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Fintech update: Square plans to file an application Thursday to create its own wholly owned industrial bank. The San Francisco-based finance firm had been offering small-business loans and cash advances through a deal with Celtic Bank. “As we scale, it’s becoming increasingly important that we have direct relationships with regulators,” said Jacqueline Reses, who will chair the new unit, to be called Square Financial Services.
“Square’s application comes at a time when federal regulators are giving their blessing to the most new banks since the financial crisis,” the Wall Street Journal notes. It would be the third fintech company to apply for a banking license in recent months.
Meanwhile, Renaud Laplanche, the former head of Lending Club, “is stepping up lending” at his new firm, Upgrade, “determined to re-impose himself on the market for refinancing more than $1 trillion of credit card debt. While Laplanche declines to say how much business he has done so far, he has begun to boost volumes, responding to steady demand from consumers and also for high-quality assets from half a dozen core institutional investors,” the Financial Times says.
Central bankers wanted: Federal Reserve Vice Chairman Stanley Fischer said he will resign on or around October 13, well before his term is scheduled to end next June. Fischer’s resignation, which he attributed to personal reasons, accelerates President Trump’s “opportunity to reshape the central bank’s leadership and creates more uncertainty about Fed policies next year,” the Journal says. “His resignation gives Mr. Trump a fourth vacancy on the powerful seven-member Fed board of governors and comes as the president mulls whether to nominate [Fed Chair Janet] Yellen for a second term or pick someone else to succeed her.”
“Fischer has been a visceral opponent of Mr. Trump’s efforts to deregulate the financial sector,” the FT comments, so his departure gives the president “an opportunity to put a Wall Street-friendly policymaker in the post.”
Before joining the Fed, Fischer led the Bank of Israel for eight years and was vice chairman of Citigroup. He was also a professor at the Massachusetts Institute of Technology, where his students included Mario Draghi and Ben Bernanke.
But the president is unlikely to nominate Gary Cohn, his top economic adviser, as the next Fed chairman. “Cohn may have doomed his chances for the top Fed job with comments he made to the Financial Times last month,” in which he criticized the president’s remarks about the events in Charlottesville, Va., the Journal reports.
American Banker notes a revamped Fed could "target Dodd-Frank Act rules."
The party’s over: “The glorious bank rally following last year’s presidential election suddenly seems like a long time ago,” the Journal’s Heard on the Street column intones. “The forecast is for chilly conditions to continue.”
“The big problem for banks right now is that short-term rates, which are largely controlled by the Federal Reserve, aren’t likely to go higher for a while,” it said. “Various other indicators also are pointing in the wrong direction for banks,” including weak loan growth, slow trading activity, and increasing consumer loan defaults.
Indeed, the top 12 global investment banks recorded their worst six-month trading period since at least 2006. Revenue for the first half of 2017 fell to $1.2 billion, down 41% from the first half of 2016, according to data from Coalition.
High anxiety: There is “growing uneasiness” among central bankers about how disruptive digital currencies may be to the international banking and payments systems, says Huw van Steenis, global head of strategy at Schroders and a member of the World Economic Forum’s fintech group.
“Until recently, policymakers had not worried too much about cryptocurrencies,” he writes in an op-ed column. “But as cryptocurrencies grow, we should expect more central bankers to look to outlaw or crimp their use. This will be most acute in markets that are worried about capital flight and organized crime. This will not stop speculators and enthusiasts, but will limit their potential to create the powerful network effects that would make them a useful parallel currency.”
Vanity Fair: The inside story behind JPMorgan Chase’s agreement to pay a record $13 billion fine in 2013 to settle charges that it misled investors before the financial crisis is revealed.
“I think Gary is very, very capable. He would be a different kind of person. Not an academic. I don’t know that he reads a lot of policy papers, let alone writes them, but there’s nobody who understands markets better.” — Goldman Sachs Chairman Lloyd Blankfein on speculation that his former Goldman colleague Gary Cohn will become the next Fed chair.