Aurelia Butler

WASHINGTON (Reuters) -A plan by the top U.S. banking cop to make the sector more resilient may have gotten a boost from the recent banking crisis, but still faces numerous challenges. Fed Vice Chair for Supervision Michael Barr has laid out a plan to increase capital requirements for the nation’s largest banks in the wake of recent bank failures and is expected to unveil the broad proposal to implement new risk-based capital requirements on July 27, according to three industry officials.The proposal, which will kick off an ambitious agenda for Barr, plans to fully implement the globally agreed Basel bank capital agreement. He has said subsequent efforts will include expanding annual “stress tests” of banks’ health, and pursuing tougher rules around liquidity, compensation and interest rate risk.Banking lobbyists, who declined to be named, and analysts, admit Barr should have enough support to advance his priorities at the relevant agencies. A trio of regulators — the Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency — would have to sign off on proposed and finalized versions of new bank rules, including votes by the boards of the Fed and FDIC.”The mini-liquidity crisis just poured gasoline on Michael Barr’s fire and gave him an enormous amount of political capital,” said Isaac Boltansky, director of policy research for brokerage BTIG. Still, the industry and its allies plan to make it difficult, as Barr must grapple with their complaints, dissent from fellow regulators, skeptical Republican lawmakers, and a crowded schedule, according to analysts and six banking lobbyists.”Vice Chairman Barr is going to face economic, political, procedural and even personal hurdles in getting these regulatory changes done. But there is no reason to believe that he will be stopped,” added Boltansky.Spokespeople for the Fed and the FDIC declined requests for official comment.BANKING OPPOSITION The banking industry is not waiting for details before trying to disrupt the effort, arguing it could hinder economic activity, curb lending, and kill lines of business.Members of the industry are leaning on lawmakers as a way of pressuring Barr, according to three industry lobbyists, without specifying which lawmakers. At the center of the industry’s complaints is a belief the capital hikes are not justified, and that Barr’s process of reviewing existing rules has been opaque.”We don’t think there’s any substantiation of the need to raise capital,” said Kevin Fromer, president and CEO of the Financial Services Forum, which represents large global banks. That message is already resonating with some members of Congress, particularly Republicans. When Fed Chair Jerome Powell testified in June, he was pressed repeatedly on the pending rules. Powell, who in the past has said he would defer to Barr on regulatory matters, acknowledged there are tradeoffs that come with higher capital, but said stronger capital meant a stronger system and regulators need to find the right balance.Earlier this month, two members of the House Financial Services Committee, Republican Andy Barr and Democrat Bill Foster, sent a letter to Barr seeking more details and for testimony to explain the effort. Spokespeople for the lawmakers declined or did not respond to requests for comment.“This is a broad and sweeping proposal. The changes laid out today should be based on a formal quantitative impact analysis rather than anecdotes,” said a spokeswoman for Senator Tim Scott, the top Republican on the Senate Banking Committee. The criticism is also emerging among some Republican bank regulators, who appear likely to oppose the plans. Fed Governor Michelle Bowman has warned in several speeches against Barr’s approach, and Republican members of the FDIC board have also warned against sweeping changes.A group of five of the industry’s largest trade groups said they had “serious concerns” with Barr’s plans in a letter sent last Thursday to Powell. They argued they need at least four months to digest and comment on the proposal, which is expected to be technical and lengthy.CROWDED CALENDARBeyond external pressure, Barr must also contend with a crowded calendar. Barr is already one year into his four-year term, and is also looking to propose changes to accounting and long-term debt requirements for smaller firms, annual bank stress tests, liquidity and compensation rules, and Fed bank supervision. The initial rewrite is expected to take substantial time. Regulators will have to digest numerous and voluminous comments from the banking industry dissecting their plans.And there is only so much time. Elections in the fall of 2024 could see Republicans take full control of Congress and the White House, which would up pushback. A Republican-held Congress could even vote to throw out recently completed rules under the Congressional Review Act. The Fed would likely need to complete rules in the summer of 2024 to ensure they could not be repealed by that route, according to one bank lobbyist.And in the meantime, banks are expected to continue hammering that higher capital requirements means a smaller economic role for banks and are not needed.”It’s kind of hard for me to sit here and say that we won’t be commenting forcefully that we are very well capitalized,” said Morgan Stanley (NYSE:MS) CEO James Gorman on a quarterly earnings call Tuesday. “I would hope and expect that they’re going to listen,” he added later. More

The BoE launched the weekly STR last year as tool to help keep money market rates close to its official Bank Rate, while the BoE drains reserves from the financial system as it unwinds its quantitative easing (QE) programme.So far the STR – through which banks can access cash in exchange for the highest grade of collateral – has been used sparingly, but BoE officials expect it will be used more in future years when reserves become scarcer.Last week 15 million pounds of funds were allotted via the STR. The peak allotment was 1.5 billion pounds on Jan. 26.Deputy Governor Dave Ramsden said on Wednesday that the BoE should speed up the pace at which it is unwinding its 800 billion-pound ($1 trillion) QE stockpile of government bonds.($1 = 0.7748 pounds) More

Wall Street is paying the price for walking back its pandemic hiring spree, with the biggest US banks spending more than $1bn on severance costs in the first half of this year.Goldman Sachs, which has been hit particularly hard by a slowdown in trading and investment banking, is the latest to take a charge for recent job cuts. Yesterday, it told investors it had spent $260mn in severance costs in the first six months of 2023. The bank has laid off about 3,400 employees, or about 7 per cent of its overall staff, this year.On Tuesday, Morgan Stanley, which has let about 3,000 employees go this year, said it had spent more than $300mn on staff reductions. Citigroup last week said severance cheques had added $450mn to its expenses. The bank announced last month that it had nearly completed 5,000 job cuts.“I think there is going to be more right-sizing in investment banking,” said Michael Karp at Options Group, a Wall Street headhunter. “For the rest of the year, it’s going to be a fire-two-to-hire-one situation at most of the big firms.”Deutsche Bank: The German lender has been fined $186mn by the US Federal Reserve over a “material failure” to fix “unsafe and unsound banking practices” which the bank had promised to sort out as early as 2015.Here’s what else I’m keeping tabs on today:FedNow: The Federal Reserve will launch its new real-time payments system called FedNow that will enable Americans to move money in a matter of seconds. The system is the biggest upgrade to the country’s financial plumbing in decades.Earnings: Johnson & Johnson will kick off earnings season for the pharmaceutical industry, and report quarterly results for the first time since it spun off its consumer business, Kenvue. Analysts anticipate J&J to have earned $1.97 a share in the quarter, which would represent 9 per cent in annual profit growth.Economic data: Initial US state unemployment claims, considered a proxy for lay-offs, are expected to have ticked up to 242,000 last week from 237,000 the week before. Meanwhile, existing home sales for June are forecast to have declined to 4.2mn from 4.3mn in May.Five more top stories1. Foreign inflows to Asian emerging equity markets outside China surpassed the world’s second-largest economy for the first time in six years to reach $41bn. This outstripped net inflows of about $33bn into mainland Chinese equities via Hong Kong’s Stock Connect trading scheme, according to Goldman Sachs data. Here’s our full analysis.China billionaires: The country’s typically low-profile tycoons, including Tencent founder Pony Ma, have issued similar statements praising the government’s pivot away from cracking down on private enterprises. 2. Tesla’s profit margins slipped in the latest quarter after a series of price cuts this year but still performed better than analysts’ forecasts. Chief executive Elon Musk suggested there could be more price reductions to come for the electric-car maker, which reiterated its goal of selling 1.8mn vehicles this year.3. A crackdown on password sharing helped Netflix add nearly 6mn subscribers, more than double what analysts had forecast and validating the streamer’s strategy to shore up its business. But the company’s shares dropped by more than 8 per cent in post-market trading after revenues fell short of expectations.4. Exclusive: More of EY’s work outside the US is failing inspections by American regulators. The firm estimates inspections have uncovered deficiencies in up to 38 per cent of the audits done by its overseas businesses last year. This would be a big jump from 21 per cent in 2021. Here’s why regulators are alarmed.5. Wirecard’s former second-in-command Jan Marsalek has claimed the company’s Asia operations are still active. German authorities believe the company’s Asia division was fraudulent, but Marsalek claims the section of the business was resilient and at one point did not depend on Wirecard at all for sales, finance or technology. News in-depth

When Meta launched its new social network Threads earlier this month the man in charge of the platform, Instagram boss Adam Mosseri, said it was “not going to do anything to encourage” news on the platform. More widely Meta is trying to move away from supporting news. The company is currently in a stand-off with the Canadian government over pulling news-related content from the region just as the country mandated publishers are paid when their work is used. We’re also reading and watching . . . Military briefing: Russia’s vast and dense minefields have posed the most daunting obstacle yet for Ukraine’s counteroffensive.The Taylor Swift effect: Rivalry between Hong Kong and Singapore has always been hot, but tour plans by pop stars are throwing a new light on the competition between the two cities.Online reviews: There are three kinds of lies on the internet, writes Jemima Kelly: lies, damned lies and one-to-five-star ratings.🎬 Crispin Odey: Watch the FT’s film on the fall of one of Britain’s most successful hedge fund managers in a story of greed, secrecy and alleged abuse.Chart of the dayWhile it’s economy has had a sluggish start to the year China has been importing record volumes of oil, primarily from Russia. Analysts are divided over exactly why: Beijing could be worried about geopolitical tensions threatening its energy security, or it could just be taking advantage of cheap costs while it can.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Take a break from the news

On July 10 a volcanic fissure in Iceland began spewing lava, within 24 hour authorities had opened a footpath that tourists could trek to take selfies next to the eruption. Take a look inside the growing tourist trend of watching volcanic activity live. Additional contributions by Tee Zhuo and Benjamin Wilhelm More

BUDAPEST (Reuters) – Hungary’s annual inflation will slow to 7-8% by December from 20.1% in June, helping the economy rebound, Finance Minister Mihaly Varga told Reuters, adding that no further measures were needed to contain the budget deficit for now.Prime Minister Viktor Orban’s government is struggling with the highest inflation in the European Union, a cost-of-living squeeze that has eroded household purchasing power and slammed the brakes on consumption.In an interview on Wednesday, Varga said curbing inflation was also key to containing the deficit, which has seen energy subsidies, pension and debt service costs surge, widening the cash-flow based gap to about 85% of the target by end-June.”By December for sure, but if we are lucky, inflation will be below 10% already in November. I can say that inflation will be around 7-8% by December,” Varga said.”I’m optimistic that this region has enough potential that if it can overcome the energy situation and inflation then … the CEE (Central European) countries can again be the fastest growing economies in the European Union.”The government expects the economy to grow by just 1.5% this year, but pick up to 4% next year. Analysts have warned that sliding consumption would reduce tax revenues and the deficit will overshoot the target unless the government takes additional measures to contain spending.Varga said it would be too early to take steps on spending.”For the time being, I see no reason for such measures… in September we will have a review and if needed, the government will take measures. I’d like to leave the (3.9%) deficit target intact,” the minister said, adding the government was also sticking with its 2.9% deficit goal for 2024.To this end, he said the government would amend the central bank law effective Jan. 2024 to avoid having to cover the bank’s losses from the budget. The government will discuss the planned changes with the European Central Bank soon, he said.”We have agreed with the National Bank of Hungary that we propose a solution to the ECB that … would allow the NBH to correct its losses over the medium term, that means about 3-5 years,” Varga said. “Having a negative equity poses no threat to the operation of the central bank.”STABLE FORINT NEEDEDAfter recording big gains from quantitative easing for years, several central banks have recently reported losses as interest rates rose, including the NBH which had to launch an emergency 18% one-day deposit in October — the highest in the EU — to shore up the falling forint. The bank has since reduced the rate to 16% but it says easing will be gradual.Varga said a stable forint was crucial for economic players to be able to plan ahead and the concept that a weak currency was needed to boost exports “was a notion of the past,” chiming in with recent NBH comments.”Our problem is when the forint weakens 20 forints in a week, by 4%, then nobody can plan,” he said.”If interest rates come down theoretically it is conceivable that the exchange rate would weaken … but if the other segments of the economy improve ….then the NBH’s monetary policy strategy that it reduces rates in 100 bps steps by the year-end, taking the base rate to 10% — it could work without the exchange rate producing swings, remaining stable.”The forint has firmed to 379 versus the euro from all-time lows of 430 in October, supported by high rates.The central bank will hold a rate meeting on July 25 where it is expected to cut the one-day deposit rate again by 100 basis points, to 15%.When asked how Hungary would cope if the EU — which has a rule-of-law dispute with Orban — does not disburse suspended EU funds this year, Varga said he expected both recovery funds and cohesion funds to start flowing.”I trust that we will not have to prepare an fx bond issue, so talks on EU funds will accelerate,” he said. More

WASHINGTON (Reuters) – Ford Motor (NYSE:F)’s announced price cut this week for the electric version of its F-150 truck was attributed to a number of factors, including competition among manufacturers, an oversupply of vehicles, and confusion about federal tax credits.But it also showed how a gradual return to pre-pandemic norms offers the Federal Reserve a fighting chance at lowering inflation without ruining the job market or causing a recession, a scenario dubbed the “soft landing.”The healing of supply chains has allowed output to grow, even as still-healthy consumer balance sheets buoy demand. The result: Both output and sales have remained strong even as the pace of price increases has declined, a realignment of the inflation-inducing situation seen during the coronavirus pandemic when consumers were even more flush with cash and companies couldn’t keep up.The U.S. central bank’s battle with inflation isn’t over, and developments like Russia’s recent disavowal of a grain export agreement with Ukraine could still make things worse.An important measure of inflation, the personal consumption expenditures price index excluding food and energy, has been stuck at around 4.6% for six months, more than double the Fed’s 2% target. But across the economy there are signs of pandemic-era imbalances being righted – not in a pure return to what existed before or in a fully unfamiliar “new normal,” but in a hybrid that for now is allowing inflation to cool while the economy keeps growing.The Atlanta Fed’s GDPNow outlook for U.S. growth from April through June is currently 2.4% on an annualized basis, well above estimated trend growth of around 1.8%. Even so, Pantheon Macroeconomics economists Ian Shepherdson and Kieran Clancy said consumer price inflation by the fall may have plunged to near 1% on a three-month basis.After supply problems, “revenge spending” and outsized corporate profit margins helped drive inflation above 9% in June 2022, they now argue “excess global capacity in goods, softening demand for domestic discretionary services, and margin re-compression will work its way through.””The signal for the foreseeable future is one of downward pressure everywhere.”DIFFERENT THIS TIME?The Fed next week is expected to raise interest rates by a quarter of a percentage point to the 5.25%-5.50% range, a move that would mark its 11th increase in 12 meetings since March 2022. Recent data, including lower-than-expected inflation and moderating job growth, have convinced many investors and analysts the hike will be the last of the current tightening cycle, with only 19 of 106 economists in a Reuters poll forecasting a hike after July. Fed policymakers have penciled in at least one more increase beyond that but are wrestling with how much weight to put on risks that inflation could reignite and require even higher rates versus concerns the economy has not adjusted to the increases already approved and may weaken fast.Arguments for both are well grounded. The track record for controlling high inflation without significant job losses is poor. To some policymakers, the current 3.6% unemployment rate, with annual wage growth exceeding 4%, means the job market remains too hot. That said, whenever interest rates have risen as fast as they have or inflation has fallen as much as it has, the unemployment rate eventually rises, a reason some policymakers believe the Fed has done enough and needs to give the economy time to adjust. The issue both sides are confronting is whether an economic moment that began with an unprecedented shock can evolve in unprecedented ways. Indeed, the list of things that may make this time different is lengthy.Developments typically running alongside steep Fed rate increases, for example, such as construction job losses, haven’t occurred. While higher borrowing costs hurt home construction, builders were deployed instead on factories, warehouses and infrastructure projects fueled by pandemic-era spending. Bankruptcies have started rising, reversing low pandemic-era failure rates when firms and families were sustained with various programs. But business formations remain elevated, which may support small business growth and hiring. Growth in bank lending has slowed, as it typically does when the Fed raises rates. But much of that is tied to declines in bank holdings of securities, while small businesses in a recent survey indicated they were borrowing at about pre-pandemic levels. If the trillions of dollars that households accumulated through pandemic-relief payments fueled the initial outbreak of inflation, they currently may be the buffer leading retail sales to slow, but not crater, under the weight of high interest rates. Average household war chests are now just about 15% above pre-pandemic levels, JP Morgan Chase (NYSE:JPM) Institute analysts estimated recently. The fact they have fallen that low may have begun to show up in things like a drop last month in restaurant sales, which may be bad news for eateries but a relief for Fed officials who see service-sector inflation as their biggest challenge.GOING THEIR WAYThe job market may be the biggest surprise, and an example of how parts of the economy are edging their way back to pre-pandemic years when low unemployment, low inflation and moderate wage growth coexisted, a moment the Fed aspires to replicate. The occupational and industrial mix is different, with logistics and warehousing still in a boom, while leisure and hospitality jobs remain below pre-pandemic levels in what appears to be a structural loss of employment – a new normal.But underlying dynamics like job-opening rates, worker-quit rates and wage growth are off pandemic-era highs and for some industries are nearing where they were previously – an old equilibrium that may be emerging again.Fed Governor Christopher Waller put a theoretical underpinning beneath some of it in a paper last year, arguing that inflation could ease without job losses if businesses responded to a slowdown by eliminating the excessive number of job openings but not resorting to layoffs. The jury is still out, but as of this point so far the post-pandemic economy has developed as Waller envisioned. “So far it seems to work … That does not mean to get inflation down from four to two something might not happen,” Waller said last week. “But right now things are kind of going the way I had hoped.” More