Stress for Goldman, Morgan Stanley; Can AI produce bank reports?

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Job one: Central banks need to ignore market volatility and “stay focused” on raising interest rates and cutting back accommodative monetary policies, the Bank for International Settlements said in its annual report. “Policy makers will need to maintain a steady hand, avoiding the risk of overreacting to transitory bouts of volatility,” the BIS said. “Higher volatility per se is not a problem as long as it remains contained; it is actually healthy whenever it helps inhibit unbridled risk-taking.” Wall Street Journal, Financial Times

Wall Street Journal

Losing a lifeline: The Marshall Islands is close to losing its one financial link to the outside world as First Hawaiian prepares to close its business with the Bank of the Marshall Islands. “Without an international banking relationship, the bank gets cut off from a number of services, not just from handling international money transfers but also cashing paychecks from one of the island’s largest employers — the U.S. military base. The closure is a side effect of stricter banking rules to prevent money laundering and terrorism financing.”

Where are they now: Kerry Killinger, the former CEO of Washington Mutual, the largest bank failure in American history and one of the poster children of the 2007 mortgage market collapse, now spends his time running the Kerry & Linda Killinger Foundation, which supports higher education, affordable housing and social and racial justice.

Brad Morrice, the former CEO of New Century Financial, the big subprime mortgage lender that failed in 2007, is an investor for Tech Coast Angels, the largest angel investor group in the U.S. Many of his “most successful investments have been related to the mortgage world, though he said he has avoided having any direct involvement in the lending business.”

Financial Times

I, robot: Many investment firms are already offering or looking to offer computer-generated investment advice and portfolio management. But now at least one firm is looking to go one step further: Commerzbank is exploring using artificial intelligence technology to generate basic research analyst notes in order to reduce costs. “The project is still at an early stage and could take years to produce reports that banks would be happy to send to their clients, but the notion of AI replacing human research analysts is already attracting attention from senior bankers,” the paper says.

Kinder, gentler?: Despite learning the art of “talking at length without answering a question,” the paper says, Jelena McWilliams was clear enough at her first public speech as head of the Federal Deposit Insurance Corp., last week to suggest “she will show banks more empathy than the Obama appointees she is succeeding, whom bankers say treated them with distrust if not contempt.”

New York Times

What’s the payout?: Goldman Sachs and Morgan Stanley came the closest to failing last week’s Federal Reserve-administered stress tests. Now some investors and bank executives are wondering whether the two banks will have to reduce dividends and buybacks. We’ll know more later this week when the Fed releases the results of its second round of tests.

Bryan van der Beek/Bloomberg

Knowledge is power: More consumers are checking their credit scores and know more about how they work, according to a report commissioned by the Consumer Federation of America and VantageScore Solutions, an alternative credit score company. Fifty-seven percent of adults surveyed said they have obtained their credit scores in the past year, up from about 50% four years ago. In addition, 36% have checked their credit reports, up from 29%.

Quotable

“When you’re inside the bubble, your vision gets kind of distorted. We were blinded by 10-plus years of everything worked. And by all indication, appetite for the loans on Wall Street was insatiable. So we just made as many as we could.” — Brad Morrice, former CEO of defunct subprime mortgage lender New Century Financial.