Google-Citi deal could break the ice; bill calls for bank cooperation on guns

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Seeking a meaning

The Chinese government seized control of another small rural bank over the weekend, “another sign that the problems” in China’s banking system “are more widespread.” While “China’s banking system as a whole doesn’t look overly stretched, smaller banks lent liberally to local governments and businesses, and bad debts are rising as China’s economy sputters. Simultaneously, the banking sector has been hit by tougher rules from Beijing, such as stricter requirements on recognizing overdue loans. The changes are pushing up nonperforming loan ratios and revealing impairments lurking within off-balance-sheet lending.”

Meanwhile, in the U.S., three banks have collapsed over the past month, “bringing the total number of failures this year to four,” the Financial Times reports. “In a country with some 4,700 federally insured lenders, that is a small number. But given that the total last year was zero, the trend is worth watching.”

“Granted, the three bust banks are small canaries in the coal mine: between them they had less than $200 million in assets and five branches. But the last time there were zero U.S.-bank failures was 2006. In 2007 there were three. The year after that? No one needs reminding.

“Bankers should pay attention because the recent closings could portend a stiffer regulatory stance on capital adequacy and risk, industry experts said,” American Banker reports. “Regulators could be looking to address instances of poor management and inadequate capital before the next economic downturn.”

Separately, the European Central Bank Friday terminated the banking license of Anglo-Austrian Bank, formerly known as Bank Meinl, “one of Austria’s best-known financial institutions, amid ongoing concerns over compliance failures and allegations of money laundering that have dogged the bank in recent months.” The move, which was effective immediately, brings “to a close almost a century in banking for the Meinl dynasty.”

Financial Times

A matter of trust

The partnership between Citigroup and Google announced last week to “offer smart checking accounts through Google Pay … remains vague,” and “given the history of the two institutions, and other recent attempts to mix West Coast tech with East Coast finance, it is tempting to conclude that this venture — code named Cache — will hit trouble.”

“But that would be too hasty,” the paper says. “Silicon Valley has already cracked payments. It is only a matter of time before it overturns more complex banking functions. Citi-Google could be a beachhead. If banks such as Citi — which can trace its roots to 1812 — are seeking to do deals with them, you can expect plenty more to follow.”

“Consumer trust issues have long been a stumbling block for challenger banks, but many say Google will face an even tougher time persuading customers to share their financial information as part of its planned checking account,” American Banker reports.

Contactless climbs

The number of contactless payments transactions in the U.K. rose to more than 726 million in August, up nearly 14% compared to the year earlier figure. In pound terms, spending on contactless soared to £6.9 billion, up from £6 billion, according to U.K. Finance, the industry trade body.

“Contactless debit cards have been the norm for a while, and now an ever-increasing number of people are tapping through transactions on their credit card,” said John Crossley, the director of price comparison website Compare the Market.

Warning ignored

Bank of America ignored FBI warnings about financing a leveraged buyout for the now-bankrupt Constellation Healthcare Technologies, according to FBI files made public in a U.S. court last week. The FBI told an executive at BofA “the entire transaction was setting alarms off, and there was a concern that someone was attempting to defraud” the bank. BofA went ahead with a $130 million loan to finance the acquisition. “Constellation filed for bankruptcy last year, and it is uncertain how much the lender will recover.”

New York Times

Suspicious minds

In the wake of a school shooting in California last week, a Virginia Democrat has proposed a House bill that “would require banks and other financial institutions to work with the government to help identify and report suspicious or illegal financial activity related to firearms.” The measure, sponsored by Rep. Jennifer Wexton, “called the Gun Violence Prevention Through Financial Intelligence Act, would require the Financial Crimes Enforcement Network, or FinCEN, to work with financial companies to develop a framework to identify suspicious firearms transactions. The bill says that if FinCEN determines that banks do not have enough data to identify suspicious activity, it ‘must submit a report to Congress detailing the process and identifying barriers to data collection.’”

Elsewhere

Man bites dog?

In what a police official is calling “almost like a reverse bank robbery,” a teller at a Maryland credit union was arrested after he allegedly invaded the home of a customer who had recently withdrawn a large sum of money. The teller at Freedom Federal Credit Union, Nathan Michael Newell, 19, was arrested after police said he attacked a 78-year-old man and his stepdaughter at their home. “Charging documents say Newell confessed to the crime and said he did it because he was tired of working two jobs.” Michael MacPherson, the credit union’s president and CEO, said Newell was fired.

Quotable

“Banks, credit card companies, and retailers have unique insight into the behavior and purchasing patterns that can help identify and prevent mass shootings. We know that financial intelligence can be an effective tool to combat gun violence in the same way it is for money laundering, human smuggling, and fentanyl trafficking.” — Rep. Jennifer Wexton, D-Va., who introduced a bill in the House last week that would require banks “to work with the government to help identify and report suspicious or illegal financial activity related to firearms”

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