Yellen goes to bat for stimulus package; Fed governor warns on climate risks

Receiving wide coverage ...

Fed weather alert

“Against a grim backdrop as abnormally cold weather wallops Texas," leaving millions without electricity, Federal Reserve Gov. Lael Brainard warned that “banks and other lenders need to prepare themselves for the realities of a world wracked by climate change, and regulators must play a key role in ensuring that they do so.” the New York Times reported.

“Financial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both,” she said in a prepared speech.

Crises such as the one going on in Texas, Brainard said, “also matter for the financial system: They pose risks to insurers, can disrupt the payment system, and can make otherwise reasonable financial bets dicey.”

“Subjecting lenders to a ‘scenario analysis’ could help identify the risks they face from both extreme weather events and the transition to a greener economy, as well as project the potential financial effects,” Brainard said, American Banker reported. But she said “scenario analysis is distinct from our traditional regulatory stress tests at banks.”

Brainard “said financial firms should now begin a process of adapting to this reality, and while the change needed by firms will vary by institution, putting off the transition will come with increasing costs later,” the Wall Street Journal said. “Firms will also need to take steps to ensure their activities don’t have a negative impact on the environment.”

Sterling debut

The first exchange-traded fund that invests in bitcoin “attracted a jolt of trading volume as it made its debut on Thursday in Canada, marking the latest sign of the frenzy in cryptocurrencies. Almost seven million shares in the Purpose Investments bitcoin ETF changed hands by midday in Toronto,” putting it “among the top-five most actively traded securities on the Toronto Stock Exchange.”

The ETF’s launch “highlights how the cryptocurrency boom has shown little signs of abating as bitcoin has reached a high of about $50,000. The Bitcoin ETF from Canadian fund manager Purpose Investments provides investors with exposure to bitcoin without needing to hold the digital tokens themselves. The fund stores the cryptocurrency offline with Gemini Trust Company, the U.S. crypto venture founded by the Winklevoss twins.”

“Many investors may justifiably feel that buying bitcoin or other tokens directly as a way to tap into this momentum is too speculative or volatile,” the Wall Street Journal says. “But it may be time for even the crypto-agnostic to start thinking about getting exposure to the emerging ecosystem around bitcoin and other digital assets—not necessarily for the value of those assets themselves, but how finance and banking might evolve because of them.”

Meanwhile, Melissa Strait, the former global head of financial crimes at Stripe, has joined Coinbase Global as its new compliance chief “as the cryptocurrency exchange prepares to go public and confronts an evolving regulatory landscape.”

Wall Street Journal

Worth the cost

Treasury Secretary Janet Yellen “defended the size of the administration’s $1.9 trillion relief package, saying in an interview with CNBC on Thursday that she hopes the measure will be enacted in coming weeks.”

“We are digging out of a deep hole,” she said. “We think it’s very important to have a big package that addresses the pain this has caused.”

While acknowledging that “the surge of federal spending could prompt a sustained rise in the inflation rate, Ms. Yellen said inflation has been very low for many years and that the Federal Reserve has the tools to confront that risk by raising interest rates.”

“The greater risk is of scarring of people, having this pandemic taking a permanent lifelong toll on their lives and livelihoods,” she said, adding that “the administration expects the long-run benefits of the bill will outweigh the costs.”

More to prove

Barclays’ performance in 2020, when it posted a £3 billion pretax profit, equivalent to $4.16 billion, “has validated [CEO Jes] Staley’s decision to keep an investment bank,” the Journal says. “However, Barclays, like many other European banks, still needs to prove it can provide returns over the course of an entire economic cycle.”

“The strategy is sound and the bank has the right footprint, says Mr. Staley, it just needs to execute as the economy reopens after vaccines rollout. It is possible. [But] this smooth recovery could be tripped up. The pandemic could persist or lingering fears might keep consumers saving rather than spending. Brexit changes might damage the British economy or the Bank of England could decide to cut rates below zero.”

Financial Times

Earn it

The European Central Bank “has shot down Deutsche Bank’s plans to increase its bonus pool by more than a third after Germany’s largest lender reported a small profit for the first time in six years. Deutsche had initially planned to pay out more than €2 billion in bonuses for 2020 compared with €1.5 billion for 2019. It backed down from this plan in the face of stiff opposition from the ECB. The exact size of the scaled-back bonus pool is unclear and will be published by the bank on March 12 in its annual report.”

“The size of the bonus pool has been a contentious issue at Deutsche Bank for years. Between 2015 and 2019, it paid out €8.6 billion in variable pay while racking up €14.6 billion in losses over the same period. Shares in the bank have lost more than 60 per cent since 2015. In 2019, 583 employees earned more than €1 million, compared to 643 in the year before as the bank ditched its lossmaking equities trading division and fired many well-paid investment bankers.”