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Merger to create largest Black-owned bank; North Korea hackers target ATMs

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Federal Reserve Chair Jerome H. Powell on Thursday "is expected to detail where the Fed has landed on the best approach to steering one of the world’s largest economies during a speech at an annual economic policy symposium in Jackson Hole, Wyoming," the Washington Post reports. "In the backdrop is an economy that’s vastly different from the one for which the Fed thought it was planning. But experts say the review ultimately speaks to some of the most pressing questions of this new world, namely whether a different approach is needed for the Fed to achieve its dual mandate of maximum employment and stable prices."

"The storied gathering of elite economists has been held behind closed doors in Jackson Hole since 1982," the New York Times notes. "Because of the coronavirus pandemic, the event will be held remotely and streamed on the Kansas City Fed’s YouTube page this year, allowing the public to tune in for the first time ever. It could be the stage for an important policy shift."

Fed "officials have signaled they are ready to adopt a new approach of making up for periods of low inflation by seeking subsequent periods of higher inflation, and Mr. Powell’s speech offers a natural venue to explain what the Fed is preparing to change and why," the Wall Street Journal said. "The practical effect is that it will be a long time before the Fed raises interest rates."

The Fed "is making progress in incorporating climate change risks into its bank oversight activities, but its work is far from done, says a new report from a group of Senate Democrats," the Wall Street Journal reported. "The Special Committee on the Climate Crisis said the Fed, a holdout among major central banks, should join the international Network for Greening the Financial System. The report also said the Fed should stress test financial firms to ensure they can withstand negative climate-change-related events, as part of its broader effort to make sure banks can navigate economic and market shocks.

But "asking the Fed to address racial disparities and other complex problems risks conflict with other goals," the Wall Street Journal warns. "Racial equality is only one of several new missions the Fed is being asked to assume. Mr. Powell is being prodded to join other foreign central banks in formally incorporating into policy-making the risks a warming planet poses to the economy and the financial system. Targeting the wealth gap is even more problematic."

"But mission creep poses real risks. The Fed is being asked to meet goals for which its tools are poorly suited and often in conflict. The more entangled they become, the more advocates of mission creep are emboldened—and the more responsibility shifts from the elected leaders and institutions that actually have the means to tackle complex problems like climate change and systemic racism."

Wall Street Journal

Hack alert

"Hackers tied to the North Korean government are trying to rob banks across the globe by draining ATMs and initiating fraudulent money transfers, in an effort by the cash-strapped Pyongyang regime to fund its nuclear weapons program, multiple federal government agencies warned Wednesday. The campaign includes so-called spearphishing attacks—which use fraudulent email to infect a computer or persuade the victim to reveal a password or other information—and social engineering schemes. The hackers have also aimed at retail payment infrastructures and interbank payment processors, the agencies said."

"U.N. investigators say the complexity of the orchestrated ATM thefts across dozens of countries shows North Korea’s cyber capabilities have become dangerously sophisticated."

Financial Times

Called out

U.S. Secretary of State Mike Pompeo "has stepped up his attack on HSBC, accusing the U.K. lender of caving to Chinese pressure to block pro-democracy Hong Kong media executives from accessing their money while maintaining accounts for Chinese officials under U.S. sanctions." "HSBC maintains accounts for individuals sanctioned for denying Hong Kongers’ freedom, while shutting accounts for those seeking freedom," Pompeo said.

"The secretary of state made similar accusations against HSBC in June, accusing it of 'kowtowing' to Beijing after the bank's top Asia executive, Peter Wong, publicly expressed support for the national security law. The latest public attack on HSBC piles pressure on the sprawling 155-year-old bank, which is walking an increasingly perilous geopolitical tightrope between China and the west."

Profit pressure

"The increase in eurozone loan defaults expected as a consequence of the coronavirus pandemic is set to offset one of the key benefits of negative interest rates for the bloc's banking system," European Central Bank executive board member Isabel Schnabel said Wednesday. "Absent a forceful policy response, the current pandemic is likely to put substantial pressure on banks’ profitability due to rising loan-loss provisions and defaults, at a time when euro area banks' profitability is already depressed, mostly due to structural reasons," she said.

"Schnabel argued that governments needed to address the structural reasons for low European bank profitability — such as lack of consolidation in the sector — by making progress on eurozone banking union and capital markets union as well as boosting the economic recovery with fiscal policy."

Behind the goof

"When Citigroup accidentally wired $900 million of its own money to creditors of the cosmetics group Revlon this month, it was a reminder that even the apparently mundane business of administering corporate loans can blow up into a reputational crisis. By forgetting to override default settings in some software, a Citi employee trying to send an interest payment caused the loan to be repaid in full instead."

But Citi's goof also revealed the tension between distressed debt hedge funds and the companies they are lending to, with banks caught in the middle. While these fights "are hardly new, the removal of traditional investor protections has made them increasingly ugly and, with coronavirus forcing companies to pile debt upon debt, increasingly frequent. In this heated environment the administrative agents — banks charged with managing payments on a loan — are turning out to be more than neutral bureaucrats. They are forced to choose between the interests of balkanized creditors and the corporate borrowers who pay them — and from whom they hope to win more lucrative business."

Cushioning the blow

On a positive note, "companies and households across the eurozone increased their deposits at banks by €184 billion in July, as money supply in the bloc rose by the fastest annual rate since the 2008 financial crisis," according to the ECB. "Total deposits held by eurozone banks rose 10.3% in the year to July, climbing above €12 trillion for the first time [as] many households and companies reacted to the economic fallout from the coronavirus pandemic by saving more money. Overall money supply in the eurozone rose 10.2% in the past year, as deposits and currency in circulation both increased rapidly — a pace not seen since the last global financial crash 12 years ago."

New York Times

Historic merger

Broadway Federal Bank in Los Angeles and City First Bank in Washington, two Community Development Financial Institutions, on Wednesay announced an agreement to "create the nation’s largest Black-controlled bank and the first with assets of more than $1 billion. The enlarged bank will specialize in three areas of financing: multifamily affordable housing, small businesses and nonprofit development."

As CDFIs, Broadway and City First "focus on low- and moderate-income areas and typically serve minority borrowers and entrepreneurs who lack the assets to get traditional loans. The new company will preserve Broadway’s designation as a Minority Depository Institution, a federally insured institution that is mostly owned by minority shareholders or led by a minority-controlled board."

Broadway "will maintain its status as a community development financial institution, requiring it to make at least 60% of its loans in low- and moderate-income communities," American Banker's Paul Davis reports.

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