SIFIs slip; B of A Merrill settles securities charges

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Mulvaney unwinds: President Trump is expected to nominate a replacement for Mick Mulvaney as head of the Consumer Financial Protection Bureau next week. But “a slow confirmation process” could leave Mulvaney, who is also the director of the Office of Management and Budget, “wearing two hats for an indefinite period.” Although the law limits the time Mulvaney can serve as acting director to six months, which is up June 22, once a nominee is chosen, the acting official can remain in office during the confirmation procedure. New York Times, Washington Post

Fed nominees advance: The Senate Banking Committee approved the nominations of Richard Clarida to become vice chair of the Federal Reserve and Michelle Bowman to fill the seat reserved for a community banker or regulator. Both are expected to receive confirmation from the full Senate. Wall Street Journal, American Banker

Meanwhile, Fed Chair Jerome Powell is thinking about holding a press conference after every Fed monetary policy meeting, not just every other one. “Since beginning press conferences in 2011, the central bank has fallen into the pattern of making major policy changes only at meetings followed by a news conference,” the Wall Street Journal notes. “But the practice has lulled markets into thinking the central bank won’t act between press conferences.” Coincidentally, Powell is to hold a press conference following today’s Fed meeting, at which the Fed is expected to raise the federal funds rate target another quarter of a percentage point to 1.75% to 2%.

Foreign banks that do business in the U.S. want the Fed to put them on an equal footing with American banks after “complaining they have been unfairly hit by supercharged standards on capital developed under the Obama administration. Industry groups say they have put the push for reduced capital requirements at the banks’ U.S. holding companies at the top of their agenda for the remainder of the year, after signals the Federal Reserve is open to relaxing the rules.”

In Europe, meanwhile, “the era of U.S. investment banks winning market share from ailing European rivals is at an end,” according to the heads of two of Wall Street’s biggest firms.

Overcharged?: Bank of America Merrill Lynch agreed to pay over $15 million to settle Securities and Exchange Commission claims that its traders duped customers into paying too much for residential mortgage-backed securities by lying about how much they paid to acquire the bonds. They also charged markups that “bore no reasonable relationship to the prevailing market prices.” Wall Street Journal, Financial Times

Tech talk: Adyen, the Netherlands-based fintech firm that facilitates payments for companies like Uber and Netflix, priced its widely anticipated IPO on Tuesday, with the stock set to begin trading on Wednesday. The IPO, the largest by a technology company in Europe this year, was priced at the high end of expectations. Adyen’s software allows companies to accept payments both online and offline in various currencies and countries through a single platform. Wall Street Journal, Financial Times

While many people — including bankers themselves — are worried about the competitive threat from fintech companies, banks need to remember they have several innate advantages to help them fight off challengers, Francisco Gonzalez, executive chairman of BBVA, says in an op-ed.

“No doubt, the threat is out there,” he writes. “But at BBVA … we have realized that some of banking’s core strengths — security, privacy and compliance — are not easily replicable and are increasingly significant, as we all learnt from Facebook’s tribulations. At the same time, we have learnt how to use technology to improve customer experience. Banks need to build on their core strengths and find a way to evolve so that, ultimately, they become more relevant and involved in people’s lives.”

Meanwhile, E*Trade Financial, is “rethinking its legacy technology systems and processes in an effort to regain its role as an industry innovator. To that end, the company is speeding up software development with agile methodology, it’s considering automating mundane tasks for IT staff, and exploring the potential applications of emerging technologies such as artificial intelligence and blockchain.”

Wall Street Journal

There’s a catch: China is promising to open its securities markets to foreign investment firms by allowing them to hold majority positions in joint ventures with Chinese companies. But regulators have added a hurdle that excludes all but the very largest firms. In addition, “the companies would need to apply under their global units — as opposed to smaller regional entities — potentially leaving those wider businesses on the hook for losses or missteps in China. Overall, the requirement effectively amounts to a new barrier limiting the foreign firms’ participation in the fast-growing market.”

Financial Times

SIFI correction: More than 40% of the world’s 39 systemically important financial institutions are currently trading in bear territory, meaning their stock prices are down more than 20% from their peaks. The price declines “highlight risks to the global economy even as equity indices reach new highs and the Federal Reserve prepares to raise interest rates. But strategists note that beneath the bright economic data and rising benchmarks, strains have begun to emerge among a group of banks and insurers deemed to be critical to the health of the global financial system.”

New York Times

Are you ready for some futbol?: Want to know who’s going to win this year’s World Cup, which opens on Thursday in Russia? Ask your banker. “In what has now become somewhat of a quadrennial exercise, strategists and analysts from some of the world’s biggest banks have put their quantitative skills to use in order to predict the winner.” Their analysis “includes artificial intelligence, statistical modeling, portfolio theory, and economic analysis.”


“If these banks are supposed to be systemically important then policymakers ought to be watching them to see what is happening.” — Ian Harnett, Absolute Strategy Research, about the recent drop in stock prices at 16 of the 39 SIFI banks.

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SIFIs MBS Technology Mick Mulvaney CFPB Federal Reserve Bank of America Merrill Lynch Merrill Lynch