• Treasury Secretary Janet Yellen said the option for President Joe Biden to circumvent congressional action by using the 14th Amendment to effectively ignore the debt ceiling was “legally questionable,” and while she also views alternatives such as minting a $1 trillion coin as risky, Yellen said she does support the idea of eliminating or significantly altering the current debt-limit authorization system. (The Wall Street Journal) Biden reiterated the risks that a U.S. default on its debt poses to the economy and the country’s reputation, noting that consequences could include “higher interest rates for credit cards, car loans and mortgages” as well as delays in “payments for Social Security, Medicare, our troops, veterans.” (Bloomberg)
• In a CNN town hall event, former President Donald Trump urged Republicans to stick to their mettle over debt ceiling negotiations, saying that he believed the country would not default because Democrats would “absolutely cave.” Trump, the GOP frontrunner for the party’s 2024 presidential nomination, said that if Democrats would not agree to Republicans’ “massive” spending cuts, the GOP is “gonna have to do a default,” a situation he said “could be really bad, it could be maybe nothing, maybe it’s a bad week, or a bad day, who knows?” (Financial Times)
  
• The Federal Reserve may have more reason to pause interest rate hikes as inflation showed signs of cooling last month. The Labor Department said the consumer-price index rose 4.9% in April compared to a year earlier, slowing slightly from an increase of 5% in March, while consumer prices rose 0.4% on a seasonally adjusted monthly basis, driven by high housing costs, which compared to a month-over-month gain of 0.1% in March. (The Wall Street Journal)
• Blackstone Inc. President Jon Gray said the firm is in partnership discussions with large regional U.S. banks to increase the banks’ lending capacity while satisfying the appetite of Blackstone’s insurance customers who are looking to increase their investments in debt. Gray did not name the potential partners, but said they are banks with between $100 billion and $250 billion in assets. (Financial Times)
  

US Congress, White House begin tough debt limit, budget negotiations

Reuters

Audits of Chinese Companies Are Highly Deficient, U.S. Regulator Says

Mark Maurer, The Wall Street Journal

PCAOB says its first inspections in China and Hong Kong found issues in seven of eight audits reviewed

House panel moves to block Biden student loan forgiveness plan

Daniela Altimari, Roll Call

Republicans on a key House committee Wednesday took another step to block President Joe Biden’s student debt forgiveness program. During a markup of the joint resolution of disapproval, GOP lawmakers on the Committee on Education and the Workforce argued that the Department of Education’s student loan relief plan would add billions to the federal debt while doing nothing to address the rising cost of college.

Federal student loan interest rates rise to highest in a decade

Michael Stratford, Politico

The cost of borrowing money from the federal government to pay for college is set to jump to the highest level in at least a decade. The interest rates on new federal student loans will increase by about half a percentage point from their current levels starting July 1 following the Treasury Department’s auction on Wednesday of 10-year notes, the government bond to which the rates are tied.

U.S. Internal Revenue Service Files Claims Worth $44 Billion Against FTX Bankruptcy

Tracy Wang, CoinDesk

The largest of the claims includes a $20.4 billion claim against Alameda Research LLC, which details nearly $20 billion in unpaid partnership taxes.

These states will be hit the hardest if the US debt ceiling standoff isn’t resolved

Matt Egan, CNN

As leaders in Washington fail to make progress on a debt ceiling deal, Moody’s Analytics is warning of disastrous implications for American jobs if the United States defaults on its debt for an extended period.

Fixing the debt ceiling with the 14th amendment could cause a recession. A top economist says it might be necessary.

Ben Werschkul, Yahoo Finance

President Biden is gradually warming to the idea of unilaterally canceling the debt ceiling by invoking the 14th amendment. An economist often cited by the White House said it might be worth the gamble. “My sense is, I take the risk,” said Mark Zandi, chief economist at Moody’s Analytics.

Biden Woos Republican Moderates in Debt Ceiling Standoff

Peter Baker and Nicholas Fandos, The New York Times

A day after an unproductive meeting on the debt limit with Speaker McCarthy, the president assailed “extreme” Republicans who he said had “taken control of the House.”

Global Finance Chiefs to Plot Escape Routes for World Economy

Malcolm Scott and Enda Curran, Bloomberg

A summer laced with economic strains looms for the world’s richest economies.

Yellen Takes Aim at Russian Sanctions Evasion at G-7 Gathering

Christopher Condon, Bloomberg

Treasury Secretary Janet Yellen said Washington intends to crack down on Russia’s ability to skirt sanctions imposed by the US and allies after its invasion of Ukraine.

We May Be Getting Used to High Inflation, and That’s Bad News

Greg Ip, The Wall Street Journal

Companies’ ease with raising prices may mean more rapid increases are becoming entrenched.

Workers Are Happier Than They’ve Been in Decades

Lauren Weber, The Wall Street Journal

Job satisfaction hit a 36-year high in 2022, reflecting two effects of the tight pandemic labor market: The quality of jobs improved as wages and work flexibility increased, and workers moved into positions that were a better fit.

JPMorgan Persuades Influential Critic to Back Its Executive Pay

Hannah Levitt, Bloomberg

JPMorgan Chase & Co., seeking to recover from a rare investor rebuke last year over how it compensates executives, persuaded a key critic to reverse its stance and support the bank’s practices. Proxy adviser Institutional Shareholder Services Inc. changed this year’s recommendation on Tuesday, suggesting investors cast a “cautionary vote” in favor of the bank’s pay decisions.

Tina Smith seeks answers from Dimon over JPMorgan’s Epstein ties

Sam Sutton, Politico Pro

Congress is starting to probe into JPMorgan Chase’s dealings with financier Jeffrey Epstein. Sen. Tina Smith (D-Minn.) on Wednesday called on bank CEO Jamie Dimon to explain why JPMorgan failed to sever its relationship with Epstein even after she said top executives reportedly became aware that he was paying cash to have underage girls brought to his home.

U.S. prosecutors look at short selling in bank shares – source

Chris Prentice, Reuters

Federal prosecutors in Washington are looking into short seller activity around the recent volatility in U.S. bank shares sparked by the failure of three regional lenders since March, a source familiar with the matter said. The source did not say whether the latest interest in bank stocks was related to that pre-existing probe.

First Citizens to Halt Originating New General Office Loans

Max Reyes, Bloomberg

First Citizens BancShares Inc. said it would cease originating new general office loans and diversify into other property types as concerns over weakness in the commercial real estate sector mount.

After Dimon’s First Republic purchase, tougher banking regulations loom

David J. Lynch, The Washington Post

New rules forcing the big banks to increase their capital reserves are in the works, along with changes for regional banks.

Banking groups raise concerns about SEC proposed custody rule

Dave Kovaleski, Financial Regulation News

A group of banking and financial services organizations have taken issue with a rule proposed by the Securities and Exchange Commission (SEC) that would expand the reach of the custody rule. The proposed rule, called Safeguarding Advisory Client Assets, would expand the reach of the custody rule beyond client funds and securities. Instead, it would include all “funds, securities, or other positions held in a client’s accounts,” including crypto assets, that an investment adviser has custody of.

CFPB’s Credit Card Late Fee Plan Takes Beating From Banks

Jon Hill, Law360

A Consumer Financial Protection Bureau proposal to slash credit card late fees by billions of dollars annually is generating intense pushback from the banking industry, which says the plan was shoddily crafted, will hurt credit availability and risks landing the agency in court.

Too Small to Succeed Is the Problem Facing Regional Banks

Paige Smith et al., Bloomberg Businessweek

Recent turmoil centers on institutions—a notch or two down from the Wall Street giants—that are crucial funding sources for local businesses.

House Republicans target opacity in bank post-mortem reports

Claire Williams, American Banker

Republican lawmakers are pushing legislation requiring regulators to share more information with Congress and the public amid criticism that those regulators are being less than forthcoming in the wake of three large bank failures this year.

Icahn, Under Federal Investigation, Blasts Short Seller

Ben Foldy, The Wall Street Journal

Normally the instigator, activist investor was slow to respond to Hindenburg report that alleged inflated assets.

Robinhood to Launch 24-Hour Trading on Weekdays in Stocks and ETFs

Alexander Osipovich and Hannah Miao, The Wall Street Journal

Users of Robinhood Markets’ popular app will soon be able to trade Tesla shares in the middle of the night. Robinhood said Wednesday that it will offer 24-hour trading of selected stocks and exchange-traded funds, five days a week.

Affirm expands interest-bearing loans, plans FICO partnership

Kate Fitzgerald, American Banker

Despite rising interest rates and ongoing economic pressure on its access to capital, Affirm reported better-than-expected results during the quarter that ended March 31 and reiterated its goal to turn its operating income positive before the end of this year.

One of Vanguard’s Biggest Credit ETFs Bleeds Record $5.5 Billion

Katherine Greifeld, Bloomberg

Investors are yanking cash at a record pace from the world’s second-biggest credit exchange-traded fund. The $36 billion Vanguard Short-Term Corporate Bond ETF has bled nearly $5.5 billion this year, the most year-to-date since its inception in 2009, data compiled by Bloomberg show.

Man Group Appoints its First Female CEO in 240 Years

Nishant Kumar, Bloomberg

Man Group Plc has appointed its first female chief executive officer in its 240 years of existence. Robyn Grew, 54, will take over from Luke Ellis, 60, who is stepping down from the helm of the world’s largest publicly listed hedge fund firm on Sept. 1, according to a statement Thursday.

Big Buyout Funds Stall as Pensions Hold Back

Chris Cumming, The Wall Street Journal

More pension funds are shifting capital away from the largest buyout funds, slowing the fundraises of veteran firms including Blackstone and Carlyle.

FHFA nixes plan for higher upfront fees at Fannie, Freddie

Katy O’Donnell, Politico Pro

The Federal Housing Finance Agency is rescinding a plan to require Fannie Mae and Freddie Mac to raise guarantee fees for high-cost loans. Fannie and Freddie were due to start charging fees between 0.25 percent and 0.75 percent higher for mortgages with high debt-to-income ratios in August.

April data suggests we’re close to peak rent inflation

Brooklee Han, Housing Wire

The CPI rose by 4.9% in the 12 months ending in April, the smallest annual increase in two years.

Why the US Housing Market Is Still Broken After Fed Hikes, in Charts

Joe Weisenthal and Tracy Alloway, Bloomberg Odd Lots

Weren’t the rate hikes supposed to cool this boom down?

Joint U.S. House Hearing on Crypto’s Future Opens With Discord

Jesse Hamilton, CoinDesk

The unusual joint meeting of the two most crypto-relevant committees in the U.S. House of Representatives was called to work out the best legislative approach to digital assets, but one of the top Democrats questioned whether Congress should be writing a bill at all.

Crypto firms call for global consensus instead of “fire hose” of rules

Huw Jones, Reuters

A “fire hose” of differing regulatory approaches to cryptoassets lack the global consensus needed to attract established investors that would create a maturer market, a conference was told on Wednesday.

Europe’s Crypto Regulations Can Be a ‘Model’ for Rules in US, Says Hester Peirce

Stephen Graves and Alys Key, Decrypt

The outspoken SEC Commissioner said Europe’s new regulations could attract crypto firms across the Atlantic.

When Buying Now and Actually Paying Later Isn’t Enough

Telis Demos, The Wall Street Journal

Affirm is seeing its rate of delinquent payments drop, but now attention is turning to pricing.