Most banks in the U.S. left their standards for lending to businesses little changed in the third quarter, according to the Federal Reserve’s latest survey of senior loan officers, the Wall Street Journal reported. Of those that changed their business-lending standards, more eased than tightened, the Fed said yesterday. More banks eased standards on commercial and industrial loans than tightened them in the third quarter, particularly in the case of large firms with more than $50 million in annual revenue, according to the survey, which was conducted in early October. The Fed’s senior-loan-officer opinion survey has, in the past, served as an early indicator when banks tended toward making riskier loans. Before the 2007-’09 recession, for instance, banks eased lending standards to businesses and narrowed the premium they charged for loans, even as demand for commercial and industrial loans was growing. The situation today is different. More loan officers surveyed reported business demand for loans weakening than strengthening in the third quarter. The most-cited reason for softer demand was that customer firms’ cash flow had improved, reducing their need to borrow.
The Senate Judiciary Committee will hold a rescheduled hearing today at 2 p.m. EDT titled "Big Bank Bankruptcy: 10 Years After Lehman Brothers." The hearing was originally scheduled for September. To view the witness list and prepared testimony, please click here.
Big banks are enlisting the local DMV in their fight against identity fraud, the Wall Street Journal reported. Lenders including JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. are looking for ways to link up with databases at state departments of motor vehicles and other government offices to make sure potential customers are who they say they are. Motor-vehicle departments are appealing partners for banks as more people are opening accounts online. At the Department of Motor Vehicles, applicants typically must appear in person, at least initially, with a stack of documents including birth certificates and social security cards that are verified by trained staffers. Identity verification, a perennial problem for banks, has taken on greater importance since some high-profile data breaches exposed loads of customer data that fraudsters could exploit to open accounts. Banks are also looking for ways to combat a rapidly growing and particularly vexing scam that involves made-up borrowers.
Randal Quarles, head of supervision at the Federal Reserve, said on Friday the central bank would re-propose aspects of a bank capital rule known as the “stress capital buffer” due to industry concerns, Reuters reported. Quarles said that the regulator should also ease a key element of its annual stress tests that allows the regulator to fail firms on operational grounds. The changes are part of a broader Fed effort to streamline its stress-testing process, a tool introduced after the 2007-2009 financial crisis that banks say has become far too onerous. The Fed proposed a “stress capital buffer” (SCB) in April, an effort to shift the Fed’s stress testing regime to fall more in line with its traditional supervisory work, and make its requirements more flexible to address each firm’s specific characteristics. But in response to industry comments, Quarles said that the Fed would rethink several portions of the plan to make it simpler for banks.
Split power in Congress means lawmakers are unlikely to overhaul how the government backstops more than half the U.S. mortgage market. That provides an opportunity for the Trump administration to take steps on its own — and the industry is lobbying to soften any potential changes, the Wall Street Journal reported. In the short term, congressional inaction is likely good news for the housing market as home sales and prices weaken amid rising interest rates. But the White House is expected to consider steps in the coming months that could reduce the government’s footprint in backstopping the market through mortgage-finance giants Fannie Mae and Freddie Mac, which have been under government control since the 2008 crisis. There are limits on what the administration can do with Fannie Mae and Freddie Mac absent legislation. But their overseer, the Federal Housing Finance Agency, has the authority to raise fees on lenders and adjust the size of loans the companies can buy, among other things. The president is expected to nominate a successor to the agency’s Obama-appointed director in the coming weeks.
Analysts say that the Federal Reserve appears ready to make another tweak that will slow the rise of a key short-term interest rate by the end of the year, the Wall Street Journal reported. The central bank, in a move that would be largely technical in nature, could lower the interest rate it pays banks to park reserves on its books relative to the top end of its benchmark federal-funds rate. The fed-funds rate target range now stands at 2 percent to 2.25 percent, while its interest on excess reserves (IOER) rate is set at 2.2 percent. Until the Fed’s June meeting, IOER was set to define the top end of the fed-funds target range. The Fed bumped IOER down a touch in June because the fed-funds rate, which floats within the range and is set by market forces, had been grinding up near the top end of the target rate range. The change in IOER aimed to push the fed-funds rate back toward the middle of the range.
The Federal Reserve reported yesterday that consumer borrowing rose by a seasonally adjusted $10.9 billion following a jump of $22.9 billion in August, the Associated Press reported. The August gain had been the strongest increase in nine months. The September advance was below economists' expectations for a $16.5 billion gain. The category that covers auto loans and student loans increased $11.2 billion. The category for credit cards fell by $311.6 million after having risen $4.6 billion in August.
Securities lending by investment funds has reached its highest level in a decade, as demand for corporate bonds surged more than 30 percent over the past 18 months, Reuters reported. Global money managers generated nearly $6 billion in revenue during the first half of the year, loaning out stocks and bonds that often land in the hands of short-sellers such as hedge funds. It was the best performance since the start of the global financial crisis in 2008 and current volatility trends are expected to keep the upswing going, according to research firm IHS Markit. New regulatory disclosure rules that took effect last year and fresh academic research show, however, that there can be a bigger downside to securities lending than previously thought. For one, mutual funds may overweight high-demand stocks and bonds because they generate higher fees from short-selling hedge funds. Securities lending, especially for money managers keeping a bigger portion of the fees from fund investors, could distort stock-picking behavior and hurt performance, said Travis Johnson, a professor at the University of Texas at Austin.
The Chinese government imposed a tariff on American soybeans in response to the Trump administration’s tariffs on Chinese goods. The latest federal data, through mid-October, shows American soybean sales to China have declined by 94 percent from last year’s harvest, the New York Times reported. President Trump sees tariffs as a tool to force changes in America’s economic relationships with China and other major trading partners. His tough approach, he says, will revive American industries like steel and auto manufacturing that have lost ground to foreign rivals. But that is coming at a steep cost for some industries, like farming, that have thrived in the era of globalization by exporting goods to foreign markets. Like most successful American exports, soybeans are produced at high efficiency by a small number of workers using cutting-edge technologies, like tractors connected to satellites so the optimal mix of fertilizers can be spread on each square foot of farmland. The United States exported $26 billion in soybeans last year, and more than half went to China.
The construction workforce, estimated at roughly 33,000 before Hurricane Maria, will need to double to keep up with demand to rebuild roads, houses and other infrastructure damaged in last year’s storm season, said Emilio Colon-Zavala, president of the Puerto Rico Builders Association, the Wall Street Journal reported. Cement sales, a proxy for construction activity, increased for eight months straight after Hurricane Maria to 33 percent above pre-storm levels. Puerto Rico’s building industry is booming, fueled by federal disaster-relief dollars and insurance proceeds together projected to total $82 billion over time. The influx has turned construction into a bright spot for an island economy racked by population loss, a declining manufacturing base and the largest municipal bankruptcy in U.S. history. Since the hurricane, federal agencies have obligated $4.8 billion for recovery work in Puerto Rico through last August, according to the Center for a New Economy, a San Juan-based think tank. While financial planners don’t know the exact scale of federal assistance over the next decade, the U.S. government has made some firm commitments already, including an $18.5 billion grant for rebuilding housing stock and other infrastructure. Meantime, the construction industry is reckoning with rising costs. Not only have wages increased, but material costs have risen since the Trump administration imposed tariffs on steel and aluminum from Canada, Mexico and the European Union and on Chinese products like home appliances, electrical equipment and other materials critical to Puerto Rico’s rebuilding efforts.