Senate poised for Dodd-Frank rollback; card losses spike at small issuers

Receiving Wide Coverage ...

Always an issue: The Senate is expected to pass a bill this week that would raise the threshold for a bank to be considered systemically important to $250 billion in assets from the current $50 billion. But the measure may also lift some requirements on large non-U.S. banks. That is creating “an increasingly heated debate,” as some Democrats warn the measure could release “troubled and troubling” foreign banks from tougher standards.

Andrew Harrer/Bloomberg

Large American banks hope the bill weakens “a crucial requirement aimed at ensuring that they can withstand financial losses.” The rule, known as the supplementary leverage ratio, requires banks to hold a certain level of capital regardless of how risky their assets are. New York Times, Washington Post, American Banker

Sending a message: Messaging company Telegram is on track to raise a billion dollars in just four months — a feat it took Facebook seven years to accomplish and Uber five — thanks to an initial coin offering, or ICO. “Regulators worry this novel fund-raising method is allowing people to flout the rules that are supposed to protect investors,” the New York Times reports. “Nonetheless, companies like Telegram are still proceeding with their offerings and hoping they can stay out of trouble.”

On Friday, Bank of England Gov. Mark Carney called for greater regulation of cryptocurrencies. In particular, the exchanges that clear bitcoin and other cybercurrencies should come into the “regulatory tent,” he said. “The time has come to hold the crypto asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities. In my view, holding crypto asset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach.”

The Financial Times looks at some of the many companies in the U.K. working on blockchain and other distributed ledger technologies that have raised funds through ICOs.

Wall Street Journal

Failed strategy?: Small banks that have tried to compete in the credit card business by loosening credit score requirements are finding that strategy backfiring as their bad-debt rates increase. The charge-off rate at small banks jumped to 7.2% in last year’s fourth quarter, close to an eight-year high, up from 4.5% a year earlier, according to Federal Reserve data. By comparison, the loss rate at large banks was 3.5%, well below the 10.6% figure in 2010.

You can’t have it both ways: The Treasury Department’s proposal to create a Chapter 14 bankruptcy as the “first resort” in any major financial insolvency while retaining the government’s Orderly Liquidation Authority “would be a mistake,” writes Peter Wallison, a senior fellow at the American Enterprise Institute, in an op-ed. “The OLA is seriously flawed and should not be retained. The Treasury’s proper course is to work with Congress to improve the Chapter 14 legislation so that it will work effectively — while repealing the OLA. It’s necessary to make a choice; a private bankruptcy system won’t work if ‘all options are on the table.’”

Gone, but not forgotten: David W. Mullins Jr., a senior Treasury official under President George H.W. Bush who helped clean up after the collapse of the savings and loan industry in the late 1980s, then became vice chair of the Federal Reserve Board in the 1990s, died last Monday after emergency heart surgery. He was 71.

What are they up to?: Increased New York City taxi cab activity between the Federal Reserve Bank of New York and major Wall Street banks around the time of central bank policy meetings was found in a survey by a Ph.D. candidate at the University of Chicago Booth School of Business. The report’s findings “suggest an increase in informal communications between Fed employees and individuals in the private sector could be occurring.”

Financial Times

In the shadows: Shadow banking accounted for about $45 trillion, or 13% of total global financial assets in 2016, according to the Financial Stability Board, the international group of policymakers and regulators that makes recommendations to the G20. So-called shadow banks perform bank-like functions such as lending but are largely unregulated.

New York Times

Off the board: Wells Fargo said four board members will be stepping down in April, fulfilling a promise it made last month as part of Federal Reserve penalties against the bank for “widespread consumer abuses” and governance failures. Three of the members have been on the board for more than a decade and one is approaching the mandatory retirement age of 72. The departures are scheduled to take place before the bank’s annual shareholder meeting.

Recent plans by JPMorgan Chase and Bank of America to open branches around the country may be an attempt to steal customers from rival Wells Fargo.

Quotable

“On the 10th anniversary of an enormous financial crash, Congress should not be passing laws to roll back regulations on Wall Street banks. The bill permits about 25 of the 40 largest banks in America to escape heightened scrutiny and to be regulated as if they were tiny little community banks that could have no impact on the economy.” — Sen. Elizabeth Warren, D-Mass.