Pocohantas and the Global Payments System

America is an important information node in the global payment system. #ElizabethWarren‘s calls for more regulation of #banks could mean less lending to the very constituents she claims to represent as banks use her anti-bank rhetoric as an excuse to jack up their lending rates while disqualifying lower income borrowers.

Globally, higher rates will run through the rest of the system. Banks, ironically, while lending less could offset less lending to middle class clients with higher interest revenues from more affluent borrowers, making the banks less risky and more profitable while less accessible to lower and middle income borrowers.

Pocohantas may prove herself a double agent for capital after all. Go Poco, Go, Poco.


Kamala Harris’ relationship to the banks: Not very aggressive

Senator Kamala Harris, Democrat of California, yesterday announced her intent to pursue nomination as the Democratic Party’s candidate for president of the United States.  Senator Harris is renowned for going up against five major mortgage banks obtaining a national $25 billion foreclosure settlement while serving as California state attorney general in 2012.  According to The Los Angeles Times, California homeowners received approximately $9.2 billion in first and second mortgage relief amounting to 84,102 California families receiving reductions in their first or second mortgages.

Analysts argue that because a large portion of the loans that were forgiven were delinquent, banks were not going to recover their lost investment.  Either through short sales or reduction in monthly mortgage bills, California homeowners came away with the benefit of reduced financial stress.

One of the criticisms of Ms. Harris’ deal was that bankers in California did not see jail time for issuing predatory loans.  Another criticism concerned determining if the benefit of the settlement was being spread fairly among ethnic groups. According to the Los Angeles Times with no adequate tracking of the benefits dispersed from the settlement, it was hard to tell whether low-income or black American borrowers partook equitably in the settlement. 

Another likely criticism may be Ms. Harris’ inability to prevent then governor Jerry Brown from reportedly diverting proceeds from the settlement toward other areas of the budget.

A review of Ms. Harris’ campaign website lists no specific policy statements on banks or the financial services industry as a whole with the exception of her foreclosure settlement negotiations.  On her Senate website she did express opposition to the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, referring to the proposed bill as an attempt to roll back consumer protections instituted after the 2008 financial crisis.  The bill eventually became law on 24 May 2018.

A review of the American Bankers Association’s website found that no press statements have been released regarding the ABA’s position on Ms. Harris’ announcement.  

I cannot conclude that Senator Harris’ relationship with the banks is negative, aggressive, or acrimonious. I cannot conclude that it is warm either.  Senator Harris’ pledge not accept donations from corporate political action committees may not prohibit banks or their employees, however, from donating to non-corporate PACs.

The banking industry prepares itself for Maxine Waters

The past 48 hours have been filling up with analysis as to what the next moves by the House Democrats will be as they take over the lower chamber on 3 January 2019.  Here is my quick take.

U.S. Representative Maxine Waters, Democrat of California, is expected to become chairman of the U.S. House Committee on Financial Services and using her new position to seek increased regulation of the major banks in the United States.  These banks may include JP Morgan Chase, Bank of America, and Wells Fargo.

According to reporting by CNBC, Mrs. Waters would like to shut down Wells Fargo for good.  Mrs. Waters holds the financial industry responsible for foreclosures that occurred during and in the wake of the 2008-2009 financial crisis.  She wants higher fines for financial institutions that break the law and some banks believe that Mrs. Waters will use the committee’s subpoena powers to harass Wells Fargo and other banks. It is also believed that Mrs. Waters would focus on the Consumer Financial Protection Bureau and housing reform should she become chairman.

According to analysis by MarketWatch, elevated levels of headline risks are expected for banks with Ms. Waters at the helm of the House financial services committee. While her measures won’t pass the Republican-dominated Senate, it is the negative perceptions she may create about the financial industry that has analyst worried.

And these negative perceptions may be generated by investigative powers stemming from Mrs. Waters ability to issue subpoenas once she assumes the chairmanship.

The American Bankers Association acknowledges the flip in agendas resulting from a new chairman at the helm and expects Congress to be very involved in oversight. The ABA wants the banking industry to brace itself for something it has never seen before in terms of the tone of the potential incoming chairman.  Given Mrs. Waters tenor, the ABA hopes that remaining moderates on the Committee can move Mrs. Waters toward pragmatism.

The ABA is has identified top issues for the 116th Congress including anti-money laundering, data security, cannabis banking, and reform in government sponsored entities. With one-third of the house financial services committee expected to be new members, the ABA is ready to launch an education campaign toward these members.

Watching Mrs. Waters at the helm of the Committee will be an experience to say the least.