Wall Street Journal

The U.S. may be second fiddle to Europe in the Ryder Cup golf competition, but that's not the case when it comes to investment banking. As Europe's large banks with big investment bank operations talk about doom and gloom, and as their shares plummet, their U.S. counterparts are moving in the opposite direction.

The divide is expected to widen. Deutsche Bank this week warned it would shrink its balance sheet and exit businesses and countries. Barclays' new CEO, John McFarlane, said U.S. investment banks are "an enormous threat" to Europe's investment banks. Capital is one big reason. U.S. investment banks have, for the most part, stockpiled enough capital to satisfy regulators, at least for the time being. Not so for the likes of Deutsche Bank, Barclays, UBS, Royal Bank of Scotland and Credit Suisse.

U.S. banks have also been adept at swiping top talent away from the European banks, to the point where the giant trading floors UBS and other European banks built in Stamford, Conn., as an alternative to Manhattan, have been nearly emptied out or closed.

Another problem for Deutsche Bank is the ongoing investigation by regulators into its alleged interest-rate rigging. Deutsche Bank told the New York Department of Financial Services, among other U.S. and U.K. regulators, that its recent disclosures given to regulators for their probes may have been incomplete, due to a software glitch. Deutsche Bank is trying to recover archived electronic chats among its employees, which were lost as a result of the glitch. The process is expected to be completed in about a month.

Don't expect Deutsche Bank to get off scot-free from this latest problem. The Department of Financial Services has begun a probe of the incident involving the software glitch, including whether the bank violated rules by not reporting what should have been reported in the Libor investigation. Also, the regulator is looking at whether the error was intentional and when it happened and when the bank reported it.

The "Heard on the Street" column notes that Deutsche Bank investors, thanks to the company's laundry list of problems, can expect a long, hard slog over the coming months.

As banks get out of the business of making student loans to the masses, marketplace lenders like CommonBond and SoFi are jumping into the market of refinancing student debt for the affluent. Their hope is to offer low rates to refinance, with the goal of picking up more business from these borrowers down the road.

Consumer advocates have complained that these lenders are giving a break to people who don't need it, while other holders of student debt with low credit scores aren't getting the same opportunity.

CommonBond, for example, will only refinance loans from borrowers who have received specific degrees from specific graduate schools; on CommonBond's list are 85 medical schools and 75 law schools. It's not just marketplace lenders playing this game. Citizens Financial Group in Providence, R.I., refinanced $655 million of loans during the first half of the year; Citizens' minimum credit score to refinance is 660. Other lenders involved in this type of refinancing include Darien Rowayton Bank in Darien, Conn., and Earnest Operations.

Financial Times

A University of Chicago economics professor says the five-year anniversary of Dodd-Frank is a good time to reconsider the unintended consequences and cost-benefit trade-offs of the law. He does so through the analogy of the SS Eastland disaster on Lake Michigan in 1915, and the rules passed in the wake of disaster to mandate ship safety.

New York Times

The paper looks at the difficulties of providing banking services to the pot industry, a topic well-covered by American Banker. The latest development is the Federal Reserve recently denied an application by Fourth Corner Credit Union in Denver for a master account so it could do business with cannabis purveyors. In response, the credit union filed a lawsuit in federal court against the Fed, demanding "equal access" to the financial system. A University of Pennsylvania business professor doesn't expect the credit union to achieve much success "until there is a clear and permanent change to federal policy."

William D. Cohan has little patience for the idea of once again separating commercial banks from investment banks, an idea he politely describes as an "outdated, cockamamie notion of having the government dictate what businesses Wall Street can be in or how big a bank can be." Sen. Elizabeth Warren, D-Mass., who's leading the charge, "should know better," writes Cohan, a former investment banker. The main problem with Wall Street is the system of incentives for bankers, since they no longer have enough skin in the game to make them cognizant of when they're moving too far out on the risk curve with their business decisions. (Cohan doesn't explicitly say this, but it's probably safe to assume he's advocating for a return to the days when the likes of Goldman Sachs were partnerships, and not publicly traded.)

Wells Fargo on Thursday said it will end the practice of marketing services agreements with real estate agents and brokers, amid concerns over violating RESPA. Prospect Mortgage also said this week it would end all marketing services agreements.

Elsewhere ...

Birmingham News: Harry Brock Jr., who co-founded the predecessor bank to Compass Bank in Birmingham, Ala., died at age 89 on Wednesday. Brock co-founded Central Bank in 1964 and served as chairman and CEO of Compass Bank until his retirement in 1991. One of Brock's signature strategic moves was petitioning regulators to allow Central Bank to move its branches into larger cities in 1971; at that time, banks could only operate in one county. Compass was later sold to Banco Bilbao Vizcaya Argentaria and is now known as BBVA Compass.

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