Top Stories

  • The Federal Deposit Insurance Corp. is launching a competition today among 20 data and technology firms to develop a new way to track banks’ credit exposures and deposit information, which could eventually replace the “call” reports banks are required to file 30 days after each quarter. FDIC Chairman Jelena McWilliams said the FDIC would like to “make the call reports obsolete” with better and more timely data. (The Wall Street Journal
  • With bank regulators closing the chapter on Volcker rule changes, McWilliams said she is turning her attention to financial technology and small-dollar lending, which she said could help underbanked and unbanked consumers access the banking system. On one key fintech issue — the “true lender” doctrine — McWilliams said the FDIC plans to craft a rule that would be designed to help clarify when a bank is the “true lender” on a fintech loan and when a bank is acting as a false front to allow a fintech company avoid a state’s interest rate limits on online lenders. (Morning Consult)
  • In a little-noticed rule released April 13,  the Small Business Administration suspended a requirement that lawmakers and other federal officials and their family members who are business owners, officers, directors or shareholders with a more than 10 percent business interest must seek approval from the SBA’s Standards of Conduct Committee if they apply for funds from the $660 billion Paycheck Protection Program. According to media reports and financial records, a number of lawmakers or SBA officials have benefited from the small-business lending program, including Rep. Susie Lee (D-Nev.), whose husband’s Las Vegas casino company, Full House Resorts, received two loans totaling $5.6 million after she and other Nevada lawmakers urged the Trump administration to make casinos eligible for the program, but a spokesperson said Lee wasn’t aware of her husband’s interest in applying for one of the loans at the time. (The Washington Post

Chart Review

Events Calendar (All Times Local)

06/30/2020
Senate Banking Committee hearing: “The Digitization of Money and Payments” 10:00 am
Brookings event: “A decade of Dodd-Frank” 10:00 am
Senate Finance Committee hearing: “2020 Filing Season and IRS COVID-19 Recovery” 10:15 am
The World Order after COVID-19 Forum with keynote address from former U.S. Treasury Secretary Lawrence H. Summers 11:00 am
House Financial Services Committee hearing: “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response” 12:30 pm
07/01/2020
Henry Paulson at Aspen Ideas Festival
House Small Business Committee hearing: “The Economic Injury Disaster Loan Program: Status Update from the Administration” 10:00 am
PIIE event: “What role for the United Kingdom in the global trading system?” 10:00 am
Women in Housing Finance rown Bag Lunch: Race and Diversity: Financial Regulators Response 12:00 pm
View full calendar

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General

Automakers, Technology Firms Are Largest Components of Fed’s Corporate-Bond Purchases
Nick Timiraos, The Wall Street Journal

Apple Inc., AAPL -3.07% Verizon Corp. VZ -2.06% and the U.S. divisions of several foreign auto makers are among the largest direct beneficiaries of Federal Reserve efforts to support the corporate-debt market, according to disclosures Sunday. In all, the Fed on Sunday identified 794 companies whose bonds it will be buying directly to support the market for investment-grade corporate debt.

‘Too big to fail’ banking reforms hailed by Financial Stability Board
Stephen Morris, Financial Times

Lenders are more resilient than before financial crisis, says international watchdog.

Consumer spending rebounds a record 8.2 percent in May even as incomes slide
Hannah Denham, The Washington Post

Consumer spending rebounded a record 8.2 percent in May as many states began lifting stay-at-home orders and businesses reopened, according to federal data released Friday. The increased spending comes despite a 4.2 percent drop in personal income, the Commerce Department reported. 

States need money. The Fed has it. Politics may be an obstacle
Jim Saksa, Roll Call

Federal Reserve Chairman Jerome Powell hasn’t wavered in his warnings to lawmakers since the coronavirus crisis hit: Congress needs to bail out state and municipal governments to avoid an anemic economic revival. “It will hold back the economic recovery if [states and localities] continue to lay people off, and if they can continue to cut essential services,” Powell testified to the House Financial Services Committee last week. 

Stocks Fluctuate With U.S. Futures; Dollar Dips: Markets Wrap
Todd White, Bloomberg

U.S. equity futures fluctuated with European stocks as investors weighed stimulus measures against the accelerating virus spread in the U.S. and Brazil.

Banking

‘Flying Blind Into a Credit Storm’: Widespread Deferrals Mean Banks Can’t Tell Who’s Creditworthy
AnnaMaria Andriotis, The Wall Street Journal

Banks have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore.

JPMorgan Will Ditch Customers Who Racially Abuse Its Workers
Michelle F Davis, Bloomberg

JPMorgan Chase & Co. is cracking down on racism by its customers. The bank is revamping a policy for dealing with abusive clients to include racism toward call-center employees as behavior that could warrant cutting ties with the customers.

For Wells Fargo, New Scrutiny From the Fed Puts Dividend at Risk
Hannah Levitt, Bloomberg

Of all the banks facing stricter oversight after the Federal Reserve’s stress tests, none is feeling the pressure more than Wells Fargo & Co. New rules limiting dividends and stock buybacks in response to the Covid-19 pandemic leave the San Francisco-based company most exposed to potential payout cuts. 

Goldman Has Choices to Make to Avoid Dividend Cut After Fed Test
Yalman Onaran, Bloomberg

Goldman Sachs Group Inc. might have to shrink its balance sheet to avoid a dividend cut in the wake of the Federal Reserve’s annual stress test. The central bank on Thursday assigned each firm it reviewed a “stress capital buffer” that’s used to determine how much capital the company needs to meet safety requirements. 

JPMorgan Says Technical Issue Affected Accounts, Now Fixed
Michelle F Davis, Bloomberg

A technical glitch resulted in some JPMorgan Chase & Co. account balances failing to update overnight, though the issue has been resolved, a bank spokeswoman said Sunday. Customers earlier took to Twitter to complain about discrepancies in their accounts, with the hashtag #chasebank trending online. 

Wells Fargo Says Most Employees to Work From Home Into September
Hannah Levitt, Bloomberg

Most Wells Fargo & Co. employees will be working from home through at least Sept. 7. Until then, “we will continue with our current operating model, which includes about 200,000 employees working from home and maintaining safety measures in locations that remain open,” Beth Richek, a spokesperson for the bank, said Friday in an emailed statement.

Financial Products and Investments

Private Equity’s Trillion-Dollar Piggy Bank Holds Little for Struggling Companies
Chris Cumming, The Wall Street Journal

The mountain of cash held by private-equity firms is turning out to be a mirage for companies they own that are struggling due to the coronavirus pandemic. The buyout industry has spent years building up its dry powder, or money that investors have committed to private-equity funds that hasn’t yet been spent.

Raiding the pot: how the pandemic has deepened the pensions crisis
Josephine Cubmo et al., Financial Times

The pressure on schemes has intensified with rates set to stay low and workers drawing down their funds.

Russell Golden Leaves FASB With Streamlined Standards, Lingering Rule Questions
Mark Maurer, The Wall Street Journal

The Financial Accounting Standards Board’s Russell Golden shepherded a handful of sweeping rule changes during his tenure as chairman, but for some investors, he didn’t go far enough. Mr. Golden, whose seven years as chairman come to an end Tuesday, helped put company operating leases on the balance sheet and devised a uniform approach to how companies must recognize revenue. 

Blackstone skips payment on $274m hotel loan
Mark Vandevelde and Eric Platt, Financial Times

World’s biggest alternative asset manager pledges to work with lenders on ‘best possible outcome’

Housing and GSEs

Delayed mortgage payments increase by 79,000
Niv Ellis, The Hill

The number of homeowners delaying payments increased by a steep 79,000 in the past week, reversing a three-week trend that saw forbearance requests decline, according to data from Black Knight. The CARES Act passed by Congress in March allowed homeowners experiencing financial difficulty due to the COVID-19 pandemic to request forbearance for government-backed mortgages for up to 180 days without being subject to penalties and late fees.

Taxes

Who’s Taking Most Advantage of Tax Deadline Delay? High-Income Households
Richard Rubin and Anthony DeBarros, The Wall Street Journal

Households with incomes over $1 million are the most likely to use this year’s delay in tax filing, putting off paying taxes they owe beyond the normal April 15 deadline. Tax returns filed by that top income group declined 56% while overall tax returns declined 14%, according to new Internal Revenue Service data that goes through mid-May of 2019 and 2020. 

Nonprofits Eye Corporate Structure to Duck IRS Reporting Rules
David Hood, Bloomberg Tax

Nonprofit attorneys are advising clients to consider a strategy that would let them use losses to offset taxable income across their organizations, after the IRS proposed changing reporting rules. In April, the IRS proposed rules that require individual businesses controlled by nonprofits to report the income separately. 

Financial Technology

In a German Tech Giant’s Fall, Charges of Lies, Spies and Missing Billions
Liz Alderman and Christopher F. Schuetze, The New York Times

In the elite corridors of corporate Germany, Markus Braun had become a legend. A little-known entrepreneur until just a few years ago, Mr. Braun had forged an obscure Bavarian company called Wirecard into a German tech icon, winning a coveted spot on the benchmark DAX stock index. 

Opinions, Editorials and Perspectives

Excess CFPB Civil Penalty Fund Money Can Be a Lifeline
Dara Duguay and José A. Quiñonez, Morning Consult

Even before the COVID-19 pandemic, millions of families lived life in the financial shadows. For these hardworking, but financially invisible people, life is full of closed doors.

Powell Has Become the Fed’s Dr. Feelgood
James Grant, The Wall Street Journal

If Federal Reserve Chairman Jerome Powell were selling a prescription drug instead of a monetary policy, the Food and Drug Administration would likely want a word with him. “What we’re thinking about now is providing the accommodation that this economy needs for as long as it needs it.”

Stocks Set Adrift After Losing Propellers and Anchors
Mohamed A. El-Erian, Bloomberg

Another volatile week in the U.S. equity market highlighted an inconvenient reality that investors have not yet fully grasped: Stocks now lack not just upward drivers but also anchors to maintain what has been an astonishing disconnect between elevated prices and challenged economic and corporate realities.

Research Reports

Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments
Scott Baker et al., The National Bureau of Economic Research

In response to the ongoing COVID-19 pandemic, the US government brought about a collection of fiscal stimulus measures: the 2020 CARES Act. Among other provisions, this Act directed cash payments to households. We analyze households’ spending responses using high-frequency transaction data. We also explore heterogeneity by income levels, recent income declines, and liquidity. 

Morning Consult