Receiving Wide Coverage ...
Overturned: A $1.27 billion penalty against Bank of America was overturned Monday by a federal appeals court. A three-judge panel said federal prosecutors failed to prove Countrywide Financial, later acquired by B of A, had defrauded Fannie Mae and Freddie Mac when it sold them troubled loans in 2007 and 2008. While it found Countrywide knew it was selling faulty loans there was a lack of evidence of intent to deceive at the time the contract was written. Monday's ruling is seen as a blow to the Obama administration and future government attempts to prove fraud. The original verdict helped pave the way to nearly $45 billion in mortgage-securities settlements with Wall Street banks, and Monday's decision will not alter any of them, the papers said. While fighting the law doesn't often end well, the law doesn't always win, the FT says. Banks should look to B of A's example and perhaps show more resolve instead of readily paying whatever penalty the government demands, the papers say, although settling a case in court has its risks too. Wall Street Journal, Financial Times, New York Times
Beefing Up Security: Swift will reveal a new set of security standards Tuesday for its bank members that will include security audit frameworks, certification requirements for third party vendors that help banks connect to the network and ways for the banks to identify payment pattern controls and identify suspicious behavior. The planned announcement follows attacks by cyberthieves in which they accessed the Swift system by fraudulently obtaining bank codes. The first was the $81 million cyberheist involving the New York Fed and Bangladesh Bank; others, reported last week took place in 2015 and involved banks in Ecuador and Vietnam, the latter was unsuccessful. Swift has said it was not made aware of the Ecuador incident and reminded banks of the need to report such incidents quickly. The chain of events brings to light the question of whether the network should be liable for security or its users should. Since the February attack involved the New York Fed, Swift remains adamant its systems were never breached, but the banks' systems were. Now, chief executive Gottfried Leibbrandt is framing these new standards as an effort by Swift to "step up to the plate" for its customers but says it won't work without banks and supervisors doing their part as well. Meanwhile, Rep. Carolyn Maloney, D-N.Y., pressed banking regulators for response to the series of "breaches" in a Monday letter to the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. Maloney asked them to identify actions they have taken or plan to take to insure adequate cybercontrols.Wall Street Journal, Financial Times
Libor Lawsuits Revived: A court ruling that dismissed claims against 16 banks accused of collectively manipulating the London interbank offered rate was overturned Monday. Plaintiffs claimed the alleged collaboration depressed the returns on their investments, but a U.S. District Court judge did not find the banks' alleged conduct to violate federal antitrust laws. On Monday, an appeals court reinstated the case, with a three-judge panel ruling the plaintiffs did successfully claim an antitrust injury "by alleging that they paid artificially fixed higher prices." The case was sent back to the lower court for further proceedings. Plaintiffs will still need to prove the allegedly rigged Libor rate influenced prices on their financial investments. Analysts said if the litigation is successful, it could cost banks billions of dollars. Wall Street Journal, Financial Times
Post-Scandal Bump: Lending Club shares increased 8.3% Monday after Chinese investment group Shanda increased its stake to 11.7% from about 7% – with an option to buy another 4.1%, according to a regulatory filing. Shares are still down 39% since the May 9 resignation of former chief executive Renaud Laplanche. Shanda, now the marketplace lender's largest investor, began building its stake before Laplanche's demise. It said in a statement this week it is "a strong believer" in LendingClub's business model and "positive on its long-term prospects as it continues to evolve and refine its business." Wall Street Journal, Financial Times
Wall Street Journal
JPMorgan's private banking unit has announced another round of layoffs, this time affecting about 100 employees in various positions and locations.
Wells Fargo will continue lending to companies already carrying lots of debt, says Perry Pelos, head of corporate and commercial banking and treasury management. His vow comes despite regulatory guidance encouraging financial institutions to avoid such risky deals – specifically, those that involve putting debt on a company of more than six times its earnings before interest, tax, depreciation and amortization, among other factors. "Regulators don't make our loan decisions for us," Pelos said. "If we got to the point where we needed to run an individual loan decision by a regulator, then we might as well let the regulators run the business."
New York Times
Fintech companies are competing for the underserved U.S. immigrant market, often disregarded as high-risk and low-margin. According to the World Bank, 700 million people around the world opened bank accounts between 2011 and 2014 but 2 billion more remain unbanked. It also reported $600 billion in remittances are transferred globally each year. Fintech companies – along with along with money transfer companies Western Union and MoneyGram International, which are expanding their digital and mobile options – expect the boom in cross-border transfers and other financial services for U.S. immigrants to continue and are helping immigrants deepen their U.S. roots during an election season dominated by anti-immigration rhetoric.
Reuters: Democratic U.S. Sen. Sherrod Brown wrote a letter to Treasury Secretary Jack Lew addressing concerns over the U.S.'s ability to police shadow banking entities. He asked Lew (also chair of the Financial Stability Oversight Council) a series of questions about how the FSOC identifies and monitors "potential threats arising from the migration of financial activities to less-regulated entities," as well as legislation that could weaken its response to threats, and additional powers it may need.
Business Insider: Community Federal Saving Bank in New York is the second of fintech startup TransferWise's U.S. banking partners coming under regulatory scrutiny. "There is no indication that TransferWise committed any wrongdoing, or broke any laws, by partnering with Community Federal Saving Bank (CFSB). There is no evidence that the problem at CFSB in any way affected or was linked to TransferWise's business," the report says. The European money transfer company launched in the U.S. in February 2015. However a year earlier, CFSB was cited by the OCC which "found unsafe and unsound banking practices relating to management and earnings." The OCC enforcement, still in place today requires the CFSB inform the OCC of changes to its board or executive team, and prevents "golden parachute" payments to any departing senior employees. It also requires the bank not pay any dividends. "We conducted due diligence on a number of potential partners for our US launch," a TransferWise spokesperson said. "As part of our due diligence, which we conducted over the course of many months, we were aware of the OCC agreement — which is relatively common for banks in the U.S. Based on that due diligence, we were confident that they had taken steps to address the issues raised."