Banco Popular de Puerto Rico

Receiving Wide Coverage ...Fight at Recess! President Obama defied Congressional opponents and made good on an earlier threat to make a recess appointment of Richard Cordray as the first director of the Consumer Financial Protection Bureau. His legal grounds for doing so are a matter of dispute (hinging, apparently, on whether Congress is truly “in recess”) and a court challenge seems likely. But media outlets called Obama’s move politically savvy, following Senate Republicans’ filibustering of Cordray’s nomination. “In one fell swoop, Obama managed to tap into voter frustration with Washington, distance himself from an unpopular Congress, buck up the liberal base and reassert himself as a latter-day Teddy Roosevelt, fighting for a ‘fair deal’ for the middle class,” Politico wrote. The headline of the Journal’s editorial pretty much summed up the writers’ take: “Contempt for Congress.” An analytical story in the Times led with the upshot for nonbank financial firms such as payday lenders: they’re fair game for the bureau now that it has a permanent head. But wait … some on the right are arguing that the CFPB’s authority over the shadow lenders doesn’t actually kick in unless the director is confirmed by the Senate. Oboy. It seems like there will be peace in the Middle East before this fight is settled. Additional coverage: Wall Street Journal, New York Times, Washington Post.

Receiving Wide Coverage ...Cordray's First Salvo: The day after his recess appointment as director of the Consumer Financial Protection Bureau, Richard Cordray vowed that the young agency "will make clear that there are real consequences to breaking the law." The bureau has several investigations underway, some inherited from other agencies, others that it initiated, he said. Some probes could end up being settled but others "may require enforcement actions." Cordray also dismissed doubts (expressed mostly by the administration's opponents) about the legality of the recess appointment and about the CFPB's right to police nonbanks without a Senate-confirmed director: "It's a valid appointment. I'm now the director of the bureau. … We now have our full authority to move forward." Indeed, the bureau has already begun supervising payday lenders, check cashers, and the like, he revealed. Republicans remained livid that President Obama bypassed the Senate, and business interests expressed fear of that old bogeyman: uncertainty. "We won't be sure what the rules are," the ABA's Wayne Abernathy told the Journal. "We'll know what Cordray wants the rules to be, but we won't know what they really are." Wall Street Journal, New York Times, Washington Post

Receiving Wide Coverage ...Leeway on Liquidity: The Basel Committee rejected the banking industry’s pleas to delay the new global liquidity coverage ratio requirement, which will take effect in 2015, as scheduled. However, the group of international regulators said it would let banks temporarily dip into their emergency supplies of cash and liquid assets in times of stress. This came as “a relief to some bankers who feared the LCR would mimic the Basel capital standards; banks that fall below the minimum capital threshold are at immediate risk of shut down or government takeover,” the FT says. Financial Times, New York Times, Wall Street Journal

Receiving Wide Coverage ...Meet the New Boss… William Daley, a JPMorgan Chase alumnus, resigned as White House chief of staff after about a year on the job. He was succeeded by Jack Lew, a Citigroup alum, whom President Obama must really, really like and trust and respect given the optics of having another ex-banker in that job at a time when anti-Wall Street sentiment runs high. Exhibit A would be this headline from Gawker: “Citigroup Replaces JP Morgan as White House Chief of Staff.” It didn’t take long after the White House announcement for this Huffington Post story from July (when Obama nominated Lew to lead the Office of Management and Budget, a position he’s leaving to take the White House job) to show up on our Twitter feed. The article details the activities of Citi’s alternative investments unit during the years Lew ran it, and makes much of the fact that a “fund of funds” managed by said unit invested in John Paulson’s hedge fund. The implication is that Lew helped Citi indirectly profit from Paulson’s (prescient) bets against the housing market. But it’s not quite the same thing as the CDO shenanigans perpetrated by Citi’s investment bank, and even there we continue to wonder what any of the institutional investors on the other side of these trades was thinking when it was so obvious that the housing boom could not possibly end well. But we digress … The Journal’s editorial page reminds us that Daley came on to help Obama “repair relations with the business community and Republicans on Capitol Hill,” and clearly he did not succeed with the latter. You can find serious coverage of Daley’s departure in the Los Angeles Times, Wall Street Journal, Financial Times, New York Times, and Washington Post.

Receiving Wide Coverage ...Force-Placed Insurance Probe: Citing anonymous sources, the papers report that New York State is investigating the force-placed insurance practices of the big banks, including JPMorgan Chase, Bank of America, Wells Fargo and Citi. According to the Times, the state’s Department of Financial Services “has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners’ original plans. In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies.” No one disputes that force-placed coverage is necessary to protect collateral when a borrower fails to obtain regular homeowners insurance. But the arrangements being probed pose potential conflicts “because companies may have an incentive to place homeowners in policies offered by their affiliates rather than looking for the best rates on the open market,” the Times writes. Fittingly, the probe is being conducted by an interdisciplinary regulator, which was created last year by combining the state’s separate banking and insurance agencies. A spokesman for Governor Andrew Cuomo tells the Times the merger was meant to address the “sometimes problematic overlap between banking and insurance.” The new agency, led by Benjamin Lawsky, issued subpoenas in October (nearly a year after American Banker ran an award-winning investigative article about the very same issues with force-placed insurance, we note modestly). New York Times, Wall Street Journal.

Receiving Wide Coverage ...Defending the Financial Sector: The Economist and the upcoming issue of the Times’ Sunday magazine both have articles warning against excessive banker-bashing. “Could fair criticism warp into ugly prejudice? And could ugly prejudice produce prosperity-destroying policies?” asks The Economist’s “Schumpeter” column, which offers historical evidence for the affirmative on both counts. The “ugly prejudice” part is salient – the piece notes that over the centuries, hatred of moneylenders has often been intertwined with anti-Semitism in the West and anti-Chinese bigotry in Asia. “This is not to say that the Occupy protesters are guilty of ethnic prejudice: they belong to a class and a generation that is largely free from such vices. But demonisation can easily mutate into new forms. … Railing against the 1%—particularly when so many of them work for companies with names like Goldman Sachs and N.M. Rothschild—can unleash emotions that are difficult to cage.” The Times piece focuses on the economic case – without “Wall Street,” writes Adam Davidson from NPR, “the poor would stay poor … there would be no middle class … [and] lots of awesome things would never happen” (e.g. the development of lifesaving drugs that require risk capital). We’ve put air quotes around “Wall Street” because Davidson defines it broadly to include commercial banks and even insurance companies along with investment banks. But he at least defines his terms, so we’ll refrain from our usual rant about the limited descriptiveness of this ambiguous category. The Economist, New York Times Magazine

Editor's Note: Morning Scan will not publish on Monday, Jan. 16 in observance of the Martin Luther King holiday. We’ll be back on Tuesday, Jan. 17.

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