Was Drop in Interbank Lending Due to Mistrust or Regulation?

Receiving Wide Coverage ...

The Worldwide Willies: Bank lending across national borders shrunk $799 billion in the first quarter, driven by a $637 billion decline in cross-border credit extended to banks, the Bank for International Settlements reported. Notably, cross-border claims on banks in the Eurozone fell $364 billion, the sharpest contraction since the scary final months of 2008. The Journal’s “Heard on the Street” column suggests this was symptomatic of a lack of mutual trust among banks, and surmises that the pullback must be continuing now, given the recent resurgence of fears about Europe. But the U.K. Daily Telegraph emphasizes the role played in the fourth-quarter shrinkage by deleveraging to comply with Basel III capital rules. (You can read the BIS’ report here.) In the FT, columnist Gillian Tett interviews an executive at a firm that operates cash machines across the Eurozone, whose team is “in a state of high alert, battling to ensure that the ATMs will always be stocked, in case consumers ever panic and rush to grab paper notes.” Tett makes some interesting points about the enduring psychological hold of physical cash in a world where money has become largely an abstraction. Wall Street Journal, Daily Telegraph, Financial Times

MF Global: The bankruptcy trustee said he may pursue claims against former CEO Jon Corzine in a 275-page report blaming the brokerage’s collapse on the one-time New Jersey politico and Goldman Sachs high roller. The FT’s story emphasizes a nuanced point from the trustee’s report: a change last August in the tri-party repo market, such that trades would be settled at the end of the day instead of at the beginning, may have contributed to MF Global’s demise. The change was made to reduce risk at this market’s two clearing banks, JPMorgan and BNY Mellon, by limiting the intraday credit they extended, but it complicated MF Global’s attempts to unwind repos in its final days. The report also introduces a memorable phrase to describe what happened to MF Global: “liquidity asphyxiation.” Wall Street Journal, Financial Times, FT Alphaville blog, New York Times

Wall Street Journal

A feature story describes Citigroup’s investment in an unusual business for a bank — verifying identities of people who work for Pentagon contractors. The digital ID badges it will soon begin issuing sell for $250 to $350 a pop, adding up to tens of billions in potential revenue for Citi. But perhaps more importantly, those badges could eventually double as T&E or payroll cards, boosting bread-and-butter transaction fees for the bank. An executive is quoted as saying Citi sees opportunity in “the convergence of digital identity and payments.” But the article also describes a number of risks and obstacles for this strategy, e.g., data breaches and liability for goofs.

New York Times

“DealBook” boy wonder Andrew Ross Sorkin suggests some non-“gotcha” questions that lawmakers can ask to “elicit illuminating and thoughtful answers” from Jamie Dimon when he testifies in Washington next week on JPMorgan’s $2 billion trading loss.

The Times runs an obituary for Marion O. Sandler, who with her husband turned Golden West Financial into a mortgage lending powerhouse and cashed out at the top of the market by selling to Wachovia in 2006. She died Friday at the age of 81.