Stimulus 2.0 could be bad for big banks; BofA debuts budgeting tool

Wall Street Journal

No more money, thanks

“Stimulus measures from the Federal Reserve and the U.S. Treasury may be necessary to keep the economy afloat. But it is increasingly clear that they also carry some downside for big banks,” the Journal says.

“One effect of government action has been to swell the balance sheets of top U.S. lenders with deposits, which isn’t necessarily favorable to them” because they have to set aside more capital. Yet, “as a consequence of things like the Fed’s asset buying, Paycheck Protection Program lending, and a corporate dash for cash, many banks have grown in size, even as they have pulled back on some activities like card lending.” And since the Fed has capped dividends and buybacks, banks can’t return the money to shareholders.

“Stimulus can of course help banks’ credit-loss picture if millions of borrowers are given a financial lifeline, and could also boost earnings if loan demand is sparked. In the long term, a better economy is what’s most important for bank stocks. But recovery-by-stimulus can still put more strain on banks’ returns in the near term.”

The deposit glut could dog banks well into next year, depressing net interest margins, American Banker’s Allissa Kline reports.

PPP 2.0

“Both Republicans and Democrats” in Congress want the next round of Paycheck Protection Program loans to “include funds set aside for businesses with 10 or fewer employees, as well as continued support for community lenders that cater to underserved borrowers, including companies owned by women, minorities and veterans.”

The initial round of the program “was dogged by complaints from many borrowers and small-business groups that it favored sophisticated companies with strong ties to lenders, which issued the loans, over those with weaker financial roots, including many in minority neighborhoods.”

Don’t fear crypto

Acting Comptroller of the Currency Brian Brooks wants to “demystify crypto” by “setting up systems that will enable banks to adopt digital currency safely” and hopes “more regulatory guidance will help traditional banks warm up to cryptocurrency.” The agency “has issued interpretive letters in recent months to spell out its view of how traditional financial institutions can do business involving digital currencies.”

“The agency is trying to counter the perception held by some traditional banks that transactions involving cryptocurrencies present heightened risks that require lengthy and expensive due-diligence checks.”

Elsewhere

Fintechs, beware

Bank of America Corp “is rolling out a digital budgeting tool, wading into a space that has so far been dominated by fintech companies,” Reuters reports. Life Plan, which is available on the bank’s website and mobile app, “allows customers to set multiple goals like buying a home, improving credit or saving for retirement, and uses its existing trove of client data to serve them recommendations.”

“The tool, which launched nationally on Monday, has already helped the bank better target customers, executives said. During the eight-month long pilot period, Life Plan led to over 3,800 referrals for conversations with bankers. It could also give the megabank more control over its customers' data as they use the bank's tools over third-party applications. Since Life Plan is linked to customers' bank accounts, the bank can provide a fuller picture of someone's financial situation without requiring multiple sign-ins or verifications.”

Investing in speed

Citigroup “has made a strategic investment in Genesis Global Technology, a London-based startup that develops technology to make it cheaper and faster for financial firms to build applications such as trading systems,” Reuters also reported. The company’s technology “enables banks and other financial institutions to build new software for various business lines with fewer amount of coding,” which “can make it 80% faster on average than building an application from scratch,” CEO Stephen Murphy said.

“The investment comes as banks continue to partner with young technology companies that they hope can make their IT operations more efficient and less costly. The need to automate more processes faster and keep costs in check has grown during the COVID-19 pandemic, as more bank business is now carried out remotely.”