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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
Digital banking and lending are evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem, empowering lenders to process loans faster and smarter. In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance, while also you can improve your finance by learning online trading, as there are resources like trade fx that help you with this. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!
03/31/23 Many Credit Unions Excused From Business Lending Reporting (Credit Union Times)
The CFPB has introduced a new regulation that has significantly decreased the number of credit unions obligated to report their small business lending. This rule modifies the criteria for small business lenders from a minimum of 25 loans per year to a minimum of 100 loans per year, thereby excluding many credit unions from the reporting requirement. The new rule’s threshold of 100 loans encompasses a vast majority (over 95%) of small business loans offered by banks and credit unions. In addition, the CFPB has extended the compliance timeline, stating that only lenders who have provided at least 2,500 small business loans in the previous year must collect data from October 1, 2024. The small business loan census will provide essential information to the public regarding this market, enabling the CFPB to ensure that both banks and nonbanks are offering fair services to small businesses.
03/30/23 Housing’s Scarce Supply Derails Buyers at Key Time for US Deals (Bloomberg)
With the start of the spring home sales season in the US, the housing market is attempting to regain its balance. However, it faces challenges due to the aftermath of regional bank failures and their potential effects on interest rates and consumer confidence. As the Federal Reserve navigates the tricky terrain of taming inflation through interest-rate hikes while simultaneously avoiding a recession, it must also consider the need to cool down the housing market after its rapid expansion during the pandemic. According to the National Association of Realtors data, although home sales contracts increased last month compared to January, pending sales have dropped to their lowest in February since 2009 after being seasonally adjusted. In light of how the market has been sensitive to rates lately if 30-year loans fall to 6% and remain stable, it could be sufficient to establish favorable conditions for a stronger season.
03/28/23 How Far Can Regulators Go to Protect Uninsured Deposits? (The New York Times)
The decision by federal regulators to guarantee that depositors at Silicon Valley Bank and Signature Bank would not lose their money, regardless of the amount they had in their accounts, has generated populist outrage and raised queries about the extent of government agencies’ authority to safeguard uninsured accounts. After the implementation of the Dodd-Frank Act, regulators can no longer independently establish such a program, as it eliminated the F.D.I.C.’s power to temporarily insure accounts exceeding the statutory limit. As per the law, the agency can only take such action if it becomes the receiver of a failed bank or obtains consent from Congress. According to news reports, regulators are exploring alternative approaches to act without Congress, specifically by utilizing the Exchange Stabilization Fund. According to Jeffrey N. Gordon, a law professor at Columbia University specializing in financial regulation, it is feasible to employ the Exchange Stabilization Fund as a safety net in a program run by the Federal Reserve that offers loans against bank assets.
According to a recent analysis, the underlying reason behind the persisting inventory and pricing challenges in the used vehicle market in the United States, which has been an indicator of the nation’s inflation rates, is not expected to ease in the near future. The significant drop in used vehicle prices observed toward the end of last year has been reduced by approximately 50% in 2023, mainly due to a considerable decrease in inventories caused by disruptions in vehicle production. According to CNBC, a remarkably high number of consumers are choosing to buy out their leases to avoid the excessively high prices of cars and the rising interest rates. Also, as per the analysis, car prices are on an upward trend, and the index is moving closer to the record of 257.7 basis points set in early 2022, with a current value of 238.6 as of mid-March.
03/27/23 First Citizens buys Silicon Valley Bank after run on lender (American Banker)
Silicon Valley Bank, which was seized by regulators after facing a bank run, has been acquired by First Citizens BancShares. As per the Federal Deposit Insurance Corp, the Raleigh-based company has entered into a purchase and assumption agreement encompassing all deposits and loans of SVB. First Citizens BancShares announced that it would take over $56 billion in deposits and operate 17 branches as Silicon Valley Bank, a division of First Citizens. Customers will not experience any immediate changes to their accounts. Despite some observers expressing doubts about First Citizens’ ability to handle the second-largest FDIC-assisted bank failure in U.S. history, the bank has acquired more than 20 FDIC-assisted banks since 2009, with experience in acquiring broken rivals in different states such as Washington, Wisconsin, and Pennsylvania following the financial crisis. The purchase and assumption agreement with the FDIC involves the acquisition of all deposits and loans of SVB, with about $90 billion of securities and other assets remaining in the receivership for disposition by the FDIC. Additionally, the FDIC received equity appreciation rights in First Citizens valued at up to $500 million.
03/25/23 Introducing Paze, Big Banks’ Answer to Apple Pay (The Wall Street Journal)
Big banks are reportedly developing a new payments wallet called Paze, which is expected to be launched later this year. The wallet will undergo a pilot stage during the summer and will be available to use at online merchants. Early Warning Services LLC, which is owned by a group of banks including JPMorgan Chase & Co., Wells Fargo & Co., and Bank of America Corp., aim to rival online checkout services such as Apple Pay and PayPal with the introduction of their new payment wallet Paze. Whether or not the Paze wallet will succeed depends on the number of merchants who will adopt it.
03/23/23 US business equipment borrowings grow 11% in February – ELFA (Reuters)
According to the Equipment Leasing and Finance Association (ELFA), US companies increased their borrowing for equipment investments by 11% in February compared to the previous year. Last month, businesses obtained new loans, leases, and credit lines amounting to $7.9 billion, which is higher than the $7.1 billion borrowed in the same period last year. The ELFA, which provides reports on economic activity in the equipment finance sector worth almost $1 trillion, stated that credit approvals reached 75.7%, slightly higher than January’s 75.1%. The Equipment Leasing & Finance Foundation, which is the non-profit affiliate of ELFA, reported that the confidence index for March was 50.3, showing a decrease from 51.8 in February.
03/16/23 Stress among small banks is likely to slow the US economy (Goldman Sachs)
Goldman Sachs Research predicts that the stricter lending standards by smaller banks in the United States due to stress will impede economic growth in the current year. The impact of banking stress resulting from the resolution of Silicon Valley Bank on lending is expected to be focused on a subset of small and medium-sized banks. In evaluating the economic consequences of tighter lending standards, Goldman Sachs economists assumed that small banks with a low proportion of FDIC-insured deposits would reduce their new lending by 40%, while other small banks would decrease it by 15%. As a result, it would lead to a 2.5% decline in the overall volume of bank lending, which studies in economics suggest would cause a dampening effect of approximately 0.25 percentage points on the GDP growth for 2023. Assuming that the banking stress does not significantly alter the economic outlook, the Federal Reserve’s monetary policymakers aim to maintain demand growth below its potential level to ensure that the supply and demand rebalancing remains on course for the year.
03/15/23 Meme stock in reverse’: SVB collapse portends new era of viral bank runs (Banking Dive)
Although the startup and tech clients of the collapsed Silicon Valley Bank were relieved, the circumstances that led to its downfall provided the banking industry with a preview of how social media and digital banking can cause a financial institution to go from functioning to bankruptcy within a few hours. SVB had been experiencing liquidity challenges for the past year; however, the recent announcement by the bank that it was raising capital after losing nearly $1.8 billion in the sale of long-term bonds caused panic in the VC community. What set the bank run apart was how readily customers were able to withdraw their funds and how rapidly news of the firm’s financial distress spread. The condition of the bank was magnified by influential Twitter users, including internet personality Kim Dotcom and startup investor Jason Calacanis. After the FDIC assumed control of the bank, regulators revealed a plan to support all SVB deposits by effectively guaranteeing all funds above the FDIC’s typical $250,000 limit.
03/14/23 Will commercial real estate loan losses be the next big problem for banks? (American Banker)
Analysts and investors are closely monitoring the banking sector for signs of trouble after the failures of Silicon Valley Bank, Signature Bank, and Silvergate Bank. With economists predicting a recession in the near future due to inflation and high-interest rates, experts are now turning their attention to potential risks in commercial real estate, which many small and midsize banks rely on for lending. The office sector, in particular, is causing concern for industry insiders. With remote work becoming a permanent fixture and the high cost of living in big cities, it is expected that more companies will reduce their office space as their lease agreements expire. In their recent earnings calls, bank executives expressed increased caution, especially in downtown areas of major cities that heavily depend on workers commuting to and from office buildings. If issues arise within office buildings, it’s probable that they will extend to nearby residential and commercial properties, which rely on employees residing and purchasing goods in proximity to their workplaces.
03/13/23 Regulators backstop SVB deposits, launch emergency lending facility (Banking Dive)
Silicon Valley Bank’s depositors have been granted full access to their funds by the Federal Deposit Insurance Corp, which took emergency measures to prevent the spread of financial instability in the banking industry. In addition, the Federal Reserve has established a $25 billion lending facility to provide liquidity to banks affected by the collapse of Silicon Valley Bank. Regulators also declared they would apply the same “systemic risk exception” to Signature Bank, a New York-based firm focusing on cryptocurrencies. The state regulators had also closed down Signature Bank. The regulators were looking for a purchaser for the beleaguered Silicon Valley Bank, and both PNC and JPMorgan Chase showed interest in acquiring it. The recently established emergency facility by the Federal Reserve is also aimed at preventing any possible bank runs following the collapse of Silicon Valley Bank.
As interest rates increase, adjustable-rate mortgages (ARMs) tend to gain popularity among borrowers who want to save on interest. ARMs can be advantageous for those who don’t plan on residing in their home for a prolonged period in a high-interest rate environment. It is crucial to compare the rates, fees, and types of ARMs provided by different lenders if considering an ARM loan. One major disadvantage of an ARM is that when the introductory period ends, there is a possibility of an increase in the monthly payment, and borrowers should be ready to bear this risk. On the other hand, for a 30-year fixed-rate mortgage, the principal and interest rate payments remain constant. Therefore, as income rises, the housing expenses will make up a smaller portion of the overall income.
03/10/23 Biden proposes investments in CDFIs, affordable housing, small biz (NAFCU)
President Joe Biden has released his proposed budget for 2024, which includes measures to enhance communities, tackle tax concerns, and strengthen defenses against worldwide risks. The proposed budget includes $341 million for the CDFI Fund within the Treasury, representing a 5% increase from its 2023 enacted level. NAFCU is actively engaged in CDFI issues to ensure credit unions can avail of the program and better serve their communities. Additionally, the budget authorizes $58 billion for lending through SBA’s various loan programs, such as the 7(a)-loan guarantee, 504 loan, SBIC, and Microloan programs, to boost access to affordable capital, particularly in underserved areas. The Treasury Department’s 15% increased funding includes $229 million for FinCEN to support the launch of the Beneficial Ownership Secure System and promote corporate financial accountability. The budget also allocates $73.3 billion for HUD to increase affordable housing stock, expand rental assistance, and strengthen underinvested communities.
03/07/23 A bumpy road ahead for credit union auto lending (American Banker)
Due to the increase in vehicle prices and interest rates, as well as concerns about a possible recession, many consumers are hesitant to take out an auto loan from their credit union, leading to a decrease in auto sales. The National Association of Federally-Insured Credit Unions reported a month-over-month decline of 6.7% or 1.1 million in auto sales in February. On a seasonally adjusted basis, total vehicle sales dropped from 16.4 million annualized sales in January to 15.3 million in February. While banks are also feeling the pressure, they may have a more diversified portfolio that enables them to better withstand the lending suspension. For credit unions like Embold, the pressing issue at hand may be related to deposits. Members are quickly using up the funds they saved during the COVID-19 pandemic, which has altered the calculation for determining the credit union’s competitiveness regarding auto loan rates.
03/03/23 Supreme Court Review of CFPB Could Imperil Lending Rules (Credit Union Times)
A far-reaching ruling could cause “disorder” by eroding the legitimacy of various regulations that credit unions rely on to finalize mortgages and other loans. The Supreme Court has agreed to consider a case that could potentially dismantle the agency. Should the CFPB be declared unconstitutional, there is a possibility that its actions could be deemed invalid. This could then create doubts about the legitimacy of a range of existing lending regulations, including those that oversee mortgage and auto lending. It has been suggested that this could potentially undermine the validity of these lending rules, which credit unions have invested significant resources into complying with, regardless of whether these rules are considered beneficial or not.