Fed says more government support is needed; Scotiabank fined $127 million

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Fed perspective

The minutes from the Federal Reserve’s July 28-29 “showed officials believed more government spending would be needed to prevent a longer or deeper downturn amid difficulties states have faced suppressing the virus.” They said “they expected the economy would require greater government support to recover from the coronavirus pandemic, though they didn’t signal at which of their coming meetings they would deploy those tools.”

“A number of officials also believed more stimulus from the Fed could be required, the minutes said. With interest rates already cut to near zero, Fed officials could do this by providing more specifics about how long they will keep rates low—including by describing an inflation threshold and various labor market conditions that would warrant withdrawing any stimulus.” Wall Street Journal, New York Times, Washington Post

But St. Louis Fed president James Bullard — currently a nonvoting member of the Fed’s monetary policy committee — offered a more optimistic assessment, telling Reuters that “Wall Street has got it right and he expects the United States to do better than many forecasters anticipate as businesses and households learn to manage coronavirus risks.”

Bloomberg News

“I think Wall Street has called this about right so far,” he said. “There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside...So I think we are going to do somewhat better. I expect more businesses to be able to operate and more of the economy to be able to run...successfully in the second half of 2020.”

The Fed opted not to “take up a new tool known as yield curve control, but said it will keep all of its options open in the future,” Yahoo Finance said. “Many participants judged that yield caps and targets were not warranted in the current environment but should remain an option that the Committee could reassess in the future if circumstances changed markedly,” the minutes said.

Wall Street Journal

Scotiabank scorched

The Bank of Nova Scotia “agreed to pay more than $127 million to settle civil and criminal allegations in connection with its role in what authorities described as a massive price-manipulation scheme. The fine is the result of multiple agreements reached Wednesday with the U.S. Justice Department and the U.S. Commodity Futures Trading Commission. The settlements stem in part from thousands of manipulative orders for precious metals futures contracts placed on U.S. exchanges over an eight-year period by four traders at Scotiabank, the agencies said. The settlements also resolve claims by the CFTC that Scotiabank made false statements and incomplete disclosures about alleged price manipulation by its traders in connection with a prior investigation by the derivatives market regulator.”

“Under the agreements with both agencies, the bank will be required to retain an independent compliance monitor for three years. The steep fine and imposition of a monitor reflected the seriousness of Scotiabank’s offense and the state of its compliance program, Robert Zink, chief of the Justice Department’s criminal fraud section, said in a statement.”

Financial Times

Rise and fall

Wirecard, the defunct German payments company, is being booted from Germany’s blue-chip Dax index, just weeks after its “spectacular collapse into insolvency following the revelation of a long-running fraud.”

“At its height, Wirecard stock traded at almost €200, but it will leave Germany’s prestigious index with its shares worth little more than €1 each. Although Wirecard filed for insolvency soon after its admission, Deutsche Börse, which runs the Dax, was not scheduled to review the index’s constituents until September. Facing pressure from investors, the group pushed through a rule-change to allow it to remove Wirecard earlier than planned.”