Goldman Dips Toe into Retail Banking; Public-Private Partnership Targets Hackers

Receiving Wide Coverage ...

Goldman Goes Retail: Goldman Sachs is getting a bundle of deposits from General Electric's GE Capital castoff. Goldman will acquire $8 billion of online deposit accounts and $8 billion of brokered certificates of deposit. The GE bank that Goldman is buying does not require a minimum balance for online savings accounts; and it boasts 140,000 retail customers.

The GE deposits acquisition is not related to Goldman's efforts to start offering personal and business loans online, a Goldman spokesperson told the Wall Street Journal. The Financial Times interprets the deal as a way for Goldman to avoid the liquidity strains that killed Lehman Brothers and Bear Stearns.

The acquisition represents a "new funding channel" for GS Bank, Goldman's state-chartered lender, said Liz Beshel Robinson, Goldman's treasurer.

The FT also demonstrates an ugly case of over-generalization by saying the deal gives Goldman access to new customers in "the heartland of America." Where, exactly, is the heartland of America? Anywhere but Wall Street? The piece indicates it has no clue where the depositors live. GE Capital Bank's employees are based in Chicago, Salt Lake City and Cedar Rapids, Iowa, but the story notes GE Capital Bank has no bricks-and-mortar operations.

The New York Times does offer a bit of insight that the move into retail deposits is distinctive from Goldman's traditional focus on corporate clients and the wealthy.

At any rate, the FT says the deposits will help Goldman meet Basel liquidity demands as it will decrease its reliance on short-term debt funding.

Wall Street Journal

Cyber defense specialists from banks are sitting alongside law enforcement officials in the same office, as a way to better detect and fight back against hackers. The unusual public-private partnership, National Cyber-Forensics & Training Alliance, has tracked down some of the most sophisticated hack jobs, including the Darkode attack from July. The nonprofit group is located in Pittsburgh in a nongovernment building, making it easier for private-sector employees to share information without having to worry about obtaining security clearances or negotiating classification levels.

"You can't build a wall between us and private industry…and expect them to open their books and doors to you," said Scott Smith, head of the FBI's Pittsburgh division.

Participants include the Federal Bureau of Investigation and Justice Department on the public side and PNC Financial Services Group, Dell Secureworks and Carnegie Mellon University on the private side.

The GameOver Zeus probe began with a tip from PNC analysts who noticed a strange wire transfer. The bank analysts and the FBI created an online sinkhole which took control of the botnet, a series of infected computers controlled by hackers. They eventually tracked the botnet to a Russian hacker.

Lenders originated about $119 billion of auto loans in the second quarter, pushing the total number of auto loans outstanding past $1 trillion, the first time it's passed that mark, according to the Federal Reserve Bank of New York.

Lower gas prices have helped fuel the boom in auto loans, with much of the growth coming from the purchase of gas guzzlers like trucks, minivans and SUVs, which were once deemed too expensive to own because of high gas costs. Underwriting has also helped.

"There was some tightening in auto-loan standards after the financial crisis, but by many measures it's returned basically to where it was pre-recession," said a New York Fed economist, Wilbert van der Klauw.

While underwriting standards remain extremely tight for mortgages, that's not the case with auto loans, where lenders obviously feel much more comfortable about reaching out on the risk curve.

"Unlike student loans or credit cards, auto loans are more comfortable to lenders," said Northern Trust's chief economist, Carl Tannenbaum.

Financial Times

Regional bank stocks have recently outperformed stocks of banks with investment banking operations, an FT columnist writes. The rest of the column, unfortunately, doesn't discuss much the doings of regional banks, but instead revives the age-old theme of U.S.-versus-European investment banks and who's beating whom. The only other point the column makes about regional banks is they're outperforming large banks in the stock market because they are "generally absent from the league tables investment bankers obsess over." No other factors are mentioned for regional banks' recent performance.

New York Times

Brazil's banks have got it made. With limited competition, extraordinarily high interest rates and government policies making it easy to shift into Brazilian treasuries, private-sector banks in Brazil are sitting pretty.

Washington Post

Although the story doesn't mention anything about financial institutions or lenders, it should be of interest to the banking community that the Federal Trade Commission is laying out the guidelines for how it defines competition. The FTC plans to use its authority to protect consumers and evaluate "commercial practices by focusing on harm to competition or the competitive process," the FTC's Chairwoman, Edith Ramirez, recently said in a speech at George Washington University.

Elsewhere ...

The Economist: It's time to go beyond the credit score. The Economist looks at some of the disruptors that are using factors other than a credit report to determine whether to float a loan. Kabbage uses cash flow as one of its criteria for making a loan decision for its Karrot personal-loan product. Upstart examines a potential borrower's educational history. Microlender Vouch requires a borrower to obtain co-signers among friends and family.

Charlotte Observer: Bank of America may be the next lender to put the kibosh on real estate marketing services agreements. After Wells Fargo and Prospect Mortgage each ended the practice last month, B of A said on Thursday that it's evaluating its policy, in light of the Consumer Financial Protection Bureau's guidance that it's going to be cracking down. The CFPB said its interpretations of the anti-kickback provisions of the Real Estate Settlement Procedures Act call MSAs into question.