Wall Street Journal
The Securities and Exchange Commission is looking into Santander Consumer's accounts – specifically, its loan loss provisions. The Spanish bank's holding company in the U.S. wrote down a $4.8 billion goodwill impairment charge of its consumer unit earlier this week after seeing shares fall 24% in the fourth quarter of 2015, on concerns over an increasing amount of risky car loans. Separately, it revealed consumer-unit executives delayed filing its annual report after the SEC raised questions about the company's recent changes, as of the third quarter of last year, in how it provisions loan losses. Santander CFO José García Cantera called the delay "unusual" but appeared confident in its account audits and provisions. He also said the bank would publish its annual report by Mar. 15, but that it "cannot predict what the SEC will do." Although shares were up Tuesday in Madrid, some analysts say the SEC probe adds to the notion that U.S. regulators are giving more attention to its business practices there. In July the Fed faulted Santander's U.S. unit for failing to meet a number of business operations standards, after failing its 2014 and 2015 annual exams, and the bank has since hired a number of new U.S. executives to help address Fed concerns.
The Office of the Comptroller of the Currency has said the U.S. banking industry looks safe and sound despite falling stock prices and growing credit in certain industries this year. One in particular: oil and gas. Comptroller Thomas Curry indicated banks have built their reserves against potential oil and gas losses but still cautioned the indirect impact low oil prices could have in potential problem states and those who lack recent history experiencing oil booms. Curry appeared less satisfied with how large banks are meeting "heightened expectations" for risk management, specifically in operational and cyber risk. Regulators are following how bank service providers are securing computer networks, but Curry said he expects the OCC will heighten its standards in that area, as banks rely so heavily on technology regardless of their size "as an intersection point."
The Office of Financial Research at the Treasury Department has announced the nine banks with which it will conduct its data-collection pilot on bilateral repurchase agreements: Bank of America, Barclays, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and UBS. The OFR said their participation is voluntary and that they provided input on what kind of data to collect. It specifically wants to study short-term loans between financial institutions backed by securities but not routed through an industry clearing company. The repo market is at the center of how cash and securities are channeled through Wall Street, but without the clearing agent, so-called bilateral trades are hard for regulators to monitor. This is the first time the OFR has collected market information directly from the industry, it said. It is working with the Federal Reserve and Securities and Exchange Commission on the pilot. The three are working on a second pilot focused on securities-lending transactions.
As U.S. banks build their reserves and ready themselves for losses related to the oil price, Canadian banks have been criticized for not building theirs enough. The country's six biggest banks all raised their provisions for losses on a year-over-year basis but many analysts doubted they did so sufficiently, considering the negative outlook for oil and gas producers. Nevertheless, four of the six banks posted better-than-expected earnings and quarterly payouts to shareholders for the fiscal quarter ending Jan. 31. U.S. banks have moved to an expected loss model, by which they tend to be more proactive about loan provisions, whereas Canadian banks use an incurred loss model, by which they only take provisions, generally, once they identify a loan loss. Canadian banks' loss allowances as a percentage of total oil and gas loans are low compared to similar reserves taken by some U.S. peers, analysts say.
New York Times
A Bank of England policymaker has indicated savers might be able to open digital money accounts at the central bank but that policymakers should be cautious of taking deposits away from the banking industry. It is looking at the advantages and disadvantages of blockchain technology to overhaul its payments system, which processes 500 billion GBP per day – one of the more "radical" considerations, the Times reports.
Elsewhere ...
JPMorgan Chase CEO Jamie Dimon gave Bloomberg an interview on his career mistakes, the future of banking, its competition with fintech and why he thinks institutions like his will pull through. He said fintech startups provide "nothing mystical" and that they effectively do the same things banks do, but reduce pain points more quickly. They won't make banks go away, though. Dimon said the smarter fintech startups are or will be courting companies like his that can provide more permanent capital to support their operations and help them survive a potential crisis. (JPM recently partnered with marketplace lender On Deck, for example). He appears unbothered that fintech startups are regulated differently than banks, confident that when one becomes significant enough, it will be more tightly regulated. The bank's concern is the consumer – not with becoming a big and "universal" bank. "It's not a morality thing. It's a "Does it work for the client?" thing," he said. "Everything we do is because a client uses us."
