Google-Citi deal will face scrutiny; auto lending rises to near record level

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Red flags

Google’s proposed move into banking with its Cache checking account “could further alarm lawmakers already anxious about the concentration of increasingly intimate personal information within a few big tech companies,” the Financial Times reports. “With Facebook running into widespread resistance to Libra, Google has said it planned to work with existing financial services providers, including its first partners Citigroup and Stanford Federal Credit Union.”

While Google says the target audience for the product will be “mobile-first users, the specifics of what will be offered are still being worked out,” the New York Times says. And its “initial ambitions for Cache are fairly modest. It is not seeking a banking charter — something it could have done through a new regulatory pathway intended to encourage fintech experiments — and will instead rely on its bank partners to hold and manage customers’ accounts.”

“The arrangement will give Google a potential trove of new data about spending habits, income and other details, valuable for better understanding consumers,” the Washington Post notes. “But it will probably face scrutiny as part of a broad investigation of Google from regulators and state attorneys general.”

“One big unanswered question” about Cache “concerns how customers’ transaction data will be used,” American Banker reports. “It’s a question that could resonate not only with wary consumers, but also with banks that are worried about big tech’s ambitions in financial services, as well as lawmakers and regulators concerned about the tech industry’s growing reach.”

On hold

Federal Reserve Chair Jerome Powell told Congress’s Joint Economic Committee Wednesday the Fed was unlikely to lower interest rates again after making cuts in three straight meetings since July. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market” and stable inflation, the Journal reports. “Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly,” he added.

“The remarks suggest that the central bank’s outlook has not changed since its last monetary policy meeting in October and that the Fed’s rate-setting committee is likely to leave its interest rate target range unchanged at 1.5% to 1.75% in December, when it next meets,” the FT says.

“Powell also used the appearance to emphasize the central bank’s freedom from the political process,” the Times reports. “Politics plays absolutely no role in our decisions,” he said. “We won’t make mistakes of character or integrity.”

"Powell’s comments came 24 hours after President Trump bashed the Fed for not slashing interest rates more,” the Post says. “Trump suggested the Fed lower interest rates so much that they would effectively be negative, a rare phenomenon that could lead banks to pay people for taking out loans. Asked about this, Powell largely dismissed the idea and said it would ‘certainly not be appropriate’ in the current economic environment.”

The chair remains hopeful for developing a joint Community Reinvestment Act plan with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., American Banker reports.

Separately, Patrick Harker, the president of the Philadelphia Fed, said the Fed “should hold steady for a while and watch how things unfold before taking any more action.” Harker, who doesn’t have a vote on the Fed’s monetary policy committee this year, said he would have voted against the Fed’s three previous rate cuts.

Wall Street Journal

Revved up

Auto loan originations rose to $159 billion in the third quarter, “the second highest level on record,” according to a report from the Federal Reserve Bank of New York. “Auto debt now accounts for nearly 10% of overall household debt, up from about 6% when the recession ended in mid-2009.” The rise is being driven by a “decade-long economic expansion” and lower interest rates. Home loans also grew in the quarter.

Financial Times

Trader’s plea

Citigroup’s former head of European spot foreign-exchange trading told an employment tribunal in London Wednesday that senior managers at the bank “condoned the sharing of clients’ information with currency dealers at rival banks.” The trader, Rohan Ramchandani, who was acquitted of forex rigging by a New York jury last year, is pursuing an unfair dismissal claim against the bank in London, alleging the bank fired him to curry favor with regulators investigating forex rigging. He has also sued Citi in the U.S. for $112 million.

Ramchandani claims that Citi “did everything imaginable to discredit me in the FX market investigation.”

Quotable

“People are buying better quality, more durable cars which last longer but they cost more. Car prices are going up, so household auto debt is increasing.” — Bronson Argyle, a professor at Brigham Young University, explaining the rise in automobile loans outstanding

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