Banking

Banks bashed on buffers; PPP data shows biggest companies got the biggest loans

Receiving Wide Coverage …

Spirit of the season

House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer expressed their support for Tuesday’s $908 billion bipartisan relief bill, saying that the measure “should serve as the starting point for talks with GOP leaders and the White House,” the Wall Street Journal reported. “Democratic leaders signaled they were prepared to reduce their demands for the next round of coronavirus relief, fueling hopes that an agreement could be reached with Republicans by year’s end to boost struggling businesses and households.”

“In the spirit of compromise, we believe the bipartisan framework introduced by Senators yesterday should be used as the basis for immediate bipartisan, bicameral negotiations,” Pelosi and Schumer said in a joint statement.

“The bipartisan Senate proposal announced on Tuesday would allocate $288 billion for small businesses, which have borne the brunt of the pandemic,” the Financial Times said. “It would also plough $180 billion into unemployment benefits and provide $160 billion to state and local governments, among its more costly measures.”

The move by the two top Democratic congressional leaders is “a massive concession meant to prod President Trump and Senate Republicans into accepting a compromise as cases spike and the economic recovery shows signs of faltering ahead of the holiday,” the Washington Post said.

Follow the money

New borrower loan data on the Paycheck Protection Program “shows what many had suspected all along: The money was shared unevenly, with the biggest sums going to a sliver of the companies in need,” the New York Times reported. “Detailed loan information released by the Small Business Administration showed that a mere 1% of the program’s 5.2 million borrowers — those seeking $1.4 million and above — received more than a quarter of the $523 billion disbursed. About 600 businesses received the maximum loan amount of $10 million, according to the data.”

The release of the information “highlights how money flowed to both mom-and-pop businesses and larger firms, and it raises questions about the agency’s ability to track key information about aid recipients,” the Journal said. “The data also signal the difficulty of tracking borrower information in a massive program where the responsible agency didn’t issue loans directly. Financial institutions processed PPP borrower applications and funded and disbursed the loans, which are backed by the SBA.”

“Officials from the Treasury Department and the SBA have argued the program primarily benefited smaller businesses because a vast majority of the loans ― more than 87% ― were for less than $150,000, as of August,” the Washington Post said. “But the new data shows more than half of the $522 billion in the same time frame went to bigger businesses, and only 28% of the money was distributed in amounts less than $150,000.”

Lose one, win one

Judy Shelton’s nomination to the Federal Reserve Board “appears unlikely to succeed now that a new Democratic senator has been seated, denying President Trump’s nominee the votes needed for approval,” the Journal said. “Republicans’ majority in the U.S. Senate fell to 52-48 on Wednesday when Sen. Mark Kelly, D-Ariz., was sworn in after winning a special election Nov. 3. Three Republicans are opposed to Ms. Shelton’s nomination. If Mr. Kelly votes with all Senate Democrats and independents, who are opposed, she would lack the necessary support for confirmation so long as all the 51 opposing lawmakers are able to vote.”

However, “the Senate voted Wednesday to advance the confirmation of another of Mr. Trump’s Fed nominees, Christopher Waller, the research director at the Federal Reserve Bank of St. Louis. The Senate voted 50-45 to clear a final procedural hurdle before Mr. Waller’s confirmation vote, which is likely to occur Thursday.”

Waller is expected to be confirmed by the full Senate on Thursday “in what could be President Trump’s last addition to the central bank,” the Washington Post said. “If confirmed, Waller’s term would run through January 2030.”

Wall Street Journal

Grounded

“Nearly nine months into the pandemic, banks and airlines are scrambling to rescue their airline rewards cards. The companies have deployed the cards for years to win big-spending customers, but the perks they offer—like flight upgrades and airport lounge access—are all but obsolete in a global pandemic.”

Financial Times

Use those buffers

Fed vice chair for supervision Randal Quarles Wednesday “lamented the fact that banks did not significantly use their capital and liquidity buffers through the pandemic.” But Quarles, who also chairs the Financial Stability Board, said the group of global financial regulators “will examine ways to encourage lending during crises.”

“We’re in the process of looking internally within the regulatory system to say, ‘What disincentives have we created in the regulatory system to the use of those buffers that perhaps we can adjust, so that the buffers become more usable in the time of stress?’”

“Still, Quarles praised banks for setting aside loan-loss reserves and extending credit as markets seized up in March and April,” American Banker reported

Interesting question

“Will banks still be strong enough to fund the recovery, particularly for small and midsized businesses, when government guaranteed loans expire?” an FT op-ed asks. “How policymakers answer this question has major implications for bank dividends, financial regulation and the shape of quantitative easing programs.”

Holding out?

Former Goldman Sachs president Gary Cohn “is holding out on the bank’s request for him to return millions of dollars of his pay in recognition of executives’ collective responsibility for the 1MDB corruption scandal. A person familiar with the situation said Mr. Cohn — who left the bank in 2016 to become an adviser to President Donald Trump — had not yet agreed to return his portion of the money.”

However, Bloomberg reported that he was having “very constructive conversations” with Goldman on the matter.

Agitated

Cerberus, the private equity fund that is Deutsche bank’s fifth largest shareholder, “tried to install former Morgan Stanley president Colm Kelleher as chairman of Germany’s largest lender, highlighting the depth of discontent over the incumbent, Paul Achleitner. Cerberus has been agitating for Mr. Achleitner’s departure for more than a year and began courting Mr. Kelleher before the German bank’s annual investor meeting in May.”

Quotable

“Those cushions … are designed to be cushions, to be used during a period like this, and for the most part, banks haven’t done that. I would have liked to have seen that happen.” — Randal Quarles, the Fed’s vice chair for supervision, expressing his disappointment that banks didn’t use their increased capital cushions to make more loans during the pandemic.



 

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