Western Alliance Bancorporation’s announcement that its deposit levels are continuing to recover has sparked a rally in bank shares. While regional bank indices remain down 25% since March, it is believed that the banking crisis is now in its acute phase, at the very least. Meanwhile, volatility is missing in the markets, with the S&P 500 where it was 45 days ago. The lack of significant price movement of late is down to four counteractive forces, according to Citi trading strategist Stuart Kaiser. On the one hand, funds have offloaded risk and investors are sitting on a lot of cash. Other investors have bought protection and systematic funds which buy when volatility is low are entering the market. However, these are countered by reasons including the fact that equities need more upside now than before, stock valuations are less than desirable and that risks to growth and corporate earning are ever-present.
What will Toronto's next mayor do to address food insecurity? Advocates press for solutions
CBC
23-05-18 08:00
Daily Bread Food Bank CEO Neil Hetherington hosted the first major debate of Toronto's by-election campaign earlier this week, with a view to exploring how candidates would tackle problems of food insecurity. Hetherington pointed out that housing affordability and low Ontario social assistance rates are directly contributing to the use of food banks, which have seen a doubling of clients during the pandemic. While some candidates set out ideas to address the issue, chef and activist Joshna Maharaj said she would have liked a greater focus on concrete solutions.
Canada's Financial Transactions and Reports Analysis Centre (Fintrac) has reported that shell companies, property and cryptocurrency might be used by Russians subject to financial sanctions in order to avoid them. The centre, which is designed to filter data for money launderers and inform law enforcement and security agencies of its findings, has said that people existing under the sanctions may try "to hide assets by transferring ownership to family members or close associates". Canada has previously instituted sanctions on hundreds of Russian individuals and businesses over the Russian invasion of Ukraine.
Banks should collaborate on data to improve their fight against financial crime by enabling financial institutions to share information from within and outside their networks, according to the CEO of Nasdaq, Adena Friedman. Speaking in the Financial Times, she said the increase in financial crime was partly due to regulations that limited banks’ use of data and technology. Friedman spoke of the benefits of the New York exchange's own approach to combating financial crime, in which data from over 2,400 banks was used in conjunction with advanced artificial intelligence algorithms. Regulators should also allow banks to use data sets in order to combat crime and employ cloud-based AI and machine learning to tackle the problem.
US banks are adopting emergency procedures and bolstering risk management strategies to combat social media 'attacks' after Silicon Valley Bank failed in March this year partly as a result of customers withdrawing millions of dollars after rumours surrounding the bank's health circulated on Twitter. As banks adapt to a world where tweets can have a significant impact on company reputations and lead to liquidity issues or a quick slide in share prices, they are rethinking the role of social media as a marketing tool to one that should be managed as a potential risk.
Consumer credit data from the New York Federal Reserve this week indicates Americans are being cautious about withdrawing equity from their homes, compared with years gone by and refraining from aggressive borrowing against their homes during the pandemic. Despite an increase in borrowing against the value of homes, it remains a small percentage of Americans’ disposable personal income. The rise of interest rates from zero to more than 5% in the past 14 months has led to a decrease in spending due to refinancing.
The Bank of Canada is more concerned about the risks of high household debt to the Canadian financial system, according to its latest financial system review. The central bank said higher borrowing costs meant more households could face financial pressure in the coming years, while a decline in housing prices reduced homeowner equity. It suggested a severe global recession causing housing prices to drop would lead to more loan defaults and sizable credit losses for Canadian banks if such defaults happened among uninsured mortgages with negative equity on a large scale. Additionally, the bank warned financial stability could also be threatened by a potential major cyber attack or extreme weather events associated with climate change.
The UK government should distribute its remaining 41.5% stake in NatWest to the public in one go, according to on Bloomberg columnist Alex Webb. The distribution could be free but rely on a warrant-like scheme that would only be worth money to recipients if the share price rose above a floor price; when the instrument was sold, that floor value would be passed to the Treasury. Beeb highlights attempts by Policy Exchange to formulate such as plan in 2013, which was later dismissed as too complicated and potentially value-destructive. However, Webb on Wednesday suggested that sticking to an original desire to recover the initial investment is unrealistic due to the large loss already incurred and the fact that the asset was probably overvalued at the time of the bailout. Webb also argued that the state owning a bank, even partially, is "not a good Tory look". Distributing the shares would revive a tired equity culture by attempting to relive the Thatcher-era's share-owning democracy.
The Biden administration's new mortgage fees are set to hurt responsible borrowers and encourage risky borrowers. Fannie Mae and Freddie Mac have updated their loan-level price adjustments, which lenders use to determine the fees charged to borrowers, based on the changes made to fees charged to homebuyers with good credit in January. The new LLPAs will result in higher interest rates for many borrowers with good credit, meaning a larger monthly mortgage payment. This is set to encourage risky borrowers to apply for loans while punishing responsible borrowers, which is similar to what led to the subprime crisis.
The collapse of several banks and the fight in Washington over the debt ceiling could lead to another financial crisis, which is caused by excessive government spending. The government had been spending trillions of dollars it did not have since Congress suspended the debt ceiling limit, which was on top of the existing budget deficit, forcing the government to borrow money by selling bonds and print money. The Federal Reserve had to create more money for the government to prevent new bonds from crowding out private borrowing and driving up interest rates in a recession, which caused inflation. Banks had become dependent on the low interest rates, which would eventually end. The solution is to stop the overspending and learn to live within its means by enforcing the debt ceiling.
The US Federal Reserve has increased its benchmark target Federal Funds rate by 0.25 percentage points. The move matches the high-water mark set in 2006 and 2007, which preceded the Great Recession. The rate hike follows three of the largest bank collapses in the past few weeks and amid rising inflation and interest on the national debt. While the Fed has come under significant pressure to pause or reverse rate hikes, it needs to control inflation by limiting its money creation. The government must cut spending, borrowing and printing to right the ship.
A cross-party group of federal lawmakers is backing a call for climate-focused rules on how Canada’s banks, insurers and pension funds invest their money. Ryan Turnbull, the Liberal MP leading a new push to bring the country's financial system in line with its commitment to reduce carbon emissions, made a call for Canada's financial system to be aligned to the Paris Agreement. Turnbull's motion does not explicitly support Senator Rosa Galvez's Climate-Aligned Finance Act (CAFA).
Global shares reached a one-month high after a boost on Wall Street. The dollar made significant gains, resulting in the decline of other major currencies, including the euro. Hopes for a deal over the US debt ceiling that should manage to avoid a calamitous default were reflected in the markets. Investors will watch for signals across various markets today, including Federal Reserve interest rates, as the US government faces the threat of sliding into a recession and possible downgrading of Treasury debt.
A senior adviser to Ukrainian President Volodymyr Zelenskiy urged allies to take bolder action in imposing sanctions on Russia, calling for the targeting of banks that provide financial services to Russian soldiers. The calls came as the leaders of the Group of Seven (G7) met to discuss imposing new sanctions and preventing Russia and third-party firms from circumventing previously imposed measures. European Union members also looked at the 11th package of sanctions. Vladyslav Vlasiuk singled out three lenders, including Gazprombank, Tinkoff Bank, and Rosselkhozbank. Each of the banks had been implicated in some way in Ukraine's conflict.
The Shanghai Stock Exchange has proposed plans to increase the valuation of Chinese state-backed banks, which are currently discounted by around 36% to their book value. The exchange's General Manager, Cai Jianchun, outlined the plans to executives at a recent meeting, which included the suggestion of businesses holding more investor relations events and the development of index-based fund products. China's banking sector remains one of the most distressed industry groups. Despite a 5.3% gain for 43 banks on the exchange, and a 16% climb in the shares of China's largest listed banking organisations this year, ICBC is trading at 44% below its net asset value.
Turkish banks have restricted access to some individual loans and delayed decisions on corporate loans following new regulations introduced since Sunday's inconclusive presidential election. Mortgage and car loan rates have increased, while interest rates for personal loans above TRY 70,000 ($3,590) have risen to almost 5%. The central bank's latest rules aim to slow the growth of individual loans, which had soared in the run-up to Sunday’s election. Some banks have limited lending to only when obligatory, saying that it is no longer at the rates seen recently.
What happens when $2 trillion is sucked out of the global economy? It may not be pretty
CNN
23-05-19 15:45
Central banks face a difficult challenge as they shrink their balance sheets and unwind quantitative easing programs, which may destabilize the financial system. Central banks came to the rescue of the global economy twice over the past 15 years during the 2008 financial crisis and again during the COVID-19 pandemic. To restore confidence in the economy and stimulate it, central banks engaged in quantitative easing (QE) and purchased government bonds and assets. This created an era of "easy money" and gave policymakers newfound power. But now that inflation has reached its highest point in a generation, central banks must reduce the size of their bloated balance sheets, which currently holds tens of trillions of dollars worth of government bonds and assets. This measure, known as "quantitative tightening," will remove around $2tn of liquidity from the financial system over the next two years. The liquidity drain could amplify risks on the banking system and markets. The major fear is that when liquidity is withdrawn and banks try to adjust to the reduced amount of money in circulation, the demand for liquidity will ratchet up, making it harder to wean the financial system off it.
Deposits at all US commercial banks slipped to $17.10tn from $17.16tn for the week ending 10 May, according to Federal Reserve data. Deposits had fallen significantly after the March collapse of Silicon Valley Bank. Meanwhile, credit provided by banks dipped to $17.32tn from $17.37tn the previous week, driven by falling securities holdings although loans and leases saw a modest drop.
Goldman Sachs is still grappling with the discrimination issues highlighted in the class action lawsuit filed by the bank’s female employees in 2010, according to a report in the Financial Times. While there are fewer signs of overt sexism, women complain of inaccessible cultures, exclusion and a lack of support. “I would’ve been better compensated if I wasn’t a mom, for guys, most of the people I interacted with, their wives didn’t work”, said one woman who recently left the bank. Among other complaints, female employees note Goldman’s culture remains less receptive to women who have no interest in sports and the difficulty of confronting controversial issues without damaging their careers, as one junior employee said. Goldman Sachs agreed to pay $215m, one of the biggest payouts in US corporate history, to settle the discrimination case.
UK bank bosses have warned of the growing number of customers relying on unregulated or “shadow credit”, including loans from illegal money lenders, for short-term financial support. Despite this, high street banks such as Natwest, Barclays and Lloyds have shown little sign of stress on their balance sheets. However, shadow bankers warned the situation could lead to increased stress on the banking system. Earlier this year, the Financial Conduct Authority gained new powers to regulate the “buy now, pay later” lending sector to better protect consumers who use the credit, which has faced criticism.
