What Biden means for banks; Black-owned banks look to reboot

Receiving Wide Coverage ...

What to expect

“The financial industry is girding for a Biden victory to bring heightened regulation, but not all at once, ” the Wall Street Journal reports. “An early area of focus is likely to be the Consumer Financial Protection Bureau. The Biden administration is expected to ramp up the watchdog’s enforcement activities, especially around payday lenders and debt collectors, analysts say. Banks [also] expect all manner of customer fees to come under the microscope.”

“A tough-on-banks Biden administration could hit one lender in particular: Wells Fargo, which has been operating under a Fed-imposed cap on its growth since 2018. Cowen Washington Research Group analyst Jaret Seiberg in October predicted that a Biden administration would keep the bank under the cap until 2023.”

“The great question” under a Biden administration “is who would lead the bank regulators, from the Federal Reserve to the CFPB, [which] has been largely dormant under Mr. Trump,” an FT analysis says. “Whoever Mr. Biden picked as Secretary of Treasury would have an important influence on how those posts are filled.”

“Ultimately, the outcome of the game of musical chairs that will soon commence at the regulatory agencies will depend on how much political muscle Mr. Biden would be willing to spend. He has long been an instinctive moderate. He comes from Delaware, a state where the financial industry has long been important. He might well make centrist choices, using the presence of [Sen. Mitch] McConnell as an excuse to fend off the bank-hating left. The central forecast must be: moderate appointments to key posts, and a relatively quiet four years in financial regulation.”

“A Biden administration could exert huge influence over consumer protections, including those involving debt collection, payday lending and foreclosure abuse,” the New York Times said. “The Supreme Court ruled in June that the White House has the power to fire the director of the CFPB without cause, rejecting a federal law that sought to place limits on presidential oversight of independent agencies. That means Mr. Biden will be free to replace Kathleen Kraninger, the bureau’s current director, with someone who will more rigorously scrutinize businesses and ramp up enforcement.”

Federal Reserve governor Lael Brainard is a leading candidate to be Treasury Secretary in a Biden administration, the Washington Post reports, a “crucial decision in the coming weeks that could dictate how he plans to run his administration and shepherd the nation’s economy.”

Brainard “served as a senior official in the Obama administration” and “has broad policymaking experience, particularly during economic crises, as well as wide respect among international foreign ministries and central banks from her time as the department’s top diplomat.”

American Banker looks at the “key banking policy areas that could be upended as a result of Biden’s victory.”

Wall Street Journal

A new beginning?

“Five decades of federal financial and regulatory support have failed to boost America’s Black-owned banks. The majority have disappeared under the burden of soured loans, bigger competitors created by mergers and financial downturns that hit small lenders hard. Fifteen years ago America had 36 Black-owned banks, government data show. Now there are 18.”

“Now a new generation of entrepreneurs, companies and regulators is trying a different strategy. They are promising to strengthen Black-owned banks by building up their capital with private investments and giving them new ways to earn money with hundreds of millions in big corporate deposits. Their hope is that this approach will ultimately improve Black communities’ access to capital.”

Look to the future

The Justice Department’s lawsuit challenging Visa’s planned acquisition of Plaid has wide implications “for investors across the payments sector,” not just Visa.

“At the heart of the suit is the future of payments in the U.S. Whatever the outcome, for investors the suit could focus attention on how payments might evolve, in particular the potential of pay-by-bank arrangements. Investors should keep an open mind to a possible payments future beyond cards.”

Financial Times

Spread the risk

The Financial Stability Board, “which comprises national authorities from 24 jurisdictions,” is warning banks to avoid “relying on just a small group of third-party technology providers” and that “the risk of buying in essential services from the same few external suppliers was high and rising.”

“There is a common concern about the possibility of systemic risk arising from concentration in the provision of some outsourced and third-party services to financial institutions,” the FSB said in a paper released Monday. “These risks may become higher as the number of financial institutions receiving critical services from a given third party increases.”

Slapdown

China’s “political slapdown” of Ant Financial, which “has morphed from a tech group that processes payments into a giant credit platform,” is justified, an FT op-ed argues. “Ant has become a potential systemic risk. For regulators, curbing that risk is perfectly sensible.”

New York Times

Looking back

“During his 10 years as Mastercard’s chief executive, Ajay Banga vastly expanded the company’s reach. Revenues roughly tripled, and profits quadrupled. Mr. Banga says he didn’t achieve these results simply by managing for the short term. Instead, he offered investors a rolling forecast of where Mastercard would be in three years, and set to work striking new partnerships around the globe.”

“The strategy worked. Mastercard stock has soared by more than 1,000% during his tenure, outperforming competitors Visa and American Express.”

“But the pandemic has taken a toll on the company. And despite being able to protect his employees’ jobs, the overall situation is making for a tumultuous end to Mr. Banga’s run,” which ends on December 31. He reflects on his 10-year tenure in a Times interview.

Quotable

“You cannot solve 400 years of disparity with a deposit. But it can create movement.” — Dominik Mjartan, president of Black-owned Optus Bank in Columbia, S.C., about the $50 million PayPal recently deposited as part of a $350 million effort to support Black businesses.