Regulators ask for cyber help; volatility may be good for banks

Receiving Wide Coverage

More oversight sought: The chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission told the Senate Banking Committee that Congress should consider expanding federal oversight of bitcoin and other cryptocurrency trading. “There is patchwork here, but there is not a comprehensive structure and that is something that is a policy discussion and an important one to be had,” CFTC Chairman J. Christopher Giancarlo told the panel.

Andrew Harrer/Bloomberg

In Europe, the head of the Bank for International Settlements called bitcoin “a combination of a bubble, a Ponzi scheme and an environmental disaster,” while calling for central banks to clamp down on cryptocurrencies before they become a threat to the global financial system.

“To date, many judge that, given cryptocurrencies’ small size and limited interconnectedness, concerns about them do not rise to a systemic level,” Agustín Carstens said in a speech in Germany. “But if authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”

But let’s not throw out the blockchain with the bitcoin, the Wall Street Journal says. “The technology best known as the record-keeping system behind cryptocurrencies seems poised to play a broader role in business, where it could change how supply chains work,” the paper says. “The selloff in bitcoin notwithstanding, companies that move products and people through complex supply chains see promise in the inherent security and ease of use of blockchain.” Corporate spending on blockchain software is expected to reach $2.1 billion this year, more than double the $945 million spent last year, International Data Corp. says.

Forbes presents its first-ever list of the “richest people in cybercurrency.”

Name names: Former Treasury Secretary Lawrence Summers says the four directors — so far unnamed — who are being asked to leave Wells Fargo’s board as part of the Federal Reserve’s settlement with the bank should be outed. “Why aren't the directors who are leaving being named and asked to resign effective immediately with an element of humiliation?” he asks in an op-ed piece in the Washington Post. “A trader or credit officer as extravagantly malfeasant would not be granted a dignified exit. I find it hard to understand why regulators are so reluctant to foist public accountability on the individuals in responsible leadership positions when companies do the wrong thing.”

The Journal’s editorial board isn’t happy with Wells’ settlement with the Fed, either, but for a completely different reason. It says the bank, which earlier settled with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, is a victim of “double jeopardy,” adding that the “arbitrary nature” of the Fed’s punishment “should cause shivers in bank boardrooms everywhere, which may have been [Janet] Yellen’s main point.” American Banker takes a broader view.

Wall Street Journal

Silver lining?: The recent wild volatility in the financial markets could be a good thing for banks, who’ve suffered through several years of lackluster returns in their trading operations. “Anything that brings back volatility would be good,” said Peter Tchir, macro-investing strategist at Academy Securities. George Kuznetsov, global head of research at London-based consultancy Coalition, said the renewed volatility could boost trading revenues by 10% to 15% this quarter.

But volatility also has its bad side. Banks “have reason to be nervous” about their securities lending businesses, which could face big losses if stock prices fall further and borrowers can’t make margin calls. Net borrowing in securities margin accounts currently totals a record $290 billion, more than double the amount right before the dot-com crash in early 2000.

Going down market?: Goldman Sachs is in talks with Apple to provide financing for consumer purchases of the tech company’s phones, watches and other products. “The partnership would be a coup for Goldman as it tries to grow its new consumer bank,” the paper observes. “Better known as an elite adviser to corporations and governments, Goldman is embracing retail banking and plain-vanilla lending in pursuit of growth as some traditional areas of strengths, namely trading, slump.”

Smokin’: The Federal Reserve Bank of Kansas City has given conditional approval to a Colorado credit union’s plan to serve marijuana-related businesses, at least indirectly. Fourth Corner Credit Union said it will cater to individuals and companies that support legalized marijuana, including those who partner with industry vendors, but won’t serve state-licensed dispensaries. Before being fully operational, Fourth Corner will have to obtain deposit insurance, either from the National Credit Union Administration — which previously rejected the credit union’s application — or from a private insurer.

Quotable

“Our jobs as regulators is to help our system fulfill its important role in society by ensuring it operates in a safe and sound manner and treats customers fairly. But, unnecessary regulatory burden is a waste that places a drag on our entire economy without making the system safer or fairer.” — Comptroller of the Currency Joseph M. Otting defending Mick Mulvaney, the acting director of the Consumer Financial Protection Bureau.