Regulators started rewriting post-crisis swaps-trading rules on Monday, approving a proposal that would loosen requirements for how trades can be executed, the Wall Street Journal reported. By a 4-1 vote, the Commodity Futures Trading Commission proposed changes that would allow more ways to trade swaps on electronic platforms known as swap-execution facilities. The proposal would affect the biggest categories of products — interest-rate and credit-default swaps — that are routed through central clearinghouses. Currently, around 85 percent of those contracts are centrally cleared. The changes have been championed by CFTC Chairman J. Christopher Giancarlo, a Republican, who has long complained Obama-era rules were harming liquidity in swaps markets. He said yesterday that the proposal would bring “daylight to the marketplace” as Congress intended in the 2010 Dodd-Frank financial law. The proposal would require more types of trades — including a host of foreign-currency interest-rate swaps — to occur on the platforms, a change that could lead to as much as a 50 percent increase in daily trade volumes, according to estimates.
Regulators have proposed a softer oversight regime that dials back rules for U.S. banks considered unlikely to pose a threat to the financial system — a step meant to limit the toughest demands only to the largest lenders, Bloomberg reported. Responding to legislation that called on federal agencies to ease compliance burdens for non-Wall Street banks, Federal Reserve governors voted Wednesday on a plan that would separate megabanks from smaller, regional lenders. Under the proposals, banks such as U.S. Bancorp, Capital One Financial Corp. and PNC Financial Services Group Inc. would escape the most stringent capital rules reserved for systemically important institutions. The revamp from the Fed — portions of which will be issued jointly with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. — would “significantly reduce regulatory compliance requirements” on mid-sized institutions. That will mean an estimated $8 billion less in overall capital for the industry, a liquidity demand lowered by several billion dollars and reduced compliance costs, according to a Fed memo.
U.S. consumer spending rose for a seventh straight month in September, but income recorded its smallest gain in more than a year on moderate wage growth, suggesting the current pace of spending was unlikely to be sustained, Reuters reported. The report from the Commerce Department yesterday also showed the increase in income at the disposal of households was the smallest in 15 months and savings dropped to their lowest level since December last year. “It remains to be seen how long the spending spree can continue,” said Sung Won Sohn, chief economist at SS Economics in Los Angeles. “The stimulus from the tax cut has plateaued. Rising interest rates and volatile stock markets are having a psychological as well as a real effect.” Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month as households bought more motor vehicles and spent more on health care. Data for August was revised up to show spending advancing 0.5 percent instead of the previously reported 0.3 percent gain. Read more.
The Commerce Department today released its initial estimate of third-quarter economic growth showing that the U.S. gross domestic product rose at an annualized rate of 3.5 percent in the third quarter, the New York Times reported. The third-quarter growth rate was down slightly compared to the 4.2 percent rate in the second quarter. Analysts had expected the economy to slow somewhat after the second quarter’s blockbuster data, and the economy remains on track to grow by 3 percent or more this year — the first time it has hit that mark since 2005. The Commerce Department also reported that consumer spending increased by 4 percent, a category that accounts for roughly 70 percent of economic output, and was strong this quarter and last.
A Federal Reserve report released yesterday found that businesses were still optimistic about the economy’s growth trajectory, but indicated concerns that tariffs would continue to push up costs, the Wall Street Journal reported. The majority of the Fed’s 12 districts reported modest to moderate economic growth at the beginning of fall, the Fed said in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on data collected on or before Oct. 15 and highlighted uncertainties, particularly among manufacturers, regarding the impact of labor shortages and trade disputes. The Trump administration has imposed tariffs on billions of dollars-worth of imports, leading to retaliatory tariffs on U.S. goods. For one trucking contact in the Cleveland Fed district, tariffs have meant price increases for pallet jacks, tires, and packaging material. Many businesses have or expect to pass along tariff-related price increases to customers, but in some cases, are unable to, the report said.
One of the nation’s top bank regulators says the banking system is safe, but worries about risks at non-bank financial institutions, particularly mortgage servicers, YahooFinance.com reported. The remarks from Federal Deposit Insurance Corp. Chair Jelena McWilliams come days after regulators freed the last “too big to fail” non-bank from extra regulation. McWilliams told a banking conference on Tuesday that post-crisis regulatory reform helped make the banking system safer but could have pushed risky activity to non-bank lenders. Those lenders, McWilliams feared, are not regulated by the FDIC or the other two banking regulators: the Federal Reserve and the Office of the Comptroller of the Currency. McWilliams’s comments come as she and the rest of the Financial Stability Oversight Council, a committee of financial regulators, unanimously voted to strip Prudential Financial of its “systemically important financial institution” title. In its report, the council said that the largest life insurer in the U.S. is no longer a risk to financial stability because it has more liquidity that it used to and lacks the exposure to be of concern. “It’s not Prudential that I’m concerned about,” she said. “It’s where are we putting this activity by regulating at the banks at the level that we have regulated it in the past.” McWilliams added that she sees a problem in the fact that eight out of the 10 largest mortgage servicers in the country are non-banks.
The Federal Deposit Insurance Corp. said yesterday that the percentage of Americans who do not have a bank account fell to a record low last year, the Associated Press reported. In 2017 approximately 6.5 percent of U.S. households did not have a primary bank account. That is down from 7 percent in 2015 and from a high of 8.2 percent in 2011. That translates into roughly 14.1 million adults without a bank account. The reasons for not having a bank account remained steady from previous surveys, with "not having enough money" being the No. 1 reason for doing so. Not trusting banks was another popular reason for not being banked.
Moody’s Investors Service said that companies owned by the 16 largest private equity firms have lower credit quality than those of similar, non-private equity owned companies, WSJ Pro Bankruptcy reported. In a recent report, the ratings agency said that weakening credit worthiness and loose safeguards could mean trouble for private equity firms when economic conditions change. The report says 92 percent of companies owned by the top 16 private equity firms are rated B2 or below, compared to 40 percent of companies without private equity backing. Driving the disparity is private equity’s appetite for shareholder returns and risky debt, according to Moody’s analyst Julia Chursin. Since 2009, Moody’s say it has rated 308 companies owned by the top 16 private equity firms, 99 of which have paid debt-funded dividends to private equity shareholders.
Credit scores for decades have been based mostly on borrowers’ payment histories. That is about to change, the Wall Street Journal reported. Fair Isaac Corp., creator of the widely used FICO credit score, plans to roll out a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts. It is among the biggest shifts for credit reporting and the FICO scoring system, the bedrock of most consumer-lending decisions in the U.S. since the 1990s. The UltraFICO Score, as it is called, isn’t meant to weed out applicants. Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay. The new score, in the works for years, is FICO’s latest answer to lenders who after years of mostly cautious lending are seeking ways to boost loan approvals.
The Securities and Exchange Commission said yesterday that public companies that are easy targets of cyber scams could be in violation of accounting rules that call for firms to safeguard assets, the Wall Street Journal reported. The SEC said in an investigative report that nine public companies wired nearly $100 million to hackers who impersonated corporate executives or vendors using emails. One company made 14 wire payments to a hacker, resulting in more than $45 million in losses, the SEC said. The agency declined to punish the companies, which weren’t identified. “Cyber frauds are a pervasive, significant, and growing threat to all companies, including our public companies,” SEC Chairman Jay Clayton said in a statement. “Investors rely on our public issuers to put in place, monitor, and update internal accounting controls that appropriately address these threats.” The type of scam the companies faced, known as business email compromises, have been responsible for more than $5 billion in losses since 2013 and ranked last year as the top cause of estimated losses linked to any cybercrime, the SEC said, citing data from the Federal Bureau of Investigation.