Shelton closer to Fed seat; Wells gets a new CFO

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Shelton moves forward

As expected, Judy Shelton’s confirmation as a member of the Federal Reserve Board of Governors “cleared a major hurdle” Tuesday after the Senate Banking Committee approved her nomination by a 13-12 party-line vote, the Wall Street Journal reported. “Her next and final stop will be a confirmation vote on the Senate floor, where Republicans hold a 53-47 majority.”

“Senators on the panel also voted 18-7 to advance the nomination of St. Louis Fed director of research Christopher Waller to fill the remaining vacancy on the central bank’s seven-member board in Washington.”

Judy Shelton, President Trump's nominee for governor of the Federal Reserve, speaks during a Senate Banking Committee confirmation hearing in Washington on Feb. 13, 2020.
Judy Shelton, President Trump's nominee for governor of the Federal Reserve, speaks during a Senate Banking Committee confirmation hearing in Washington on Feb. 13, 2020.

“The unknown now is whether Ms. Shelton can pass through the full Senate,” the New York Times said. “Her nomination at first seemed imperiled after her February confirmation hearing, as various Senate Banking Committee members voiced skepticism about her economic opinions and autonomy from the White House. Support and pressure from Larry Kudlow, the White House adviser with whom she is close friends, helped Ms. Shelton to gain the 13 Republican votes she needed to pass the Senate committee.”

“Just before Tuesday’s vote, Senator Mike Crapo, R-Idaho, the chairman of the banking committee, said Shelton had provided clear answers during her confirmation hearing, and afterwards, related to her views on Fed independence, the appropriate response to economic crises and the gold standard,” the Washington Post said. “Crapo dismissed calls from the Democrats on the banking committee for another hearing to vet Shelton.”

“Many have tried to characterize Dr. Shelton’s views of the gold standard and monetary policy as outside of the mainstream thought and disqualifying for this position, and I strongly disagree with these characterizations,” Crapo said.

Meanwhile, “Joe Biden’s economic plan [includes] a promise to politicize the Federal Reserve in a whole new way,” a Journal editorial says. “Mr. Biden wants to create a third mandate for the Fed. The Fed chairman would be required to collect data and report on ‘the extent of racial employment and wage gaps’ and what the Fed is doing about them.”

“Under a race mandate, the Fed will have no choice but to obey whatever dictates Congress and a Biden Administration send its way in 2021. But voters should be aware of this proposed sleight of hand, and its dangers, before they make their own choice in November.”

Wall Street Journal

Wells’s CFO shift

Wells Fargo said its longtime CFO John Shrewsberry will retire this fall and be succeeded by Mike Santomassimo, who held the same position at Bank of New York Mellon. “Mr. Shrewsberry, a Wells Fargo veteran of more than two decades and CFO since 2014, was one of the few top executives to stay in his position through the bank’s four-year-old fake accounts scandal.”

Wells CEO Charlie Scharf “has brought in a new slate of executives as he tries to turn around the bank and improve its standing with regulators. He has hired extensively from Bank of New York Mellon, where he was previously CEO, and JPMorgan Chase, where he was also an executive. Mr. Santomassimo became BNY Mellon’s CFO in 2018. He was previously finance chief for BNY Mellon’s investment services businesses, and spent 11 years at JPMorgan Chase in finance leadership roles.”

Santomassimo is at least the sixth former colleague or former direct report that Scharf has hired into a high-ranking position since he took over at Wells, American Banker’s Allissa Kline reports.

Underrepresented

Blacks are woefully underrepresented at the federal financial regulatory agencies, a new academic paper asserts. “Only one of 21 politically appointed regulators at eight [federal] agencies is Black,” according to a paper by Georgetown University law professor Chris Brummer. “Since the founding of the agencies in the 19th and 20th centuries, only 10 of 327 people appointed to the most senior jobs at financial watchdogs—such as the Federal Reserve and Federal Deposit Insurance Corp.—have been Black,” the report says. “The Federal Reserve, established in 1913, has had three Black governors.”

“Mr. Brummer’s unpublished paper, posted online Tuesday, argues that the absence of Black officials within the top ranks of financial agencies poses big challenges to government efforts to address issues that disproportionately hurt Black Americans, including unequal access to financial services and income inequality.”

Squeezed

Credit card lenders like Capital One are being squeezed at both ends. Not only are they having to set aside large amounts to cover bad debt, but cardholders are borrowing less.

Standing out in a crowd

UBS’s “solid second-quarter results” showed that it is “well-positioned for the current crisis.” But “investors should be cautious in reading those results across to other big European lenders. Regional peers are likely to feel more pain. Even before the pandemic, banking in Europe was a tough business — subscale lenders struggled to produce returns amid low or negative interest rates, fragmented markets and slow economic growth. The Covid-19 crisis has added to the challenges, raising the specter of significant credit losses, shrinking revenues from fee holidays and even lower interest rates.”

“A quick economic recovery seems increasingly unlikely. The second half of 2020 will be tough for banks as government support programs unwind to reveal the scale of the damage. Further disease outbreaks and economic lockdowns are also possible. European banks’ credit losses will rise. UBS’s unique business model makes it stand out among European lenders. It may be the first among them to report earnings, but it is no bellwether for the sector.”

Financial Times

Building capital

Deutsche Bank’s corporate clients “are repaying loans taken out to cope with the coronavirus crisis quicker than expected, leaving the bank’s balance sheet in a better position than analysts had expected. Germany’s biggest bank said on Tuesday that its common equity tier one ratio, a measure of balance sheet strength, stood at 13.3% by the end of June, higher than the 12.4% forecast by analysts.”

“The disclosure from Deutsche came a week before it is set to publish its second-quarter results, which will be closely scrutinized for any extra provisions for bad loans as well as how its bond, equity and currency traders fared against Wall Street rivals. Analysts expect that Deutsche will report a net loss of €133 million in the second quarter, following a €43 million loss in the first quarter.” The bank said it expects its “results for the second quarter of 2020 to be slightly above average consensus estimates.”

Quotable

“I am confident that her deep understanding of the Fed’s monetary policy toolkit, monetary history and commitment to maintaining Fed independence will serve the Fed well in its ongoing efforts to stabilize markets, and toward its mission of price stability and full employment.” — Sen. Mike Crapo, R-Idaho, the chairman of the Senate Banking Committee, endorsing Judy Shelton for a seat on the Federal Reserve Board.

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