Wall Street Journal

It's one thing for Bernie Sanders or Elizabeth Warren to call for a breakup of the megabanks. It's another thing, apparently, when a newly tapped regional Fed president calls for it. Neel Kashkari's comments to the Brookings Institution this week (read the Journal's extended excerpts from his presentation here) have set off a round of hand-wringing about whether it really is time to blow up the likes of JPMorgan Chase and Bank of America. The "Heard on the Street" column agrees the time has come for a breakup. But instead of the Fed handling the situation, shareholders should be the ones to do it, the column says.

Stocks of the six largest U.S. banks have declined between 10% and 25% this year, and all but Wells Fargo trade below their book values. Consider this somewhat stunning factoid: B of A and Citigroup's shares have not traded above their book values since September 2008.

There should be a balance between splitting the largest banks into smaller pieces and the alternative of converting them into utilities, "Heard on the Street" said. Shareholders should have a choice between the two; in that respect, Kashkari missed the point of breaking up the big banks. Bigger does not necessarily mean worse. Wells Fargo has grown larger than Citigroup, but its shares now trade at a higher premium to its book value. JPMorgan's shares have also turned in a not-bad performance over the past decade.

The problem is regulators have such a massive say over the affairs of big banks that activist investors, for the most part, have a hard time storming the boardrooms of large banks.

Stock-based bonuses at large banks have become less appealing. As bank stocks decline, so have the bonuses of traders and other employees of large investment banks. Goldman Sachs Group employees have seen more than $400 million of paper losses because of the drop in value of their stock bonuses.

JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley have not yet reported how much stock they included in employee bonuses last year, but they're also expected to report smaller bonuses for the same reason. It could be a recipe for tech startups and companies in other sectors to swipe employees away from investment banks.

Prosper Marketplace is charging its borrowers higher rates. The San Francisco online lender raised its rates by an average of 1.4%, giving investors who buy its loans higher returns. Prosper's overall rates will rise to an average of 14.9% from 13.5%. Prosper cited the "current turbulent market environment."

The chief investment officer at a fund that invests in online consumer loans said he's been urging Prosper to start charging borrowers higher rates. (Wonder if borrowers could urge Prosper to charge them lower rates?) Rival Lending Club raised rates in December by an average of 0.25%, following the Fed's rate hike.

Fair Isaac has developed a new product designed to detect cyberfraud, based on its existing techniques for rooting out consumer fraud. The new FICO product, which will be introduced in April, uses artificial intelligence to detect signs of abnormal behavior in computer networks. FICO's new product will compete with similar services provided by the likes of Dtex Systems ad Brighterion.

Elsewhere ...

Bloomberg: An unsigned editorial agrees with Kashkari's call to reform the banking system. Instead of busting up the largest banks, which the editorial says is a "seriously flawed" idea, the better move would be to require them to finance themselves with more capital and less debt. One of the best reasons for requiring more capital is it keeps things simple, the column says. "Regulators are defeated time and again by complexity. Keep it simple, and the right kind of transformation will follow," the editorial says.

Radio Free Europe: Banks in Iran are reconnecting to the global banking system, after the lifting of economic sanctions. Iran's central bank and 15 other Iranian banks are plugging in to Swift's international payments network, which will allow for cross-border money transfers. Other than the Central Bank of the Islamic Republic of Iran, only Bank Melli, the largest private bank in Iran, was identified among those that have connected to Swift.

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