Working around Dodd-Frank; Marcus' German launch delayed

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Who's next?
The White House has reopened its search for candidates to fill two open seats on the Federal Reserve Board who will pass Senate muster after President Trump’s previous two choices, Herman Cain and Stephen Moore, “flamed out in a messy public fashion.” Among those being discussed as possible nominees are Paul Winfree, former deputy director of the White House Domestic Policy Council, and Judy Shelton, the current U.S. director at the European Bank for Reconstruction and Development. Wall Street Journal, Washington Post

Wall Street Journal

Money shift
Big banks are trying to work around a Dodd-Frank rule that forces them to keep billions of dollars in reserve by taking deposits from Fannie Mae, Freddie Mac and other government agencies. The goal is to replace overnight loans with deposits. While the two “are functionally the same — money is wired to the bank at night and leaves in the morning — but they are treated differently in Washington. Regulators give more credit for deposits. The banks could then take cash that they previously would have had to hold aside to meet regulatory standards, and put it to more profitable uses. Securities filings suggest that banks have netted as much as $20 billion in new deposits over the past year. That could free up $15 billion that banks could put toward things that make them money, like loans or investments.”

The cost keeps rising
Wells Fargo has raised to $3.1 billion the amount of money it estimates it may lose from possible legal actions, up from its previous estimates of $2.7 billion in December and $2.2 billion last September. The bank also said it found no evidence of widespread problems at its wealth and investment management unit, where some former employees claimed that financial advisers were steering clients into inappropriate products and moved customer assets around to generate higher fees and bonuses.

Fix it, don’t ditch it
While international financial regulators seek a replacement for the scandal-scarred London interbank offered rate, Timothy Bowler, the president of ICE Benchmark Administration at Intercontinental Exchange, wants to fix it, not scrap it entirely. “Currently, the front-runner to replace Libor when it retires after 2021 is a gauge called the secured overnight financing rate, or SOFR.” But Bowler believes the market needs two benchmarks: one for credit risk, such as his company’s U.S. Dollar ICE Bank Yield Index bank yield index, and another for interest-rate risk, such as SOFR. He believes his index “is now more accurate and harder to exploit” than Libor.

Always a reason
Bitcoin’s recent price surge to a 2019 high of $5,791 “may be less about demand for bitcoin and more about problems at the embattled exchange Bitfinex. Bitfinex customers, observers say, are piling into bitcoin to get their funds out of the exchange” after the New York attorney general’s office said Bitfinex “had covered up a loss of $850 million worth of corporate and customer funds using the reserves of the digital currency it controls, Tether.”

“It’s like a run on the bank,” one cryptocurrency analyst said.

Financial Times

On hold
Goldman Sachs has postponed the launch of its consumer bank, Marcus, in Germany until next year “after the six-month Brexit delay removed the urgency for setting up a new deposit base within the EU.” The unit, which was launched in late 2016, now has $46 billion of deposits, most of it from U.S. customers, with about $10 billion from clients in the U.K., where it opened last year.


“The first reaction was surprise, sadness, massive disappointment; I don’t know if the word ‘disappointment’ in English is really enough to portray the situation. I was saying, ‘What? Oh my God. This is a black swan, this has never happened before.’” — Andrea Orcel, the former head of investment banking at UBS, discussing Santander’s reneging in January on its offer to hire him as its CEO. He’s now suing the Spanish bank.

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