zeltner joined KBL in May and was named to Deutsche’s supervisory board in August.

Quotable

Yes, we will need to regulate Libra, to supervise it on an EU level, both from the perspective of financial stability and the protection of financial investors. Financial stability, monetary stability, anti-money-laundering—these are just a few aspects that need to be considered.” — Valdis Dombrovskis, the European Commission’s vice president of financial regulation, on plans to regulate Facebook’s planned digital currency.

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