Interbank market news scan: Could banks be relegated to money changers and merchant lending?

Links to follow today …

Banks, yields. Shares of banks and other financial institutions ticked down as Treasury yields remained well below recent highs. Financials Down As Treasury Yields Remain Under Pressure – Financials Roundup | Morningstar

Central banks, digital currency. Wall Street is warming up to the idea that the next big disruptive force on the horizon is central bank digital currencies, even though the Federal Reserve likely remains a few years away from developing its own. https://www.cnbc.com/2021/04/19/central-bank-digital-currency-is-the-next-major-financial-disruptor.html

Central banks, economy. The aggressive rebound in global economic growth still isn’t enough for most of the world’s central banks to pull back on their emergency stimulus. https://finance.yahoo.com/news/robust-rebound-won-t-augur-230100088.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAANIO_W4fWKspPdO0lmCF0BtRtybmUhLQrCrS7IiHsU3ox1D7lAQb3Wr7TRZVJl15aCZ4xuL-XKYMkGxjA9ibNTxZoMNfYd4a7dwMtWJG6VTw9RAdKO8fNl33Lu9oNBs6ZyOcLW0nqTwH9A17TmPzaaGMMUFN9VmVdSnCPC9aRR6X

Central banks, economy, pandemic. With a policy change pretty much off the table this week, European Central Bank watchers will have to closely monitor finer details about its pandemic stimulus program as policymakers wait for more data before taking decisive action. https://www.cnbc.com/2021/04/21/european-central-bank-meets-as-covid-lockdowns-complicate-recovery.html

The market opening. The rates to start your day ….

As of 9:40 am EST, Bloomberg reports that the yield on the three-month Treasury note is at 0.03% while the two-year note comes in at 0.15%. The ten-year and thirty-year Treasurys are trading at 1.56% and 2.25%, respectively.

The Federal Funds rate, the rate at which banks lend to each other overnight in support of their reserve requirements, is at .07%, while the Fed Funds target rate is still at .25%. The prime lending rate is 3.25%.

Exchange rates of interest as of 9:55 am EST….

Currency PairsRates as of 9:55 am EST 21 April 2021
EUR/USD1.2024
GBP/USD1.3891
USD/CAD1.2629
CAD/XCD2.1462
USD/XCD2.7000
USD/TTD6.6721
USD/BBD2.0000
CAD/TTD5.3012
CAD/BBD1.5986
Source: OANDA

The Opening Takeaway: Could banks become mere currency agents?

Yesterday I shared my expectations on the possibility of the Federal Reserve, the US Treasury, and other central banks and finance ministries prohibiting cryptocurrency as a medium of exchange. Using the policy rationale of the government being the sole issuer of currency, cryptocurrency issuers may find themselves limited to generating digital assets for sale as investments or safe havens. But what about the banks? What would their role be?

Wall Street appears to be hedging its bets on digital currencies (see second link above) as they prepare for the disruption a central bank issued digital currency could cause. Cryptocurrency exchanges such as Coinbase (Nasdaq: COIN) were receiving big boosts from what appears to be growing acceptance of cryptocurrency as at least a digital asset. Uncertainty in the markets drove capital toward bitcoin and other crypto-assets, making crypto the equivalent of gold in some minds. But with the vaccine rollouts and increases in the number of people, at least in western European countries and the United States on the increase, “risk on” seems to be the quiet rally cry accompanying a pullback in crypto prices. Acompanying the pull back are an increasing number of central banks exploring issuing a digital currency.

One arguable benefit from a central bank issued digital currency is the likelihood of turning more consumers into bank deposit holders. Rather than holding a deposit at a commercial bank, the “unbanked” along with those already holding commercial bank accounts, would have a default account at one of the Federal Reserve’s 12 central banks. yes, more account holders but not necessarily account holders at commercial banks. If the efficiencies promised by a central bank issued digital bank come to fruition, then why bother with holding another account? As part of the payment system, the check I write to and deposit into my son’s account goes through the Federal Reserve’s payment system anyway so why include another middle man? Commercial banks will have to consider these scenarios spawned by digital coin efficiencies when contemplating their new roles.

I see the larger banks easily leveraging their scale to ramp up already existing roles. They could focus more on lending, hopefully in a higher yield environment. They could also lobby for relaxation of Dodd-Frank restrictions on proprietary trading, opening up additional income making opportunities to offset income (if any) made currently from depositors. Large banks will not want to waste investments in their infrastructure by being relegated to mere currency issuer status, competing with check cashing facilities located at Walmart or around the corner at a pawnshop.

For the smaller banks, they will want to leverage their community relationships to counter any new found competition from larger banks as they face the irony of central bank issued digital coin taking away their customers.

Alton Drew

Interbank market news scan: Dollar expected to gain as markets open in Europe and the US on Monday ….

Payment systems. You still can’t deposit or withdraw digital assets from PayPal, which undercuts the technology’s appeal as a way to put individuals back in control of their money in a world of unchecked asset seizures and involuntary bank bail-ins. But now you can at least use the service to buy stuff. Opinion: Crypto as a Payment System? Here We Go Again – CoinDesk

Payment systems. Despite its mass acceptance and large user base, one such institution brought into the spotlight of legal debate is Google India’s payments operation, Google Pay. This article explains the legal debate behind it and what it means for India’s payments ecosystem. Can Third-Party Applications Be Classified As Payment System Operators? (inc42.com)

Payment systems. A patient payments technology venture that counts local players Nashville Capital Network and i3 Verticals among its owners has been bought by Bank of America. BofA buys health care payments player | Nashville Post

Foreign exchange: speculation. EUR/USD begins the week not correlated to its cross pairs and explains why EUR/USD traded lower into deeply oversold. Currency Market: FX weekly and EM (fxstreet.com)

Foreign exchange: interbank. The dollar was poised to extend gains against major currencies on Monday after the U.S. jobs report at the end of last week showed the nation’s labour market is recovering from the impact of the coronavirus shock. Dollar holds advantage as economic data point to more gains | Reuters

Currency PairsRates as of 10 pm 4 April 2021
EUR/USD1.1764
AUD/USD0.7619
GBP/USD1.3826
USD/JPY110.5700
NZD/USD0.7024
USD/CHF0.9415
USD/NOK8.5303
USD/SEK8.7252
USD/CAD1.2564
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.18
10-yr Treasury1.71
30-yr2.35
Sources: Bloomberg, Reuters

Interbank market news scan: Foreign exchange rates as the markets enter Easter weekend and the American capitol sees another attack …

Politics. A motorist rammed a vehicle into U.S. Capitol police on Friday and brandished a knife, killing one officer and injuring another and forcing the Capitol complex to lock down in an attack that police said did not immediately appear to be terrorism-related. Police officer killed in vehicle attack on U.S. Capitol | Reuters

Currency PairsRates as of 4:11pm 2 April 2021
EUR/USD1.1762
AUD/USD0.7602
GBP/USD1.3821
USD/JPY110.6800
NZD/USD0.7018
USD/CHF0.9421
USD/NOK8.5278
USD/SEK8.7239
USD/CAD1.2568
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.19
10-yr Treasury1.72
30-yr2.36
Sources: Bloomberg, Reuters

Interbank market news scan: The equity markets in the US may be closed, but foreign exchange markets are not resting in light of an improving employment picture …

The U,S, Department of Labor today reported that non-farm payrolls increased in March by 916,000 employees while the unemployment rate fell to 6.0%. Employment gains were led buy the leisure and hospitality, public and private education, and construction sectors. THE EMPLOYMENT SITUATION — MARCH 2021 (dol.gov)

Currency PairsRates as of 9:19am 2 April 2021
EUR/USD1.1768
AUD/USD0.7614
GBP/USD1.3837
USD/JPY110.5800
NZD/USD0.7032
USD/CHF0.9409
USD/NOK8.5335
USD/SEK8.7131
USD/CAD1.2548
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.18
10-yr Treasury1.71
30-yr2.36
Sources: Reuters, Bloomberg

Interbank market news scan: Foreign exchange markets preparing for U.S. jobs situation report…

March’s Nonfarm Payrolls report, which is due out on Friday at 12:30 GMT, is set to show an increase of 630,000 jobs. Here you can find the forecasts of economists and researchers of eight major banks regarding the upcoming employment data. Nonfarm Payrolls Preview: Forecast from eight major banks for March jobs report (fxstreet.com)

The U.S. dollar will remain strong for at least another month, according to a Reuters poll of foreign exchange strategists, who still forecast that the currency will weaken in the longer term. U.S. Dollar to Remain Strong for at Least Another Month: Reuters Poll | Investing News | US News

Currency PairsRates as of 2:15pm 1 April 2021
EUR/USD1.1775
AUD/USD0.7607
GBP/USD1.3824
USD/JPY110.5800
NZD/USD0.7021
USD/CHF0.9413
USD/NOK8.5295
USD/SEK8.7090
USD/CAD1.2565
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.16
10-yr Treasury1.68
30-yr2.34
Source: Bloomberg, Federal Reserve, Reuters

Moving capital from Europe to Baltimore, Maryland? Start with a bank with a Baltimore branch …

We identified 50 of the largest banks in Europe and asked how many of these banks have a branch located in Baltimore, Maryland. One of the more direct ways to move capital from a home base in Europe into the US is for an investor to move funds through a bank account where the bank also has a branch in the U.S. Only a small handful of European banks are located in the Baltimore, Maryland area. We will explore what exposure these European banks have in other American cities, but today we start with Charm City.

  1. HSBC
  2. BNP Paribas
  3. Deutsche Bank
  4. UBS Group

This afternoon’s closing foreign exchange and interest rates as of 5:00 pm EST.

Currency PairsRates as of 5:00pm 31 March 2021
EUR/USD1.1724
AUD/USD0.7602
GBP/USD1.3779
USD/JPY110.7500
NZD/USD0.6981
USD/CHF0.9453
USD/NOK8.5335
USD/SEK8.7234
USD/CAD1.2564
  
Selected Rates 
Fed Funds.05
Bank prime rate3.25
Discount window.25
2-yr Treasury.16
10-yr Treasury1.74
30-yr2.41
Source: Reuters, Bloomberg, Federal Reserve

Interbank market news scan: Foreign exchange and selected interest rates as of 9:18 am EST

Currency PairsRates as of 9:18am 31 March 2021
EUR/USD1.1725
AUD/USD0.7610
GBP/USD1.3769
USD/JPY110.7400
NZD/USD0.6995
USD/CHF0.9429
USD/NOK8.5181
USD/SEK8.7293
USD/CAD1.2607
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.14
10-yr Treasury1.73
30-yr2.43
Source: Reuters, Federal Reserve

Interbank market news scan: Fed chair opines on necessity for an improved payments system and testing central bank digital currencies…

The Takeaway: Soon after issuing a statement on the fed funds rate and how warranted attention paid to rising yields should be, Federal Reserve Board chairman Jerome Powell remarked today about the need to further strengthen the global payments system with emphasis on its cross border nature. Mr Powell also provided an update on the testing of central bank digital currencies. Stakeholders in the payments system may want to pay attention to how intermediaries are treated in a central bank digital currency regime.

To see what we’re following, follow the links …

Crypto Exchanges: “Bitcoin is the most talked about cryptocurrency but Ethereum [the blockchain] has more features, including being more flexible” in its hosting of decentralized finance (DeFi) than the Bitcoin blockchain, according to Bank of America. Bank of America Sees DeFi ‘Potentially More Disruptive Than Bitcoin’ – CoinDesk

Decentralized Finance: Reputation-based lending is coming to decentralized finance (DeFi) next month with the release of Maple Finance’s “Pool Delegates” lending suite. Maple Finance Raises $1.4M for Its Reputation-Based DeFi Lending Platform (yahoo.com)

Crypto Exchanges: A number of venture capital giants have completed a financing round for Ethereum-based volatility and derivatives protocol Volmex Finance. Volatility derivatives project Volmex Finance attracts backing from VC giants (cointelegraph.com)

Crypto Prices: Bitcoin’s (BTC) price slid Thursday, retreating along with U.S. stocks and oil prices as U.S. Treasury yields touched some of the highest levels in a year. https://www.coindesk.com/market-wrap-bitcoin-loses-steam-60k-bond-yields

Yields: Rising U.S. bond yields will not hurt Asia’s emerging markets as badly as they did during the “taper tantrum” eight years ago, according to a report by S&P Global Ratings. https://www.cnbc.com/2021/03/18/asias-emerging-economies-can-withstand-rising-us-yields-says-sp.html

Central Banks: Both of the Federal Reserve and the Bank of England vowed to keep liquidity plentiful and not to taper support in the face of rising inflation until they see prolonged signs of an economic recovery. The FOMC served up a surprise with the majority of the dots flat through 2023. Both USD and GBP fell sharply after their respective central banks’ decisions before later stabilizing. Fed, BoE step back, yields push up (fxstreet.com)

Payments System: Federal Reserve chairman Jerome Powell offers remarks on improving the payments system. Closing remarks by Chair Powell at a conference hosted by the Committee on Payments and Market Infrastructures – Federal Reserve Board

Currency pairs that include top countries with foreign direct investment in the US …

The majority of foreign direct investment in the United States is held by Japan, the United Kingdom, Canada, the Netherlands, Germany, France, and Luxembourg. Since the Biden administration has taken office, the dollar-yen and dollar-euro have seen appreciation (4.9% and 1.5%, respectively), while the dollar-pound and the dollar-loonie have fallen, 2.4% and 2.3%, respectively.

Currency pair20 January 202119 March 2021Percentage change
USD/JPY103.9300108.99004.9
USD/GBP0.73450.7170-2.4
USD/CAD1.27311.2433-2.3
USD/EUR (1)0.82540.83741.5
Source: OANDA (1) The euro is the currency of France, German, and Luxembourg

18 March 2021, 9:46 pm EST

As of 1:30 am AST, on the eve of a vote on impeachment, bond yields stay relatively flat…

RatesFederal Reserve as of 11 January 2021Bloomberg as of 13 January 2021 1:00 am AST
Federal Funds Rate0.080.08
Prime Rate3.253.25
3-month Treasury0.080.08
2-year Treasury0.140.14
10-year Treasury1.151.12
30-year Treasury1.881.87
Source: Federal Reserve, Bloomberg

House votes resolution asking Pence to use 25th amendment to remove Trump

Last night the U.S. House of Representatives passed the following House resolution in its attempts to remove President Donald Trump prior to the end of his term. House Res 21 reads as following:

This resolution calls upon Vice President Michael R. Pence (1) to immediately use his powers under section 4 of the Twenty-fifth Amendment to convene and mobilize the principal officers of the executive departments to declare that the President is unable to successfully discharge the duties and powers of his office, and (2) to transmit to the President pro tempore of the Senate and the Speaker of thHouse notice that he will be immediately assuming the powers and duties of the office as Acting President.

Vice-President Pence has reportedly said that he does not intend to invoke the 25th Amendment. This means that the House will likely move to the next stage of its strategy which is to vote articles of impeachment against Mr Trump. Given the Democrats majority in the House, passage is expected.

The articles of impeachment would then move to the Senate for a trial. Indications are that, unlike last year’s attempt to remove the President from office via impeachment where a Republican-controlled Senate voted not to remove the President, there may be enough support on the part of Senate Republicans to find Mr Trump liable for “high crimes and misdemeanors”, the standard under the U.S. Constitution for removal. Senate majority leader Mitch McConnell has signaled that Mr Trump’s behavior, where allegedly encouraged supporters to march last week on the Capitol, amounted to an impeachable offense.

The establishment wing of the Republican Party, now in damage control as a result of the storming of the Capitol by Trump supporters and the resulting deaths of five people, would like nothing more than to move on from the Trump era and start laying the groundwork for the 2022 mid-term elections.

I don’t expect impeachment actions to have any bearing on pending policy actions designed to impact the economy. With only seven days left until the change in government, attempts to remove Mr Trump are designed to score political points with an electorate, a significant amount of whom believe the actions of individuals storming the Capitol amounted to an insurrection attacking the country’s representative institutions of democracy.

As of 10:59 am AST, dollar shows some strengthening as yields increase

PairsFederal Reserve as of 8 January 2021OANDA as of 11 January 2021OANDA as of 12 January 2021 10:59 am AST
GBP/USD1.35831.35031.35026
USD/CAD1.26981.27691.2769
USD/CNH6.47506.47826.4782
USD/DKK6.06976.11156.1115
EUR/USD1.22521.21671.2167
USD/INR73.310073.409373.4093
USD/MXN19.941020.120320.1203
USD/JPY103.8900104.1600104.1600
USD/NOK8.40748.51598.5159
USD/SEK8.20858.28078.2807
USD/CHF0.88430.88920.8892
Sources: Federal Reserve, OANDA
RatesFederal Reserve as of 8 January 2021Bloomberg as of 12 January 2021 10:59 am AST
Federal Funds Rate0.090.08
Prime Rate3.253.25
3-month Treasury0.080.08
2-year Treasury0.140.15
10-year Treasury1.131.17
30-year Treasury1.871.89
Sources: Federal Reserve, Bloomberg