Finance Brief: Clinton’s Wall Street Ties Cause Problems, Deutsche Bank Exposure Is Limited

By Ryan Rainey and Tara Jeffries

Today’s Washington Brief

  • Hillary Clinton’s leaked Wall Street speeches, revealed by WikiLeaks, could exacerbate skepticism from her party’s progressive wing despite former primary opponent Sen. Bernie Sanders (I-Vt.)’s statement of support. Progressive Democrats such as Sen. Elizabeth Warren of Massachusetts have pushed to keep Wall Street bankers out of a Clinton administration, and the speeches could fuel suspicions that Clinton is too close to the industry. (Politico)
  • Sen. Pat Toomey (R-Pa.) faced criticism from Democratic opponent Katie McGinty, who said he has profited from predatory lending practices while serving on the Senate Banking Committee. McGinty zeroed in on his ties to Team Capital Bank, which used a controversial foreclosure method on 21 Pennsylvania homes. (The Pittsburgh Post-Gazette)
  • Two Kansas City area payday loan executives, who have faced legal fallout over lending practices, have donated $160,000 to federal candidates and political parties over the past decade, including to 17 lawmakers that oversee payday lending. One of them has given $10,200 to a dozen members of the House Financial Services Committee, including $2,500 to Chairman Jeb Hensarling (R-Texas). (The Topeka Capital-Journal)

Today’s Business Brief

  • Deutsche Bank’s derivatives exposure risk, estimated at about 46 trillion euros, isn’t as worrisome as it appears and has been “massively overestimated,” according to Stuart Lewis, the bank’s chief risk officer. Lewis said the bank’s net derivatives exposure is much lower, at 41 billion euros. (Reuters)
  • Deutsche Bank still hasn’t reached a settlement with the U.S. Justice Department in a high-profile mortgage-backed securities fraud case. The negotiations are still ongoing, but the troubled German lender ended the weekend on an anticlimactic note as CEO John Cryan failed to reach a deal with U.S. authorities during a Washington meeting. (Bloomberg News)
  • International Monetary Fund Director Christine Lagarde suggested sexism could play a role in Wall Street’s criticism of Federal Reserve Chair Janet Yellen. Lagarde said Yellen takes more of a hit than many of her predecessors “given the great job she is doing.” (MarketWatch)

Today’s Chart Review

Mark Your Calendars (All Times Eastern)

Monday
Federal holiday — no events scheduled
Tuesday
American Enterprise Institute event on economic inequality 12:30 p.m.
American Banker webinar on digital security 2 p.m.
Wednesday
SEC’s Luparello panel at Georgetown Center for Financial Markets and Policy conference 1:30 p.m.
Thursday
Securities Enforcement Forum 2016 7 a.m.
SEC open meeting 10 a.m.
Treasury Secretary Lew event at Center for American Progress 10 a.m.
Brookings Institution fintech event 2 p.m.
American Banker webinar on fraud prevention 2 p.m.
Friday
Kansas City Fed, FDIC, OCC Interagency Bankers Forum 11 a.m.

 

General

Clinton’s Wall Street praise intensifies fight over reining in banks
Patrick Temple-West, Politico

Hillary Clinton praised Wall Street in private remarks to bankers before her presidential campaign, telling executives that the financial industry knows best how to reform itself and that it was simplistic to blame banks for the credit crisis. Those comments — part of the trove of emails released by WikiLeaks that were apparently hacked from the account of Clinton campaign Chairman John Podesta — will fuel skepticism about her vow to crack down on Wall Street abuses.

Punished payday loan executives gave big to the congressmen with oversight of them
Justin Wingerter, The Topeka Capital-Journal

James Carnes and Scott Tucker, two Kansas City-area businessmen ordered by federal judges to pay restitution for duping payday loan customers, donated more than $160,000 to federal candidates and political parties during the past decade, including 17 members of Congress tasked with overseeing payday lenders. Tucker and his business partners were ordered by a Nevada judge last week to pay $1.2 billion in restitution to customers they deceived into paying exorbitant amounts for small loans.

McGinty accuses Toomey of putting banks ahead of people
Tracie Mauriello, The Pittsburgh Post-Gazette

Katie McGinty is going on the offensive, slamming U.S. Sen. Pat Toomey for what she called a conflict of interest, and there’s no sign the Democratic Senate candidate or her supporters will let up before Election Day. Ms. McGinty characterized the Republican incumbent as a Wall Street insider who profited from predatory lending while he fought banking reforms as a member of the Senate Banking Committee.

Clinton’s Wall Street remarks are tempered by time, supporters say
Anne Gearan and John Wagner, The Washington Post

For progressive Democrats, the release of hacked emails suggesting a tight relationship between Hillary Clinton and Wall Street and her dream of “open trade and open borders” was an uncomfortable reminder of where she stood when her presidential campaign began. During her primary contest with Sen. Bernie Sanders of Vermont, Clinton moved to the left on both issues, pledging tougher oversight of the big banks and announcing opposition to a trade pact she had previously called the “gold standard.”

Mexican Peso Rises on U.S. Election Outlook; U.K. Gilts Slide
Emma O’Brien and Eddie Van Der Walt, Bloomberg News

S&P 500 Index futures rose 0.3 percent, after U.S. stocks slipped on Friday for their first weekly drop in four, as jobs data showing steady growth in the labor market kept the Federal Reserve on course to increase interest rates this year.

Banking

Deutsche Bank says derivatives exposure fears overblown: paper
Edward Taylor, Reuters

Deutsche Bank (DBKGn.DE) is continuing to cut back the size of its derivatives book, which is not as risky as investors may believe, Chief Risk Officer Stuart Lewis told German weekly paper Welt am Sonntag. “The risks in our derivatives book are massively overestimated,” Lewis told the paper.

IMF’s Lagarde suggests sexism is at play in Wall Street’s criticism of Yellen
Greg Robb, MarketWatch

Some of the criticism from Wall Street aimed at Federal Reserve Chairwoman Janet Yellen is due to sexism, International Monetary Fund managing director Christine Lagarde suggested Sunday. “[Yellen] receives a lot more criticism, in my view, than many of her predecessors in many ways, given the great job she is doing,” Lagarde said during in a conversation with author Michael Lewis before a large audience at IMF headquarters.

Federal Reserve official says shadow banking remains concern
Anjelica Tan, The Hill

The U.S. government lacks sufficient policy tools to address problems that may arise from unregulated parts of the financial system, a top Federal Reserve official said Friday. Stanley Fischer, vice chairman of the central bank, told an industry audience that “shadow banking” poses a challenge for regulators because they have such little information on it.

Dimon, Bank CEOs: We Need to Pause New Regs
Ian McKendry, American Banker

The regulations added in the wake of the financial crisis have made the system safer, but it’s time to pause on new rules and find ways to improve what’s been put in place already, according to the top executives at some of the largest banks.

Banks ponder the meaning of life as Deutsche agonizes
Carmel Crimmins and Olivia Oran, Reuters

It wasn’t just Deutsche Bank that was grappling with big questions about the future at the International Monetary Fund meetings in Washington last week. The German bank is scrambling to overhaul its operations as it faces a multi-billion dollar fine for selling toxic mortgage-backed securities in the United States.

How Wells Fargo’s rivals make it harder for employees to create fake accounts
James Rufus Koren, The Los Angeles Times

The revelation last month that Wells Fargo employees, trying to meet onerous sales goals, created as many as 2 million unauthorized savings, checking and credit card accounts has created a huge scandal for the San Francisco-based institution. But it’s also prompted calls for a wide-ranging investigation into the banking industry, where sales goals are common and complaints of unauthorized accounts have been lodged against other banks.

Financial Products and Investments

Singapore Charges 2 Ex-Bankers in Jho Low, 1MDB-Linked Case
Andrea Tan, Bloomberg News

Singapore authorities charged two ex-BSI SA bank employees in a case linked to an embattled Malaysian investment fund at the center of international probes. Yak Yew Chee, a former private banker for 1Malaysia Development Bhd. and financier Low Taek Jho, faces seven charges including for forgery, according to court papers filed on Monday.

Texas Attorney General Paxton Gets SEC Fraud Suit Tossed
Tom Korosec, Bloomberg News

Texas Attorney General Ken Paxton convinced a judge he shouldn’t have to face a U.S. Securities and Exchange Commission fraud lawsuit over his solicitation of investors for a friends’ technology company. U.S. District Judge Amos L. Mazzant III in Sherman, Texas, on Friday ordered conditional dismissal of the SEC’s lawsuit, saying the agency didn’t allege sufficient facts to support its claims.

Housing & GSEs

Deutsche Bank Talks With Justice Department Said to Continue
Aaron Kirchfeld et al., Bloomberg News

Deutsche Bank AG’s negotiations with the U.S. Justice Department to resolve a years-long investigation into the lender’s handling of mortgage-backed securities are continuing, according to people familiar with the matter. Germany’s Bild newspaper reported in its Sunday edition that Chief Executive Officer John Cryan wasn’t able to reach an agreement with the Justice Department during a meeting in Washington.

Taxes

The Conservative Crusade Against the IRS Commissioner
Michelle Cottle, The Atlantic

Feeling wrung out by the grossness of the presidential race, the hurricane buffeting the East Coast, and the nationwide epidemic of scary clowns? Buck up, camper, and at least be thankful that you are not IRS Commissioner John Koskinen.

CPAs: Congressional action needed to address new IRS partnership audit rules
Jill Ornitz, The Hill

Congress should do more to address gaps in partnership audit rules it enacted in a law passed last year, the American Institute of CPAs (AICPA) said. In an Oct. 7 comment letter, the AICPA focused on provisions of the Bipartisan Budget Act of 2015, which centralized the ability of the Internal Revenue Service (IRS) to audit a partnership.

Banking Systems & Currencies

Fed’s Brainard sees blockchain as revolutionary, but still to prove itself
Howard Schneider, Reuters

The technology behind the controversial bitcoin electronic currency could lead to sweeping improvements in how financial transactions are carried out worldwide, Federal Reserve Governor Lael Brainard said on Friday. But only if it can be safeguarded from hackers and terrorists, and not grind to a halt in a crisis.

A Message from the Electronic Payments Coalition:

EMV chip cards are a step forward into the future of card payment security. Learn more from the Electronic Payments Coalition.

Opinions, Editorials & Perspectives

Hillary Clinton Loves Bankers (Wink)
The Editorial Board, The Wall Street Journal

Now we know why Hillary Clinton has never released the transcripts of her speeches to bankers. If the excerpts published by WikiLeaks last week are any guide, the texts might have cost her the Democratic nomination to Bernie Sanders.

Regulator’s soft approach toward Wells Fargo backfires
Thomas Lee, The San Francisco Chronicle

Both Democrats and Republicans on Capitol Hill have said they were shocked at the recent revelations that Wells Fargo employees fabricated millions of accounts under the names of real consumers. They shouldn’t be.

Wells Fargo Isn’t the Only Firm That Needs a Lesson
Gretchen Morgenson, The New York Times

Using the power of the purse to hold a wayward behemoth to account is a good thing. But if state officials want to teach financial firms a lesson in honesty, why stop at Wells Fargo?

The Regulatory Tide Recedes
Peter J. Wallison, The Wall Street Journal

The regulatory wave that has swept the developed world since the 2008 financial crisis may finally be cresting. Recent developments suggest a new recognition by voters and governments that excessive regulation is responsible for the slow economic growth of the past eight years. If so, this is good news.

Jack Lew’s MetLife Denial Syndrome
The Editorial Board, The Wall Street Journal

Why is the government refusing to repay money it had no right to take in the first place? For six months Secretary Jack Lew’s Treasury Department has been acting as if it never lost a court case to MetLife and still won’t return the $4.6 million it owes to MetLife shareholders.

Why CFPB’s Prepaid Card Rule is a Huge Mistake
Joseph Colangelo, American Banker

The Consumer Financial Protection Bureau just released new rules governing prepaid cards that will significantly disrupt consumer use of these products, drive up costs to consumers and wreak havoc on the fastest growing sector within America’s payments industry. Today, over 67 million Americans use some form of prepaid card, and they are expected to load $300 billion onto reloadable prepaid cards in 2016, a tenfold increase from 2009.

Tax Me. Please. 
Vanessa Williamson, The New York Times

Tax opposition has been the organizing principle of Republican politics since the 1970s, from the property tax revolt to the “Taxed Enough Already” rhetoric of the Tea Party. But the visibility of these conservative mobilizations have disguised an important truth: Americans share a fundamental civic commitment to taxpaying.

A Message from the Electronic Payments Coalition:

Big box retailers aren’t held to any federal standards to protect their customers, yet 90% of consumers agree they should be held to similar standards as banks and financial institutions when it comes to keeping customer data secure and private. Learn more from EPC.

Research Reports, Issue Briefs & Case Studies

Measuring Liquidity Mismatch in the Banking Sector
Arvind Krishnamurthy et al., National Bureau of Economic Research

This paper implements a liquidity measure, “Liquidity Mismatch Index (LMI),” to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities. We construct the LMIs for 2882 bank holding companies during 2002-2014 and investigate the time-series and cross-sectional patterns of banks’ liquidity and liquidity risk.

Young Americans and Money, Fall 2016
Bank of America/USA Today

We learned that when it comes to financial matters, these young people are both cautiously optimistic and practical. They have positive feelings about their own financial futures but also have doubts about both the economy and the job market.

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