Facebook partners not sure about Libra; Northern Trust's exposure

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More skepticism
Two more global financial regulators said they are paying “close attention” to Facebook’s plans to launch its own digital currency, called Libra. “Both the international Financial Stability Board and the U.K.’s Financial Conduct Authority have said they will not allow the world’s largest social network to launch its planned digital currency without close scrutiny.”

Meanwhile, seven of Facebook’s 27 partners themselves “are approaching Libra warily,” the New York Times reports. “They signed nonbinding agreements to join the effort partly because they knew they weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where it was going. The doubts among Facebook’s partners add to a growing list of challenges for Libra. Companies are hesitant to associate themselves too closely with the Libra project because of Facebook’s issues with regulators around the world, the company’s shaky track record on privacy and how it treats corporate partners, and the uncertain legality of cryptocurrencies.”

“There is indeed potential for greatly improved payment systems,” the Financial Times says. “But the emergence of a payment system on a network of Facebook’s scale would raise some huge questions. Should Libra ultimately develop into a true banking system, with the capacity to create its own fiat (man-made) currency, the questions would become yet more pressing. Even if lending by the Libra system is ruled out, regulators should not allow this plan to go ahead without fully understanding the implications. This would be true even if the lead sponsor were not Facebook. But it is. So beware.”

A close second
Also in the cryptocurrency sphere, Stephen Moore, who recently withdrew from consideration for a spot on the Federal Reserve, is thinking about joining Decentral, a start-up that aspires to be “the world’s decentralized central bank.”

Decentral “would regulate digital currency much as the Fed controls the U.S. monetary system, even as lawmakers are pushing for answers on how cryptocurrencies could affect global markets.”

“I feel like cryptocurrency is like a new Internet in terms of challenging the way we do business in America, and how we get information and how we do trades,” Moore told the Washington Post. “I just have a fascination with cryptocurrency. I think cryptocurrencies are the next big thing.”

Meanwhile, “hedge funds and other big traders are betting that bitcoin will fall, even as the digital currency has risen above $11,000 on a new wave of crypto-optimism.”

Deutsche doings
Peter Selman, Deutsche Bank’s global head of equities, may be leaving, “the latest move in a planned downsizing of the German lender’s investment bank.” The bank had recently discussed putting Selman in a senior role in a so-called bad bank that Deutsche is thinking about creating to store assets it’s looking to unload or wind down. Selman joined Deutsche Bank in 2017 from Goldman Sachs, where he oversaw global equities trading and equity derivatives.

Separately, Deutsche Bank “is facing multimillion-dollar losses” at its American investment banking unit as it struggles to unload two risky corporate loans. “The losses will turn up the heat on Christian Sewing, Deutsche boss, and his management team.”

Meanwhile, a former senior Deutsche Bank executive told a London court “that he did not help manipulate the Euribor interest rate for the bank’s former star trader Christian Bittar or for other traders.”

Guilty
A U.K. jury convicted a former UBS compliance officer and a wealthy day trader of insider trading. “Fabiana Abdel-Malek was a compliance officer for the Swiss bank in London until her arrest in 2015. The Financial Conduct Authority argued in court that she accessed confidential information about pending deals through an internal bank system and passed information on to Walid Choucair, a wealthy friend who traded stocks, allowing him to make more than a million dollars in illicit profits.” Wall Street Journal, Financial Times

Wall Street Journal

Decline of the empire
Northern Trust "could be on the hook” for £150 million ($190 million) of losses from risky loans it made to a U.K. mutual fund headed by Neil Woodford, “whose investment empire is in serious trouble as clients have fled and U.K. regulators have launched an investigation. The Northern Trust loan is backed mainly by private shares in risky young companies. Northern Trust’s loan to the Woodford Patient Capital Trust is unusual," the paper says. "No other fund in the U.K. that invests in risky, early-stage companies uses any leverage at all, according to Britain’s Association of Investment Companies.”

Costly venture
The Trump administration’s plans to reform Fannie Mae and Freddie Mac may be making it more expensive to get a mortgage. “Securities issued by [the two] mortgage giants are trading at a growing discount compared with securities sold by Ginnie Mae, another government agency that backs mortgages, bond data show. That has led to higher borrowing costs for plain vanilla mortgages. Investors say the gap between Fannie and Ginnie securities has widened as administration officials develop a proposal to overhaul Fannie and Freddie and release them from government control.”

Meanwhile, Congress is looking into whether Fannie and Freddie should be labeled systemically important financial institutions.

An offer he could refuse
Federal Reserve Bank of St. Louis President James Bullard said he was approached by the White House about serving on the Fed’s board of governors. “Bullard characterized the discussions as ‘exploratory in nature.’ He said he told the Trump administration that he is happy in his current position and noted that he currently sits on the Fed’s rate-setting committee.” Bullard is a long-time dove, favoring lower interest rates than some of his fellow central bankers. At the Fed’s most recent meeting, he was the lone dissenter to the decision to hold interest rates steady, preferring a 25-basis point cut.

Quotable

“Though cryptoassets do not currently pose a risk to global financial stability, gaps may occur where cryptoassets fall outside the scope of regulators’ authority or from the absence of international standards. A wider use of new types of cryptoassets for retail payment purposes would warrant close scrutiny by authorities to ensure that they are subject to high standards of regulation. The FSB and standard setting bodies will monitor risks very closely and in a coordinated fashion, and consider additional multilateral responses as needed.” — Randal Quarles, the head of the Financial Stability Board and vice chairman of the Federal Reserve for supervision, warning the leaders of the G20 nations about the potential risks from Facebook’s planned digital currency

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