June 16, 2023

Regional banks are "spooked" from the recent sector turmoil and will take years to recover, says Wall Street Journal Senior Markets Columnist James Mackintosh. He’s referring in part to the "Federal Reserve triple-whammy," where each whammy stems from higher rates, the dangers of today's inverted yield curve, and independent research suggesting assets at more than 2,300 U.S. banks are underwater. "The key to survival is keeping hold of depositors at low rates for long enough to work off the unrealized losses on the back book," he writes.

Goldman Sachs in the Spotlight

The WSJ recently wrote that a number of Goldman's partners, including former CEO Lloyd Blankfein, are souring on CEO David Solomon for his failed consumer-lending strategy, his side gig as a DJ, his overhaul of the firm's compensation practices, and-perhaps his most egregious sin — wresting power and control from the partners themselves. But Solomon has also had successes, not least of which is the relative outperformance of Goldman's stock price in recent years, and he has no shortage of powerful allies at the firm.

SEC Crackdown on Crypto Pressures Lawmakers to Produce Regulatory Framework

The SEC's lawsuits against Coinbase and Binance are adding ammunition to those who want more crypto regulation, JPMorgan wrote in a recent report. Without a robust legal framework, crypto companies will move to more favorable jurisdictions outside the U.S., the report says.

GOP Courts Democratic Support of Crypto Bill

Speaking of crypto, House Republicans have the numbers to pass a recently circulated digital-asset oversight bill, but are seeking input from Democrats to improve its chances of passing in the Senate. Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, has publicly balked at certain of the bill's elements, but appears open to compromise.

CFPB's Chopra in the Hotseat at Marathon Hearing

Rohit Chopra, director of the Consumer Financial Protection Bureau, faced an intense barrage of criticism from Republicans on the House Financial Services Committee Wednesday in his first appearance before the committee since Republicans took over the House majority in January.

During the recent hearing, GOP representatives accused Chopra of being "an extortionist" and "an appendage of Biden's reelection campaign" while suggesting his practices resemble "McCarthyism."

Commercial Real Estate Downturn Could Hurt 300+ Banks

An analysis by CBRE estimates that a severe downturn in commercial real estate could wipe out the Tier 1 capital of more than 300 banks, most of which are smaller institutions. But that scenario is highly unlikely, according to analysts.

The major problem is banks' exposure to CRE loans, but indirect loans are also a concern. On that note, Westfield, a large mall operator, announced this week it was handing over control of a San Francisco shopping center to its lenders as the city grapples with high rates of crime and widespread vacancies.

Fed Chair Powell Has His Work Cut Out for Him

The Fed's mandate to fight inflation has led it to raise interest rates, but further rate increases could exacerbate a looming credit crunch and trigger financial instability. Something's gotta give … and it could be the banking system and broader economy, this article says, especially if inflation proves to be more persistent than originally thought.

While last month's headline numbers on inflation were encouraging, they were largely due to lower energy prices. Core prices, meanwhile, are proving sticky. During its most recent policy meeting this week, the FOMC held rates steady and is anticipating two additional hikes this year. Three officials see the fed-funds rate going as high as 6%.

Corporate Treasurers Exploring Options Beyond Banks?

Thirty-eight percent of corporate treasurers recently said they want to put more cash in money market funds, while just 27% want to put more cash in banks and 25% want to reduce bank deposits, according to a recent survey from the Association for Financial Professionals.

One Bank Chief Fights to Survive

The New York Times recently interviewed Ken Vecchione, CEO of Western Alliance, and discussed the steps his bank is taking to prove, among other things, it is unlike former competitors First Republic, Silicon Valley Bank, and Signature Bank.

“Government officials can’t seem to decide what they want banks like Western Alliance to do,” writes the NYT. “Since the 2008 financial crisis, policymakers have put the brakes on “too big to fail” institutions, saying they would prefer risk to be distributed more evenly across lenders. Now, though, there is skepticism about the grow-at-all-costs ambitions of smaller banks, and hints of an openness to mergers between lenders.”

PayPal Focuses on Small-business Borrowers in Abandoned Markets

Fifty-four percent of the value of PayPal's business-loan originations went to small companies in areas where ten or more branches closed between 2017 and 2021, the company told American Banker. The payments company aims to continue using bank-branch data to inform its lending strategy, particularly in underserved communities.

With deposit and bank safety making headlines, now is a great time to consider offering ICS and CDARS to those customers seeking peace of mind.

Join us July 18th at 4 PM (EST) for “Explaining ICS and CDARS,” a webinar that dives into how these services can help build loyalty to your bank.