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  • Silicon Valley Bank left a void that won’t easily be filled | CNN Business

    Silicon Valley Bank left a void that won’t easily be filled | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    It’s difficult to overstate the influence that Silicon Valley Bank had over the startup world and the ripple effect its collapse this month had on the global tech sector and banking system.

    While SVB was largely known as a regional bank to those outside of the tight-knit venture capital sphere, within certain circles it had become an integral part of the community – a bank that managed the idiosyncrasies of the tech world and helped pave the way for the Silicon Valley-based boom that has consumed much of the economy over the past three decades.

    SVB’s collapse was the largest bank failure since the 2008 financial crisis: It was the 16th largest bank in the country, holding about $342 billion in client funds and $74 billion in loans.

    At the time of its collapse, about half of all US venture-backed technology and life science firms were banking with SVB. In total, it was the bank for about 2,500 venture firms including Andreessen Horowitz, Sequoia Capital, Bain Capital and Insight Partners.

    But the influence of SVB went beyond lending and banking – former CEO Gregory Becker sat on the boards of numerous tech advocacy groups in the Bay Area. He chaired the TechNet trade association and the Silicon Valley Leadership Group, was a director of the Federal Reserve Bank of San Francisco and served on the United States Department of Commerce’s Digital Economy Board of Advisors.

    There’s no doubt that the failure of Silicon Valley Bank left a large void in tech. The question is how that gap will be filled.

    To find out, Before the Bell spoke with Ahmad Thomas, president and CEO of the Silicon Valley Leadership Group. The influential advocacy group is working to convene its hundreds of member companies – including Amazon, Bank of America, BlackRock, Google, Microsoft and Meta – to discuss what happens next.

    This interview has been edited for length and clarity.

    Before the Bell: What’s the feeling on the ground with tech and VC leadership in Silicon Valley?

    Ahmad Thomas: Silicon Valley Bank has been a key part of our fabric here for four decades. SVB was truly a pillar of the community and the innovation economy. The absence of SVB – that void – and coalescing leaders to fill that void is where my energy is focused and that is not a small task.

    I would say there was a fairly high level of unease a few days ago, and I believe the swift steps taken by leaders in Washington have helped quell a fair amount of that unease, but looking at Credit Suisse and First Republic just over the last couple of days, clearly we are in a situation that is going to continue to develop in the weeks and months ahead.

    So how do you fill it?

    We’re working to be a voice around stability, particularly about the fundamentals of the innovation economy. We can acknowledge the void given the absence of Silicon Valley Bank, but I do think we need voices out there to be very clear in highlighting that the fundamentals and the innovation infrastructure remains robust here in Silicon Valley.

    This is a moment where I think people need to take a step back, let cooler heads prevail, and understand that there are opportunities both from an investment standpoint, a community engagement standpoint and corporate citizenship standpoint for new leaders in Silicon Valley to step up.

    Are you working to advocate for more permanent regulation in DC?

    It’s far too early for that. But if there are opportunities to enhance access to capital to entrepreneurs to founders of color or in marginalized communities and if there are opportunities to try and drive innovation and economic growth, we will always be at the table for those conversations.

    Do you have any ideas about how long this crisis will continue for? What’s your outlook?

    The problem is twofold: A crisis of confidence and the set of economic conditions on the ground. The economic conditions remain volatile for a variety of reasons: The softening economy, inflationary pressures and the interest rate environment. But I think right now we need to focus on stabilizing confidence in the investor community, in our business executive community and in the broader set of stakeholders around the strength of the innovation economy. That is something we need to shore up near term.

    From CNN’s Mark Thompson

    Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse (CS) in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.

    “UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

    UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

    Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.

    Credit Suisse had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

    Read more here.

    From CNN’s David Goldman

    A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.

    On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.

    New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.

    At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.

    Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.

    Read more here.

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  • FDIC sells most of failed Signature Bank to Flagstar | CNN Business

    FDIC sells most of failed Signature Bank to Flagstar | CNN Business

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    New York
    CNN
     — 

    A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.

    On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.

    New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.

    At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.

    Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.

    As the banking crisis spreads, banks have grown increasingly wary of taking on risk. That’s likely why New York Community Bank was unwilling to take on all Signature’s assets.

    “We are unsurprised the FDIC retained loans as we would expect banks to be cautious on quickly buying loans without liability and loss protections,” said Jaret Seiberg, analyst at TD Cowan. “More broadly, we see it as positive for consumer confidence for the branches to be opening Monday as NYCB branches.”

    The FDIC said Sunday it expects to sell off those assets over time, and the total cost to the government will ultimately be about $2.5 billion.

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  • Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

    Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

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    Editor’s Note: Lanhee J. Chen is a regular contributor to CNN Opinion and the David and Diane Steffy fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California state controller in 2022. He has played senior roles in both Republican and Democratic presidential administrations and has been an adviser to four presidential campaigns, including as policy director of 2012 Mitt Romney-Paul Ryan campaign. The views expressed in this commentary are his own. View more opinion on CNN.



    CNN
     — 

    When Silicon Valley Bank collapsed this month, analysts and policymakers quickly began considering how to prevent similar failures from happening in the future. While there are changes that lawmakers should consider, when it comes to financial regulation, history shows us that politicians are usually reacting to the last crisis and one step behind the next one.

    The savings and loan crisis of the 1980s led to passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which closed insolvent financial institutions, created new regulatory agencies and implemented restrictions on how savings and loan (or thrift) institutions could invest deposited funds.

    The 2007-2008 financial crisis led to passage of the sweeping Dodd-Frank Act in 2010, which revamped federal regulation of the financial services sector and placed restrictions on how banks do business. Amid criticism that Dodd-Frank had gone too far in regulating banks, a bipartisan coalition in Congress passed, and then-President Donald Trump signed into law in 2018, some rollbacks of Dodd-Frank’s requirements pertaining to small and midsize financial institutions.

    Democrats have largely blamed this rollback of regulations for SVB’s demise. Many Republicans, for their part, have focused their aim on whether the bank’s leadership spent too much time pursuing “woke” policies on diversity and sustainability rather than ensuring depositors were protected.

    The fact that there is so little overlap between Republican and Democrat critiques in the wake of SVB’s collapse illuminates the challenging road ahead for bipartisan policy solutions to avert a future similar failure. If the two sides can’t even agree on the principal cause of the bank’s failure, it’s unlikely there will be consensus on the policies needed to shore up the financial system for the future.

    But they should. While Democrats generally favor more aggressive oversight of the financial system and Republicans largely argue that the current regulatory scheme is sufficient, the right answer looking ahead is somewhere in between.

    In the wake of SVB’s failure, some regulatory interventions have come into focus and could form the basis of policy discussions in the coming weeks and months as Congress considers how to respond to the current banking crisis.

    First, SVB’s demise came when a lack of liquidity (or a shortfall of cash on hand) left it unable to pay out depositors when they came looking for their money. The bank had invested a disproportionate amount of assets in long-term debt that was purchased at a time when interest rates were much lower than they are today. When the bank attempted to liquidate this debt over the last few weeks, it was forced to do so at a significant loss. SVB failed to hedge against risk by diversifying its investments.

    When depositors tried to withdraw $42 billion in cash from the bank on a single day, SVB’s cash shortfall generated a panic among those who had deposits at the bank and raised concerns about the health of the US banking system more broadly.

    Just as individual investors are often advised to diversify their investment strategies to minimize risk, so too might politicians look to requirements that banks ensure that they have proper diversification in how they are investing their assets.

    Further, some Republicans and many Democrats are also calling for expanded deposit insurance so that bank deposits over the current federal cap of $250,000 are also insured. Democratic Sen. Elizabeth Warren of Massachusetts, a vocal supporter of increased financial sector regulation, has called for increased deposit insurance that would be paid for by banks. Democratic Rep. Ro Khanna of California is expected soon to introduce legislation that raises or removes the insurance cap entirely, such that deposits of all amounts will be protected.

    Some Republicans have joined them in addressing the insurance cap. Republican Sen. J.D. Vance of Ohio, for example, has argued that lifting the cap (for example, by ensuring the cap keeps up with inflation) would equalize the playing field between large banks and smaller local and regional ones. Republican Sen. Mitt Romney of Utah has suggested that larger depositors might be insured up to the entire amount of their deposits in exchange for a small fee.

    If Congress moves toward increasing or eliminating the deposit insurance cap entirely, it should do so carefully. Depending on how the policy is constructed, such changes could disproportionately benefit wealthier institutional depositors or encourage bad behavior by banks if they know an open-ended bailout is waiting on the other end of risky investment decisions.

    Finally, some changes will undoubtedly come through the Federal Reserve, rather than Congress. This is probably a good thing, as these policymakers have some insulation from the political forces that directly affect lawmakers.

    The Federal Reserve, for example, will likely examine the extent of both capital and liquidity requirements at banks based on their total assets. A bank’s capital is the difference between its assets and liabilities or, put another way, the resources a bank has to ultimately absorb losses. Liquidity, by comparison, is a measure of the cash and assets a bank has immediately on hand to pay obligations (such as money that depositors might ask for).

    America’s central bank may also look at the content of “stress tests” created by the Dodd-Frank Act and designed to regularly assess the health of large financial institutions across the country. For nearly a decade, tests have been benchmarked to a low-interest rate environment, which is not reflective of recent conditions.

    But ultimately, the Federal Reserve is not blameless in the collapse of SVB as it created a fertile environment for the bank’s failure by keeping interest rates as low as they were for as long as they were. Lawmakers should do their part to make sure people understand that monetary policy has far-reaching impacts.

    While the best way to prevent the next SVB is likely to be viewed by policymakers through partisan-tinted glasses, there are avenues for Democrats and Republicans to work together. But the window to do so is narrow and closing. This time next year, we’ll be in the throes of presidential primary elections, and neither party will be particularly interested in compromise — even if that’s what our financial system needs.

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  • Confused about the bank meltdown? Here’s how to speak Wall Street | CNN Business

    Confused about the bank meltdown? Here’s how to speak Wall Street | CNN Business

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    New York
    CNN
     — 

    Wall Street can seem bewildering, given its sheer amount of jargon, banking terms, and acronyms.

    But headlines this week, from the collapse of Silicon Valley Bank to Credit Suisse’s need for a lifeline to instability at First Republic, have made the business of finance a national concern.

    So when you hear the FDIC is taking over, a Treasury portfolio is sinking or a bank was backstopped and bailed out, what exactly does that mean?

    Here’s a guide to all the key terms you’ve been hearing.

    It’s an acronym for the Federal Deposit Insurance Corporation, an independent government agency that protects depositors in banks. It’s one of the main names as banking failures play out because it can step in and make sure the institutions are operating properly.

    When a bank fails, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

    Providing financial support to an institution that would otherwise collapse. Bailouts are associated with government intervention, as it so famously did during the 2008 financial crisis.

    It’s important to note that though a government dispatched a rescue mission for SVB and First Republic, they were not bailed out by it.

    How easily a company or bank can turn an asset to cash without losing a ton of its value. Liquidity can be used to gauge the ability to pay off short-term loans or other bills. People feel comfortable in liquid markets because it’s generally fast and easy to buy and sell.

    The most “liquid” asset, as you can probably guess, is cash.

    Deposits are cash you put into your bank account, and withdrawals are money that’s taken out. A bank run is when a rush of clients withdraw money all at once, often due to rumor or panic.

    If a bank has a ratio above 100% (like First Republic), then it loans out more money than it has deposits. That’s not a good situation to be in.

    Investments backed by the US government – and known to be one of the safest ones out there. They include Treasury Bills, Treasury Bonds and Treasury Notes. However, Treasuries are sensitive to broader economic conditions like inflation and changing interest rates.

    The value of SVB’s Treasuries portfolio sank as interest rates rose.

    Anything that could be used to generate cash flow. That could be tangible assets like stocks and buildings, or intangible assets like brand recognition.

    Inflow is the money going into a business – think from product sales and from smart investments. Outflow is cash leaving the business.

    Technically, it’s alternative steps a business takes to meet its goals. That could include strategies like diversifying and product development.

    But what does it really mean? The company might be thinking about putting itself up for sale.

    A rapid and mass selling of a stock based on an upcoming fear – like rumors of a bank collapse.

    Cash or other rewards companies gift to their shareholders.

    An action that lets a company keep surviving. For example, Credit Suisse just got a $54 billion lifeline from the Swiss central bank, though that hasn’t entirely quelled investor fears yet. Another bank that benefited from a lifeline is First Republic, when 11 banks deposited $30 billion.

    This term is used widely in the financial sector to describe a last-resort financial protection, almost like an insurance policy. It’s a secondary source of funds through either credit support or guaranteed payment for unsubscribed shares.

    A system used by the FDIC that lets it take action on a bank crisis that could drag down the entire sector with it. Though it’s pretty rare to enact it, the FDIC used this exception to take over SVB and Signature Bank last week.

    This is the Fed’s main way to directly lend money to banks and provide them more liquidity and stability. The loans last up to 90 days. Many banks are utilizing this tool right now because the Fed made it easier to borrow from the discount window in the wake of SVB to avoid further bank runs.

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  • SVB collapse was driven by ‘the first Twitter-fueled bank run’ | CNN Business

    SVB collapse was driven by ‘the first Twitter-fueled bank run’ | CNN Business

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    New York
    CNN
     — 

    The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the hallmarks of an old-fashioned bank run, but with a new twist befitting the primary industry the bank served: much of it unfolded online.

    Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.

    In the day leading up to the bank’s collapse, multiple prominent venture capitalists took to Twitter in particular, and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash. Founders and CEOs then shared tweets about the concerning situation at the bank in private Slack channels, according to The Wall Street Journal.

    On the other side of a screen, startup leaders raced to withdraw funds online – so many, in fact, that some told CNN the online system appeared to go down. Still, the end result was a modern race to withdraw funds, which House Financial Services Chair Patrick McHenry later described in a statement as ” the first Twitter-fueled bank run.”

    “Even back in the ancient days, way before we had any form of modern communication, this stuff tended to be rumors that moved really fast. The reason it would happen is people would walk down the street and observe people standing outside of banks,” Andrew Metrick, Janet L. Yellen Professor of Finance and Management at the Yale School of Management, told CNN. “Now we don’t have that, but we have Twitter.”

    The experience of the bank run was also far removed from prior eras when a large number of customers would physically show up at a bank to withdraw funds (though some did line up outside Silicon Valley Bank locations, too.) Now, many could do so online or through mobile devices.

    “What made the Silicon Valley Bank run unique was (1) the ease with which its customers could execute withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread,” Ben Thompson, an analyst who tracks the tech industry, wrote in a post on Monday. “It was the speed, fueled by zero distribution costs for both rumors and withdrawals, that was so destabilizing.”

    Silicon Valley Bank was arguably uniquely susceptible to those factors given its tech-focused customer base. Moreover, its clients, many of whom were venture-backed businesses, were far more likely than the average consumer to keep more than the standard maximum FDIC insured amount of $250,000 in their accounts.

    “The FDIC covers 250K, but am I going to recover my whole 8 figures?” one startup founder told CNN last week, after the bank had collapsed. Other large tech companies kept even larger sums with the bank. That likely made the bank’s customers even more susceptible to the panic spreading online.

    Some prominent tech figures, including Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the VC community to “speak out publicly to quell the panic” around Silicon Valley Bank last week and cautioned against creating “mass hysteria.”

    “Classic ‘runs on the bank’ hurt our entire system,” he wrote in a lengthy Twitter thread on Thursday. “People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such.”

    His calls for calm weren’t enough. The next day, the US Federal Deposit Insurance Corporation stepped in and took control of the bank, which only added to the viral panic on Twitter.

    “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” Jason Calacanis, a tech investor, wrote on Twitter Sunday. “THAT IS THE PROPER REACTION.”

    Hours later, the Biden administration stepped in and guaranteed the bank’s customers would have access to all their money starting Monday.

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  • First Republic secures $30 billion rescue from large banks | CNN Business

    First Republic secures $30 billion rescue from large banks | CNN Business

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    New York
    CNN
     — 

    First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s largest banks.

    “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department said in a statement Thursday.

    The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

    The $30 billion infusion will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and buttress confidence in the US banking system during a tumultuous moment for lenders.

    A First Republic spokesman declined to comment.

    In a statement, the banks said their action “reflects their confidence in First Republic and in banks of all sizes,” adding that “regional, midsize and small banks are critical to the health and functioning of our financial system.”

    First Republic’s shares, which were halted several times for volatility Thursday, ended the day up more than 10%.

    The bank’s problems underscored continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.

    Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday over concerns that depositors could pull their cash.

    Many regional banks, including First Republic, have large amounts of uninsured deposits above the $250,000 FDIC limit. Although not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has a sizable 68% of total deposits that are uninsured, according to S&P Global.

    That led many customers to exit the bank and put their money elsewhere, creating a problem for First Republic: It has to borrow money or sell assets to pay customers their deposits in cash.

    To make money, banks use a portion of customers’ deposits to give out loans to other customers. But First Republic has an unusually large 111% liability-to-deposit ratio, S&P Global says. That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.

    Treasury Secretary Janet Yellen on Thursday met privately in Washington with JPMorgan CEO Jamie Dimon before 11 banks agreed to deposit $30 billion in First Republic Bank to stabilize the teetering lender, according to two people familiar with the matter.

    The meeting served as a culmination of what had been a series of conversations over the last two days between Yellen and other US officials and leaders from some of the country’s largest banks as they sought a private sector lifeline for the battered California bank.

    Yellen had driven the effort from the government side, while Dimon led the effort to organize the bank executives that would eventually get behind the dramatic infusion of deposits.

    Yellen first conceived of the idea of the largest US banks coming together to direct deposits toward First Republic, according to a separate source familiar with the matter. The move was seen as critical to stabilizing the bank’s deposit base – but also a critical signal to financial markets about both the bank and the US financial system.

    The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed. The facility will allow banks to give the Fed their Treasury bonds as collateral for one-year loans. In return, the Fed will give banks the value that the banks paid for the Treasuries, which have plunged in the past year as the Fed has hiked interest rates.

    That extraordinary federal intervention appears to have been insufficient to keep investors satisfied.

    First Republic on Sunday announced a deal with JPMorgan to gain fast access to cash if needed, and the bank then said it had $70 billion in unused assets that it could quickly use to pay customers’ withdrawals if needed.

    – CNN’s Phil Mattingly contributed to this report

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  • The tech industry avoided an ‘extinction-level event,’ but it’s not unscathed | CNN Business

    The tech industry avoided an ‘extinction-level event,’ but it’s not unscathed | CNN Business

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    CNN
     — 

    For much of the weekend, Silicon Valley scrambled to find a way through what one prominent tech investor described as an “extinction-level event for startups” after the collapse of a top lender in the industry.

    Startups raced to line up loans from venture funds and fintech firms to make payroll. Venture-backed retailers hosted last-minute sales to boost their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition calling for Treasury Secretary Janet Yellen and others to offer “relief.”

    Then, late Sunday, federal officials stepped in to guarantee that all customers of the failed Silicon Valley Bank would have access to their full deposits on Monday. The sense of relief was palpable throughout the tech sector.

    “Obviously, I’m quite relieved,” said Stefan Kalb, co-founder and CEO of Seattle-based startup Shelf Engine, who told CNN that his company would have had to shut down by the end of the week without the government intervention. “It was a very stressful weekend and I’m quite relieved with the news.”

    Parker Conrad, the CEO of HR platform Rippling, who had previously said some customers’ payrolls were being delayed by the bank failure, tweeted Sunday: “Anyone else breathing a sigh of relief and looking forward to a good night’s sleep tonight?”

    And Garry Tan, the CEO of tech startup accelerator Y Combinator who authored the petition to Yellen, praised the federal government for “decisive action.” Tan, the investor who had previously warned of “an *extinction level event* for startups” that would “set startups and innovation back by 10 years or more,” added his appreciation on Sunday for “everyone who helped us through a very very intense time.”

    But even as the tech industry enjoys a respite from a fearful weekend, unknowns remain. “You can feel the collective *sigh*,” Ryan Hoover, a tech founder and investor wrote on Twitter Sunday. “I’m still nervous,” he added. “Hard to predict the collateral effects.”

    It’s unclear how the aftershocks of the bank’s collapse will add to the startup industry’s growing challenges accessing capital. SVB’s collapse also risks changing how the world, and prospective recruits, think of Silicon Valley.

    For years, the term itself conjured an image of an enclave of bright, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry is relying on the federal government to survive after failing to see the risk, or worse, contributing to it through a shared hysteria.

    In the chaotic days leading up to the bank’s collapse on Friday, some venture firms reportedly urged their portfolio companies to withdraw their money, which may have contributed to the bank failing.

    Then, over the weekend, many venture capitalists and tech founders banded together to try and lobby government and public goodwill towards saving the companies impacted by Silicon Valley Bank’s sudden collapse.

    While some VCs appeared to embrace fear-mongering on Twitter, much of the public messaging focused on the small businesses with exposure to Silicon Valley Bank that might be not be able to continue operating after losing access to the money in their bank account.

    “We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy,” the Y Combinator petition stated. “We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank.”

    A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, released a joint statement late Friday supporting Silicon Valley Bank, given its unique and vital role in the startup economy. The bank worked with nearly half of all venture-backed tech and healthcare companies in the United States.

    “For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US,” the statement read. “In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”

    Even before the bank’s collapse, the startup industry was in a tough moment. Venture capital funding had dwindled amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the biggest private companies were reportedly slashing their valuations.

    The instability at a top tech lender, and the lingering questions about its impact on other regional banks and the broader financial system, risk making it even harder for money-losing startups to access the capital they need to survive.

    President Joe Biden emphasized in remarks Monday that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank. But some are already skeptical of that statement, including Democratic Sen. Elizabeth Warren of Massachusetts, who wrote in an op-ed Monday morning, “We’ll see if that’s true.”

    More immediately, there’s uncertainty around how long it will take for companies to get their money out of the bank.

    As of Monday, Kalb said the money in his Silicon Valley Bank account has not been transferred yet to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I’ve been obsessively checking my email,” he said. “Hopefully the money will be able to be transferred shortly.”

    Ben Kaufman, the co-founder of venture-backed toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend trying to “fight for survival,” including holding a last-minute 40% off sale, using the code “BANKRUN,” to raise capital over the weekend.

    “We did not know how long it was going to take for us to get our cash out … we still kind of don’t, they say today, we’ll see what happens,” he said, noting the bank held 85% of his company’s assets. “We hope we can, and we’re so grateful that the Fed stepped in, and the way they did.”

    When asked if the past week’s events would change how and where he stores his money, Kaufman said that is “going to have to be a consideration moving forward.”

    “I don’t want to do this again,” he said.

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  • Wall Street pummels regional banks, despite Biden’s assurances | CNN Business

    Wall Street pummels regional banks, despite Biden’s assurances | CNN Business

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    New York
    CNN
     — 

    Wall Street’s confidence in regional banks remained shaky Monday, despite emergency measures from the Biden administration to protect customer deposits.

    First Republic shares fell more than 60% and were briefly halted for volatility. Western Alliance Bancorp’s stock also fell 60%, and PacWest Bancorp fell more than 34%.

    The SPDR S&P Regional Banking exchange-traded fund fell 11%.

    Monday’s turmoil for bank stocks stems from the collapse Friday of Silicon Valley Bank, which came unglued last week as customers panicked and yanked their deposits.

    Rather than bailing out the bank, the Biden administration and federal regulators on Sunday night said they would to backstop customers’ deposits — even those that weren’t insured. The same protections would be in place for customers of Signature, a New York regional lender that folded when depositors were apparently spooked by SVB’s demise.

    By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.

    The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.

    Despite those emergency measures to avoid a 2008-style crisis, investors sold off shares of regional banks that are seen as having similar risk potential.

    “It’s a good thing that we have the backstop, and it’s a good thing that the depositors were protected,” said Mike O’Rourke, chief market strategist at Jones Trading. “But it doesn’t change the fact that there’s still problems — you’re just basically buying time to sort the problems out in a better way.”

    The intervention from the Biden administration and the Fed does not amount to a 2008-style bailout, meaning investors in the banks’ stock and bonds will not be protected.

    O’Rourke said he’s not concerned about the health of the banking system.

    “It’s a confidence-crisis risk,” he said. “If we get through the next 24, 48 hours without the regulators having to close anymore banks, we should be fine.”

    First Republic lists $213 billion in assets. The lender reached out to customers over the weekend in a bid to reassure them.

    “In light of recent industry events, the last few days have caused uncertainty in the financial markets,” First Republic senior executives said in an email to clients viewed by CNN. “We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.”

    —CNN’s Matt Egan contributed reporting.

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  • Why Silicon Valley Bank collapsed and what it could mean | CNN Business

    Why Silicon Valley Bank collapsed and what it could mean | CNN Business

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    London
    CNN
     — 

    Silicon Valley Bank collapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.

    The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.

    In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”

    Here’s what you need to know about the biggest US bank failure since the global financial crisis.

    Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.

    It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.

    SVB benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

    The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.

    SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.

    But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.

    What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

    When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

    At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.

    That forced companies to draw down on deposits held by SVB to fund their operations and growth.

    While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.

    That set off panic among customers, who withdrew their money in large numbers.

    The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.

    By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

    US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.

    The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

    “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary Janet Yellen told CBS in an interview Sunday.

    “But we are concerned about depositors and are focused on trying to meet their needs.”

    There are already some signs of stress at other banks. Trading in First Republic Bank

    (FRC)     and PacWest Bancorp

    (PACW)     was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab

    (SCHW)     stock was down 7% at 11.30 a.m. ET Monday.

    In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

    SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.

    At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

    In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.

    Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.

    “While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”

    HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.

    Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

    The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.

    In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”

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  • From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

    From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Understanding the economy is a complicated task, and even the experts are struggling to answer seemingly simple questions like “Are we on the brink of a recession?” or “Why isn’t inflation falling faster?”

    Many have resorted to the use of metaphor to convey the current complexity of the economy.

    It’s a communications tactic that some Federal Reserve officials have long favored. In the early 1980s, Nancy Teeters, the first woman appointed to the Federal Reserve Board, came up with an apt metaphor to explain why she disagreed with steep rate hikes implemented by then-Fed Chairman Paul Volcker.

    Her colleagues were “pulling the financial fabric of this country so tight that it’s going to rip,” she said. “Once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again,” she added, before remarking that “none of these guys has ever sewn anything in his life.”

    These days, economists and analysts are turning to increasingly outlandish metaphors to help translate their thoughts.

    Here are some of the most interesting descriptors used recently and what they mean:

    Wile E. Coyote

    If you think back to Saturday morning cartoons, you may remember the never-ending, and mostly futile, chase between Wile E. Coyote and his nemesis, Road Runner. That pursuit often ended with Wile E. running off a cliff and into mid-air.

    The toons were fun sources of entertainment in our salad years, but former Treasury Secretary Larry Summers says they now double as a case study for the Fed and the economy.

    “The [Federal Reserve’s] process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past,” Summers told CNN last week.

    And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said — if we run off the cliff, gravity will eventually win out.

    “The economy could hit an air pocket in a few months,” he said.

    Antibiotics

    When describing the state of the economy, Summers doesn’t just rely on Looney Tunes. He also borrows from the medical community.

    While describing why the Fed can’t end its rate hike regimen when inflation shows signs of showing, Summers has compared higher interest rates to medicine for a country sick with high inflation. The entire dose must be taken for the treatment to fully work, he says.

    “We’ve all had the experience of taking a course of drugs and giving up, stopping the drugs, before the course was exhausted, simply because we felt better. And then, whatever infection we had came back and it was harder to fight the second time,” Summers told Boston’s NPR news station WBUR in February.

    For what it’s worth, Before the Bell is also guilty of using this one.

    Fog report

    We may be driving in the fog, landing a plane in the fog or even just walking in it.

    What’s important in this oft-used scenario is that it’s hard to see and we’re doing something that typically requires clear visibility.

    Clients “facing the fog of uncertainty in financial markets, economic growth and geopolitics,” should “avoid unnecessary lane changes,” and “allow extra time to reach your destination,” advised Goldman Sachs analysts earlier this year.

    It’s essentially a fancy way of saying that no one really knows what’s going on in this economy. Instead of attempting to find a way out of the chaos, investors should slow down, stay the course and wait for recovery.

    Edibles

    Late last year, investment analyst Peter Boockvar used a semi-illicit metaphor to explain why he thought the Fed might be over-tightening the economy into recession. He compared the Fed to an inexperienced consumer of weed gummies, which can take a long time to kick in.

    During that waiting period, an eager consumer may think the drugs aren’t working and eat more before the effects of the first dose even set in. They then inevitably find themselves way too stoned and feeling not-so-great.

    Boockvar was careful to note that he himself does not indulge in this practice, by the way.

    Storm chasing

    JPMorgan Chase CEO Jamie Dimon should receive an honorary degree in meteorology for his recessionary weather predictions.

    The Big Bank exec has repeatedly referred to economic recession as a storm gathering on the horizon — occasionally he’ll update the public on how far away and how bad that storm is.

    Last summer Dimon spooked markets when he compared a possible upcoming recession to a “hurricane.” In November, he downgraded it to a “storm.”

    By January, his forecast was simply “storm clouds,” adding that he probably should never have used the term “hurricane.”

    Polyurethane

    Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, has likened the economy to a bendable piece of plastic. Much like the economy, he wrote, polyurethane, “displays flexibility and adaptability, but also durability and strength.”

    He added that “the material’s ability to be stretched, bent, stressed and flexed without breaking, while in fact returning to its original condition, is what makes it so chemically unique. In recent years the US economy has displayed a remarkable resilience to stresses and an extraordinary ability to adapt to changing conditions.”

    Last week Senator Elizabeth Warren grilled Federal Reserve Chair Jerome Powell about American job losses being potential casualties of the central bank’s battle against high inflation.

    Warren, a frequent critic of the Fed’s leader, noted that an additional 2 million people would have to lose their jobs if the unemployment rate rises from its current 3.6% rate to reach the Fed’s projections of 4.6% by the end of the year.

    “If you could speak directly to the two million hardworking people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them?” Warren asked.

    Powell argued that all Americans, not just two million, are suffering under high inflation.

    “Will working people be better off if we just walk away from our jobs and inflation remains 5% or 6%?” Powell replied.

    Warren cautioned Powell that he was “gambling with people’s lives.”

    The discussion was part of a larger cost-benefit conversation that keeps popping up around the jobs market: Which is worse — widespread job loss or elevated inflation?

    CNN spoke with two top economic analysts with different perspectives to gain a deeper understanding of the debate.

    Below is our interview with Johns Hopkins economist Laurence Ball.

    Yesterday we published our interview with Roosevelt Institute director Michael Konczal, you can read that here.

    This interview has been edited for length and clarity.

    Before the Bell: Is it necessary to increase the unemployment rate to successfully fight inflation?

    Laurence Ball: There’s a trade off between inflation and unemployment. When the economy is very strong and unemployment is pushed down, inflation tends to be higher. Right now there are almost two job openings per unemployed worker, the supply of workers looking for jobs and the demand for firms to hire is out of whack. That’s leading to faster wage increases, which sounds good except that gets passed through to faster price increases and more inflation. So somehow the labor market has to be brought back towards a normal balance of workers and jobs and that means slowing down the economy, and that probably means raising unemployment.

    Can you explain the cost-benefit analysis of two million jobs lost to get down to 2% inflation?

    If we assume we have to get inflation down to 2%, then it’s just an unhappy fact of life that that’s going to require higher unemployment. But a lot of people, including me, think that if the Fed gets it down to 4% or 3%, that’s the time to declare victory or say, ‘close enough for government work.’

    It gets more and more expensive in terms of how much unemployment it costs to go from 3% to 2% inflation. Those last few points will have disproportionately large costs, and it’s very dubious if that’s really worth it.

    Now, the Fed has the political problem that they’ve been insisting on a 2% target rate for years. If they say right at this moment that 3% or 4% is okay that would be seen as surrendering or moving the goalposts. I think a likely outcome is that inflation gets down to 3% or 4% and the Fed continues to say their target is a 2% inflation rate but never does what has to be done to get it there.

    If you examine Fed history you see that 5% appears to be a magic number. When inflation is above 5% it becomes this big political issue. When it goes below 5% it disappears from the headlines.

    What do you think is important for our readers to know about this back-and-forth between Powell and Warren?

    Behind all of this, in a market economy there’s sort of a basic glitch. We have this thing called unemployment, we sort of chronically have not enough jobs for everybody and that’s a big problem. The problem can be reduced somewhat in the short run if you get the economy going very fast. But then that leads to inflation. Accepting that unemployment has to go back up is just recognizing that there’s this glitch in the market economy or capitalism. It’s not clear how we can get around that.

    CNN Business’ David Goldman reports: 

    In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.

    In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.

    SVB collapse: live updates

    In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature’s customers whole. By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.

    The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.

    Wall Street investors were relieved that the government intervened as stock futures rebounded on Sunday evening, although the rally is fading Monday morning. Markets had tumbled more than 3% Thursday and Friday as investors feared more bank failures and systemic risk for the tech sector.

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  • SVB employees to receive 45 days of employment at 1.5 times pay, reports say | CNN Business

    SVB employees to receive 45 days of employment at 1.5 times pay, reports say | CNN Business

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    New York
    CNN
     — 

    The US Federal Deposit Insurance Corporation offered Silicon Valley Bank employees 45 days of employment and 1.5 times their salary, reports say.

    An FDIC official did not comment on the details to CNN, but said it is standard practice and one of the first steps the independent government agency takes after being named receiver.

    US workers also received their annual bonuses on Friday, just hours before FDIC took over the collapsed lender, Axios reported.

    SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.

    California regulators shuttered the tech lender and put it under the control of the FDIC.

    The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.

    Employees, except essential and branch workers, were told to keep working remotely, Reuters reported. The bank had more than 8,500 employees at the end of 2022.

    The FDIC said the main office and all 17 branches of SVB, located in California and Massachusetts, will reopen Monday.

    The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”

    The FDIC took over in the midmorning Friday; usually it waits until markets close.

    “SVB’s condition deteriorated so quickly that it couldn’t last just five more hours,” wrote Better Markets CEO Dennis M. Kelleher. “That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”

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  • CFPB: What it does and why its future is in question | CNN Business

    CFPB: What it does and why its future is in question | CNN Business

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    New York
    CNN
     — 

    The US Supreme Court decided this week to hear a case that will consider the constitutionality of funding for the Consumer Financial Protection Bureau and, in doing so, test the constraints of US regulators’ power. The case would be heard in the fall, with a decision likely by summer 2024.

    But what is the CFPB? How does its work affect your wallet? And why is its future potentially at risk?

    The agency was created after the 2008 financial meltdown, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law was passed in the wake of the 2007 subprime mortgage crisis and the Great Recession that followed.

    The broad purpose of the CFPB is to protect consumers from financial abuses and to serve as the central agency for consumer financial protection authorities.

    Prior to its creation, as the agency notes on its site, “[c]onsumer financial protection had not been the primary focus of any federal agency, and no agency had effective tools to set the rules for and oversee the whole market.”

    The CFPB has regulatory authority over providers of many types of financial products and services, including credit cards, banking accounts, loan servicing, credit reporting and consumer debt collection.

    It is charged with implementing and enforcing consumer protection laws, making rules and issuing guidance for consumer financial institutions. And it is the place consumers can go to lodge complaints about financial products and services.

    Importantly, Dodd-Frank also gave the agency new authority to determine whether any given consumer financial product or service is unfair, deceptive or abusive and therefore unlawful.

    While there are critics of the agency’s current structure and funding, it has saved consumers money, made it easier for them to seek redress and to get better clarity and more tailored responses from companies when they have a problem with their accounts, loans or credit reports.

    “It has completely changed the consumer financial marketplace. Overall it has had a tremendous impact on making it more fair and transparent,” said Lauren Saunders, associate director of the National Consumer Law Center.

    For instance, the CFPB has taken action against bank overdraft policies. “Arguably, the focus on overdraft practices has led some banks to eliminate or reduce their overdraft fees,” said Christine Hines, legislative director of the National Association of Consumer Advocates.

    And it has gone after institutions for saddling consumers with pointless products, excessive fees and punitive terms.

    Both Hines and Saunders made a special note of CFPB’s actions against Wells Fargo, after the agency found the bank had been engaging in multiple abusive and unlawful consumer practices across several financial products between 2011 and 2022 — from auto loans to mortgage loans to bank accounts.

    Last month, the agency required the bank to pay more than $2 billion to customers who were harmed by such practices, plus a $1.7 billion fine that will go into a relief fund for victims.

    “More than 16 million accounts at Wells Fargo were subject to their illegal practices, including misapplied payments, wrongful foreclosures, and incorrect fees and interest charges,” the agency said in a blog post.

    In the area of mortgages, “CFPB has written rules to implement new protections so that mortgage lenders don’t make loans with tricks and traps that lead people to lose their homes,” Saunders said.

    It also has created other safeguards, including rules on how service providers should communicate with borrowers who want to find alternatives to foreclosure, Hines noted.

    Currently, the agency is in the midst of an effort to curb excessive or “junk” fees on a range of consumer financial products, such as credit card late fees.

    Critics of the CFPB have been trying for years to limit its power and independence, attacking the way the agency is structured and funded. Like federal banking regulators, its funding is not determined by lawmakers in Congress as part of the annual appropriations process. Rather, it gets its money from the Federal Reserve System’s earnings.

    “This nontraditional funding source limits congressional oversight of the agency and is the subject of legal challenges,” according to the Congressional Research Service.

    The latest challenge — arising from a federal appeals court ruling that CFPB’s funding violates the Constitution’s Appropriations Clause and separation of powers — is what the Supreme Court will take up in its October term.

    While it’s impossible to predict how the justices will rule, should they decide to uphold the appeals court ruling, that will put in doubt how the agency will be funded going forward, and whether it can continue to function effectively.

    It’s also unclear whether the agency’s actions and rule-making over the past 11 years would be invalidated, nor what impact it would have on banks and other financial institutions that have set up systems to be in compliance with CFPB rules and safe harbors.

    “The agency would be unable to do anything if the funding is invalidated. And prior rules could be challenged as the agency did not have a legal funding source that it could use to write those rules,” Cowen Washington Research Group analyst Jaret Seiberg said in a note to clients.

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  • China’s property crash is prompting banks to offer mortgages to 70-year-olds | CNN Business

    China’s property crash is prompting banks to offer mortgages to 70-year-olds | CNN Business

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    Hong Kong
    CNN
     — 

    The property market in China is so depressed that some banks are resorting to drastic measures, including allowing people to pay off mortgages until they are 95 years old.

    Some banks in the cities of Nanning, Hangzhou, Ningbo and Beijing have extended the upper age limit on mortgages to between 80 and 95, according to a number of state media reports. That means people aged 70 can now take out loans with maturities of between 10 and 25 years.

    China’s property market is in the midst of a historic downturn. New home prices had fallen for 16 straight months through December. Sales by the country’s top 100 developers last year were only 60% of 2021 levels.

    Analysts say the new age limits, which aren’t yet official national policy, aim to breathe life into the country’s moribund property market while taking into consideration China’s rapidly aging population, said Yan Yuejin, a property analyst at E-House China Holdings, a real estate services firm, in a recent research note.

    “Basically, it’s a policy tool to stimulate housing demand, as it can alleviate the debt payment burden and encourage home buying,” he added.

    The new mortgage terms are like a “relay loan.” If the elderly borrower isn’t able to repay, his or her children must carry on with the mortgage, he said.

    Last month, China reported that its population shrank in 2022 for the first time in more than 60 years, a new milestone in the country’s deepening demographic crisis with significant implications for its slowing economy. The number of people aged 60 or above increased to 280 million by the end of last year, or 19.8% of the population.

    The mortgage borrower’s age plus mortgage length should not usually exceed 70 years, according to previous rules published by the banking regulator. China’s average life expectancy is around 78.

    The China Banking and Insurance Regulatory Commission hasn’t commented publicly about the new terms.

    But bank branches across the country are setting their own terms on these multi-generational loans.

    According to the Beijing News, a branch of Bank of Communications in the city said borrowers as old as 70 can take out home loans lasting 25 years, which means the upper age limit on its mortgages has been lifted to 95.

    But there are also prerequisites: The mortgage needs to be guaranteed by the borrower’s children, and their combined monthly income must be at least twice the monthly mortgage payment.

    Separately, a branch of Citic Bank has extended the upper age limit on its mortgages to 80, the paper said, citing a bank client manager.

    Calls to the Beijing branches of Citic Bank and Bank of Communications were not answered.

    Hong Hao, chief economist at Grow Investment Group, said this was a “drastic” measure and “could be a marketing gimmick to attract the elderly to pay [mortgages] for the younger generation.”

    Yan from E-House said the main beneficiary of the move might not be the elderly, but middle-aged borrowers between 40 and 59. Under the extended payment cutoff age, those people could get a mortgage for 30 years — the maximum length allowed in China.

    Compared with previous terms, it means those borrowers could pay less each month.

    “It is obviously a way to alleviate the debt payment burden,” said Hong.

    According to calculations by E-House, if a bank extends the upper age limit to 80, borrowers aged from 40 to 59 can get 10 additional years on their mortgages. Assuming their mortgage is one million yuan ($145,416), then their monthly payment can be reduced by 1,281 yuan ($186), or 21%.

    Chinese households have grown reluctant to purchase new homes in the past year, as the now-defunct Covid curbs, falling home prices and rising unemployment have discouraged would-be buyers. Last summer, protests that erupted in dozens of cities were staged by people refusing to pay mortgages on unfinished homes, dealing a further blow to market sentiment.

    Authorities have rolled out a flurry of stimulus measures to try to revive the housing market, including several cuts to lending rates and measures to ease the liquidity crisis for developers — so that they can resume stalled construction and deliver pre-sold homes to buyers as quickly as possible.

    Other than Beijing, some banks in Nanning, the provincial capital of Guangxi province, have raised the upper age limit on mortgages to 80, according to the city’s official newspaper Nanguo Zaobao.

    In the eastern cities of Ningbo and Hangzhou, several local lenders are advertising age limits of 75 or 80, a relaxation from previous rules, according to reports by government-owned Ningbo Daily and Hangzhou Daily.

    “If the applicant is too old to meet the loan requirement, they can have their children as the guarantor,” a lender was quoted as saying.

    But Wang Yuchen, a real estate lawyer at Beijing Jinsu Law Firm, warned such mortgages were “risky.”

    It’s understandable that many cities are trying to revive their housing markets by reducing the monthly debt payment and enlisting more elderly people into the pool of home buyers, he said in a written commentary on his WeChat account.

    “But the elderly have relatively poor repayment ability. On the one hand, it could affect their quality of life in old age, as they continue carrying the mortgage debt mountain and work for the bank until the last moment of their lives,” he said. “On the other hand, the associated risks may be transferred to their children, increasing their financial pressure.”

    “For some home buyers, choosing this way to purchase a house is probably because of their lack of funds. But it’s risky to do so at this time,” he said, adding that the property market is in a structural downturn and the government is still working to curb speculation.

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  • President Biden calls on Congress to crack down on ‘junk fees’

    President Biden calls on Congress to crack down on ‘junk fees’

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    In his State of the Union address, President Joe Biden said his administration is cracking down on “junk fees” — including those from banks as well as hotels, airlines and other service providers.

    The president said these unnecessary or hidden fees are weighing down families’ budgets and causing financial harm.

    “Junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in, like many of you did. They add up to hundreds of dollars a month,” Biden said in the annual speech before Congress.

    What are junk fees?

    Junk fees are additional, often hidden charges that can come from a range of lenders. They are not typically included in the initial price but tacked on at the time of payment.

    To stop this practice, Biden called on Congress to pass the Junk Fees Prevention Act, which will reduce unexpected charges, such as airline booking fees; service fees for concert tickets; early termination fees for TV, phone, and internet; “resort fees” at hotels; and “excessive” credit card late fees.

    “Americans are tired of being — we’re tired of being played for suckers,” Biden said Tuesday.

    More from Personal Finance:
    Biden to revisit ‘billionaire minimum tax’
    Amid inflation, shoppers turn to dollar stores for groceries
    Savers poised for big win in 2023 as inflation falls

    The initiative has been months in the making.

    Last fall, the Consumer Financial Protection Bureau said it was scrutinizing certain fees that catch customers by surprise — and are “likely unfair and unlawful,” according to the agency.

    The consumer watchdog proposed a new rule earlier this month prohibiting banks from charging surprise overdraft fees on debit transactions and reducing typical late fees from roughly $30 to $8, saving consumers as much as $9 billion a year, according to the White House.

    “Despite recent progress in addressing overdraft fees, the job is far from complete,” Nadine Chabrier, the Center for Responsible Lending’s senior policy counsel, said in a statement.

    Biden announces plan to cut down on 'junk fees'

    “The Consumer Financial Protection Bureau took a big step by banning surprise overdraft fees,” she said. “We are encouraged that the consumer bureau announced it will take additional steps, and we urge the bureau to place strong limits on the size and frequency of these fees.”

    More than a quarter of checking account holders, or 27%, are regularly hit with fees, which can add up to an average of $24 per month, or $288 per year, according to a recent survey from Bankrate.com. 

    The average overdraft fee costs $29.80, Bankrate’s research found, while the average nonsufficient funds fee is $26.58.

    Some banking interest groups countered that offerings such as overdraft protection provide a much-needed safety net.

    “The president’s use of the term ‘junk fee’ is overly broad and ignores the needs of low-income and middle-income consumers who depend on these services to resolve short-term financial difficulties,” Jim Nussle, president and CEO of the Credit Union National Association, said in a statement.

    “It does not consider the costs involved in providing needed financial services that consumers depend on.”

    Without the option of overdraft protection, “people are more likely to turn to predatory lenders, hurting the same people the administration seeks to help,” Nussle said.

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  • Chapter 3: Heads in the sand

    Chapter 3: Heads in the sand

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    In July 2011, Wells Fargo agreed to pay an $85 million fine to the Federal Reserve — a little-noticed enforcement action that served as a precursor to the fake-accounts scandal. Salespeople at a subsidiary called Wells Fargo Financial had allegedly inflated prospective borrowers’ incomes so that they would qualify for loans.

    Specifically, the employees created and printed false W-2s, according to testimony by James Strother, who was Wells Fargo’s general counsel at the time of the settlement. Employees also put false information into a model that funneled applicants who should have qualified for prime mortgages into higher-cost subprime loans.

    “So there were two sets of conduct there that were dishonest and wrong,” Strother testified. “And we ended up terminating a bunch of people.” The Fed concluded that the cheating was motivated by employees’ desire to meet sales performance standards, qualify for incentive pay and avoid losing their jobs.

    Inside Wells Fargo’s headquarters at 420 Montgomery Street in San Francisco were the 12th-floor offices of CEO John Stumpf, retail banking head Carrie Tolstedt, wholesale banking head Tim Sloan, Chief Administrative Officer Pat Callahan, Human Resources Director Hope Hardison and Chief Risk Officer Mike Loughlin.

    In the aftermath of the settlement with the Fed, Wells Fargo formed a new committee — composed of high-level executives — to address employee misconduct. The Team Member Misconduct Executive Committee was to meet semiannually. Its seven members shared responsibility for the management of employee misconduct and internal fraud.

    They included Strother; Pat Callahan, the chief administrative officer; Hope Hardison, the human resources director; David Julian, the chief auditor; Mike Loughlin, the chief risk officer; and Deputy General Counsel Christine Meuers. The committee’s chair was Michael Bacon, the bank’s chief security officer, who saw an opportunity finally to bring high-level attention to the sales integrity problem.

    “We put this committee together to comply with the consent order,” Bacon said in an interview. “These are the individuals that can make a change.”

    Bacon used numbers in an effort to persuade the committee members to take more forceful action. He presented data on the number of sales integrity cases, the types of cases, the regional distribution of the cases, the number of employees fired, the number of instances of confirmed fraud, and more.

    One problem with the data — and Bacon was aware of this shortcoming at the time — was that the corporate investigations unit could only count the cases that came to its attention. “I made it clear that it was the tip of the iceberg, because we’re so reactive as a company,” Bacon said in an interview.

    The cases that did get investigated often grew out of consumer complaints or calls by employees to the bank’s ethics hotline. “I had even made the comment in several meetings that to me it was a sad statement to say that we’re sitting back for an employee to tell us something’s wrong,” Bacon said. “Or we’re waiting for a customer to tell us something’s wrong, when we have all of the industry-leading information technology.”

    Bacon had been advocating for detection measures to find sales abuses that didn’t get reported, but he was repeatedly rebuffed. For instance, he wanted the bank’s retail unit to run a report that could help identify employees who had set up accounts in the names of friends, relatives or fictitious individuals, using the same address. “Not too difficult. To my knowledge, that report was never run,” Bacon said in a 2018 deposition.

    Alarm bells, arrogance and the crisis at Wells Fargo - organizational chart

    In 2013, Bacon believed that the sales integrity problem was getting worse, and he saw the Team Member Misconduct Executive Committee as the ideal venue to raise the issue to the top echelon of leadership at the bank.

    In late August, Bacon gathered with other committee members in the executive conference room on the 12th floor at Wells Fargo’s San Francisco headquarters. He presented data, but he also spent time educating his colleagues about the motives of employees who cheated. This time, Bacon didn’t get pushback.

    “We talked about it. They all nodded their head. They all, I mean, got it. There was no ‘I don’t understand,’ ” he recalled. “They all knew it’s a problem. They knew it’s gotten worse.”

    Loughlin shared an anecdote that demonstrated his understanding. The chief risk officer was an approachable executive who, like numerous other members of the bank’s operating committee, had an office on the 12th floor of the headquarters building. He had joined Wells Fargo in 1986 and been the risk chief for five years.

    During this meeting, Loughlin said that his wife wouldn’t even go to a local branch anymore because the staffers made such aggressive sales pitches, Bacon recounted in an interview. It was not the first time that Loughlin had raised concerns about his wife’s negative experiences with the bank.

    Earlier in 2013, a Wells Fargo colleague recalled Bacon recapping a similar story from Loughlin. “He mentioned that on a recent call, Mike Loughlin mentioned his wife went into a store to do a transaction and came out with 5 products,” the colleague wrote in an email.

    Alarm bells, arrogance and the crisis at Wells Fargo - Loughlin email

    In a Jan. 3, 2013 email, a colleague of Chief Security Officer Michael Bacon recapped a meeting in which Bacon spoke about Chief Risk Officer Mike Loughlin sharing an anecdote involving sales pressure that Loughlin’s wife experienced at a Wells Fargo branch.

    Loughlin had also told retail banking chief Carrie Tolstedt that his wife received two unauthorized debit cards, according to court papers filed by the government. Tolstedt’s response was to tell Loughlin to stop telling that story, since it reflected poorly on Wells Fargo’s retail banking unit, according to the court filings.

    During the same Aug. 26, 2013, meeting of the Team Member Misconduct Executive Committee, Bacon proposed that Wells Fargo start doing monitoring of its own executives’ accounts for signs of irregularities. Other banks were already doing the same thing, he later testified. It would have required adding just one full-time-equivalent employee, according to Bacon.

    But Callahan, the bank’s chief administrative officer, rejected the idea, Bacon said. “And she stated verbatim: ‘We’re not going to approve it. We’ve got too many investigations and we’re terminating too many team members,’ ” he testified.

    Before the meeting wrapped up, members of the committee agreed that someone needed to discuss the sales integrity situation with Tolstedt, according to Bacon. Callahan volunteered to do so, he said.

    As Bacon left the conference room, he felt a sense of accomplishment. He had escalated the problem to senior executives who were in position to take meaningful action. “I walked out of there with a V for victory,” he recalled. But over the next year, Bacon again became frustrated by the lack of change.

    Loughlin, the former chief risk officer, testified that he did not recall attending the August 2013 meeting. His lawyers did not respond to requests for comment. Likewise, attorneys for several other onetime Wells executives who sat on the Team Member Misconduct Executive Committee either declined to comment or did not respond to requests for comment.

    Alarm bells, arrogance and the crisis at Wells Fargo - Mike Loughlin 2

    Chief Risk Officer Mike Loughlin was a member of both the Team Member Misconduct Executive Committee and the bank’s operating committee.

    Hardison, the former HR director, also testified that she did not recall attending the August 2013 meeting. She declined to comment for this article, but a person familiar with her thinking, who spoke on condition of anonymity, said the data that Bacon presented did not die at the Team Member Misconduct Executive Committee.

    In November 2021, Hardison testified at an administrative law hearing that it was not until 2015 that Wells Fargo executives began to understand that sales abuses were causing financial harm to consumers. “Customer harm, I think, significantly increased the urgency and focus of what we needed to do,” Hardison testified.

    After Bacon left Wells Fargo in 2014, the Team Member Misconduct Executive Committee stopped meeting. The inactivity didn’t sit well with Loretta Sperle, who was then a manager in the unit that included the company’s corporate security and corporate investigations teams.

    Although the Team Member Misconduct Committee was supposed to be replaced with an existing ethics oversight committee, the latter committee did not have as many members from the top echelon of the bank’s leadership, and employee misconduct was to become just one component of its jurisdiction, Sperle said in an interview.

    There was also the fact that the Team Member Misconduct Executive Committee had been formed in response to the 2011 consent order, and it was effectively being disbanded without informing the Fed, according to Sperle.

    She recalled telling senior bank executives, ‘You’ve got to talk to the Federal Reserve,’” arguing that Wells Fargo was not allowed to take this action without first informing its regulator.

    When Wells eventually told the Fed about what had happened, Fed officials required Wells Fargo to write an explanation, Sperle recalled. “They weren’t happy, because the requirement of that consent order was, any changes you need to discuss with them,” she said. A Fed spokesperson declined to comment.

    Looking back on what happened, Sperle sees the decision to suspend the committee as part of a pattern of indifference to regulatory requirements. She chalks it up to arrogance. The prevalent attitude, Sperle said, was: We can do what we want. We’ll resolve it later. We’re not going to let the regulators drive our business.

    Read the other installments in this series:

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  • BofA says it will pay up to slow deposit flight

    BofA says it will pay up to slow deposit flight

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    Bank of America says it will have to pay more for deposits in 2023 to stanch the runoff of recent months.

    Total fourth-quarter deposits fell $134.1 billion, or 6.5%, year over year, with the biggest drop-off — $53 billion — coming in the global banking group. Consumer banking deposits fell by $6.2 billion over the same period, largely due to the flight of $24 billion during the final three months of 2022.

    The decline in consumer deposits was driven by continued higher levels of spending, customers’ paydown of debt as well as the shift of money to brokerage accounts, BofA CEO Brian Moynihan said during an earnings call with analysts Friday.

    “While we saw a decline in quarter-four deposits in consumer, correspondingly, we also saw brokerage levels of consumer investments increase,” Moynihan told analysts.

    As BofA repriced deposit rates to slow the pace of contraction, interest-bearing deposits increased 2.8% during the fourth quarter, while noninterest-bearing deposits declined more than 15%.

    “We feel like the modest balance declines are kind of in there,” BofA CFO Alastair Borthwick told analysts, while also cautioning that the trend “may continue” into the early part of 2023. “We expect to pay higher rates as we continue to move through the end of the interest rate cycle,” he said.

    He added that, over the last month, “we’re seeing relatively stable deposit balances.”

    As higher interest rates forced BofA to reprice deposits, it also continued to provide a boost to the bank’s net interest income of $14.7 billion, which grew 29% compared with the same period last year.

    “While we are paying more for deposits, we also get that on our asset side,” Moyhnihan added.

    The bank reported total loans of $1.05 trillion, a 6.8% increase from the same period last year. It cited that loan growth as well as a weakening economic outlook as the reasons for its addition of $194 million in reserves during the quarter; BofA released $489 million of reserves during the year-earlier period.

    Overall net income was $7.1 billion, a 1.7% increase from the same period last year. Net revenue grew 11% to $24.5 billion.

    Noninterest income fell 7.5% to $9.9 billion year over year, with service charges on deposit accounts decreasing 27.3% and investment banking fee revenue down more than 54%. Meanwhile, noninterest expenses rose 5.5% to $15.5 billion.

    The bank reported earnings per share of $0.85, exceeding the average estimate of 77 cents from analysts surveyed by FactSet Research Systems.

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    Jordan Stutts

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  • Bank earnings fail to impress investors as recession worries rise | CNN Business

    Bank earnings fail to impress investors as recession worries rise | CNN Business

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    New York
    CNN
     — 

    JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock posted results that topped Wall Street’s forecasts Friday, but investors were nonetheless a little disappointed at first.

    Trading was choppy, with most bank stocks falling at the open before rebounding. Shares of JPMorgan Chase

    (JPM)     were up about 2.5% in late afternoon trading while BofA

    (BAC)     was up 2%. Wells Fargo

    (WFC)    , which reported earnings that missed Wall Street’s targets, reversed earlier losses and was up 3%. Citi

    (C)     was up 2% while BlackRock

    (BLK)     was flat.

    “The earnings were solid, but the market is concerned with recession fears,” said John Curran, managing director and head of North American bank coverage at MUFG.

    Investors might have been concerned by the downbeat tone of the big banks. Executives are clearly still worried about inflation and the threat of a recession this year following several big interest rate hikes by the Federal Reserve.

    JPMorgan Chase CEO Jamie Dimon said in the bank’s earnings statement that although the economy is still strong and that consumers and businesses are spending and healthy, “we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher.”

    The bank added in the earnings release that it now expects a “mild recession” as a base economic case. CFO Jeremy Barnum added during a conference call with reporters that in addition to the slowdown that has already started in its home lending unit, it is starting to see “headwinds” in auto lending.

    Meanwhile, BofA CEO Brian Moynihan noted that this is “an increasingly slowing economic environment” and Wells Fargo CEO Charlie Scharf said “we are carefully watching the impact of higher rates on our customers.” Wells Fargo recently announced plans to pull back on its massive mortgage business.

    Banks are clearly worried about a looming recession, and Wall Street has taken notice.

    Moody’s Investors Service analyst Peter Nerby noted in a report that “credit provisions are rising” at JPMorgan Chase and that Citi “built capital and reserves in anticipation of a slowdown in core markets.”

    The Fed’s rate hikes aren’t helping either.

    “Higher than expected interest rates pose a significant risk to the outlook for credit quality, loan growth and net interest margins,” said David Wagner, a portfolio manager at Aptus Capital Advisors, in an email.

    Concerns about the economy were one reason why stocks plunged in 2022, suffering their worst year since 2008. As a result of the Wall Street slump, there was a major slowdown in merger activity and initial public offerings.

    That hurt the investment banking businesses for the top banks. JPMorgan Chase and Citi each said that advisory fees plummeted nearly 60% in the quarter.

    Goldman Sachs

    (GS)     and Morgan Stanley

    (MS)     will give more color about the health of Wall Street next Tuesday when they both report their fourth quarter results.

    Goldman Sachs, which has aggressively built up a consumer banking unit over the past few years, has struggled to make money in that division. Goldman Sachs disclosed in a regulatory filing Friday that it has lost more than $3 billion in its consumer business since 2020.

    There were some signs of optimism though. BlackRock, which owns the massive iShares family of exchange-traded funds, reported a rebound in assets under management from the third quarter to the fourth quarter as stocks soared in October and November.

    “The current environment offers incredible opportunities for long-term investors,” said BlackRock CEO Larry Fink in the earnings release.

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  • Consumers more upbeat about their finances in 2023, New York Fed finds

    Consumers more upbeat about their finances in 2023, New York Fed finds

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    Consumers are a bit more optimistic about their financial situation in the coming year despite persistent worries about the economic outlook, according to a survey from the Federal Reserve Bank of New York. 

    Roughly 30% of households surveyed in December said they expect to be somewhat worse off or much worse off next year, which was down 4 percentage points from November’s survey. The figure has improved significantly from last summer, when inflation was rising at a faster pace and the share of households expecting worsening prospects reached nearly 45%.

    The national survey of 1,300 household heads, released on Monday, found that about 45% of respondents expect to be in a similar financial situation next year. Households anticipating better prospects rose slightly to 26%.

    Shoppers scoured the merchandise last month at a holiday market in Detroit. In a survey released Monday, U.S. households expressed significantly more confidence about their financial situation in the coming year than they did over the summer.

    Emily Elconin/Bloomberg

    The survey’s results are a positive sign for banks as the industry starts reporting earnings for the fourth quarter of 2022. JPMorgan Chase, Wells Fargo, Bank of America and Citigroup are set to kick off the quarterly earnings season on Friday, and any hint of consumers struggling more to pay off their loans could trigger alarms.

    While investors have been worrying about a looming recession, U.S. consumers and the overall economy have “proved more resilient than expected” and should continue pushing through, according to Stephen Stanley, chief economist at Amherst Pierpont Securities.

    “I expect consumer and business spending to continue to advance in early 2023, sustaining growth that is tepid but easily out of the recession danger zone,” Stanley wrote last month in a note to clients.

    Lower-income households may experience more stress this year, particularly if a recession does hit or if inflation continues to impact their wallets, Stanley noted. But U.S. households are “still sitting on a massive reservoir of spending power,” with most consumers maintaining larger cushions thanks to stimulus funds and elevated savings during the pandemic, he wrote.

    Stanley’s outlook mirrors recent comments from bank CEOs, who have said that lower-income customers are feeling more pressure but that the overall credit environment remains healthy.

    Late payments on consumer loans are gradually returning to more normal levels, but there’s “nothing in there that would suggest” that the deterioration is happening quickly, Wells Fargo CEO Charlie Scharf said at a conference last month.

    “What we see is still extremely strong credit performance on the consumer side with an expected level of normalization,” Scharf said.

    The New York Fed survey indicated that consumers have become a bit more worried about the job market this year. On average, they saw a 12.6% possibility that they could lose their job in the next year, the highest figure since November 2021. They also expressed slightly less confidence about whether they’d be able to find another job, and said that they expect their spending to grow at a significantly lower pace.

    But households’ median expectation of income growth hit a new high of 4.6%, up by 0.1 percentage point. On average, households saw an 11.4% possibility that they may miss a minimum loan payment in the next three months, down from 11.8% in November.

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  • By the numbers: Bank clients demand frictionless mobile offerings | Bank Automation News

    By the numbers: Bank clients demand frictionless mobile offerings | Bank Automation News

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    Bank clients are increasingly switching financial institutions when they become frustrated or disappointed by their mobile banking experiences.   In fact, one in three users younger than 40 said they have switched banks for a better mobile experience, according to the “Bank to the Future” report published Dec. 15 by Stockholm-based mobile software company Sinch, […]

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  • Don’t assume the interest on your savings account is keeping up with Federal Reserve rate hikes. Here’s why

    Don’t assume the interest on your savings account is keeping up with Federal Reserve rate hikes. Here’s why

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    Valentinrussanov | E+ | Getty Images

    As the Federal Reserve continues to hike interest rates, you may assume you’re earning more on the money in your savings account.

    But that may not be the case.

    related investing news

    CNBC Pro

    Carolyn McClanahan, a certified financial planner at Life Planning Partners in Jacksonville, Florida, was recently surprised when a client told her he was hardly making any interest on his cash.

    The interest rate on his Capital One account was 0.3%, far lower than the 3.3% annual percentage yield the firm is currently advertising for new savings accounts. McClanahan discovered the same situation when she checked her own Capital One account.

    “I was not happy,” McClanahan said.

    While a call to Capital One’s customer service revealed it was possible to access the higher interest rate by opening a new account, McClanahan decided it was better to move the money elsewhere.

    “I’ve been recommending Capital One for a long time, and they are now off my list,” McClanahan said.

    Capital One did not immediately respond to requests for comment.

    The Federal Reserve has raised the federal funds rate to the highest levels since 2007. While that makes borrowing more expensive for credit cards and other accounts, the expectation is that it will also push up the interest consumers can make on their cash savings.

    Some online savings accounts are touting rates as high as 4%. Some certificates of deposit, or CDs, may provide higher rates, depending on the term.

    Rates are expected to climb even higher as Federal Reserve poised to continue its hiking cycle in 2023. Bankrate.com predicts top-yielding national money market and savings accounts could climb to 5.25% by year end.

    Yet like McClanahan, others may be in for a surprise if they realize their accounts are not keeping up with those top rates.

    “Consumers need to check their accounts at least once a month to see what their accounts are earning,” said Ken Tumin, senior industry analyst at LendingTree and founder of Deposit Accounts.

    “Don’t assume it’s the latest greatest rate,” he said.

    More from Personal Finance:
    From ‘Quiet Quitting’ to ‘Loud Layoffs,’ career trends to watch in 2023
    How to use pay transparency to negotiate a better salary
    ‘This is a crisis.’ Why more workers need access to retirement savings

    Following Fed rate hikes, online savings accounts should generally be in the ballpark of the federal funds rate within about a month, according to Tumin.

    There are signs that may help consumers spot when they may get shortchanged on rates.

    Watch for changing account names, Tumin said. If a bank is touting savings offers under a new account name from when you opened your account, the terms you are subject to might not be the latest.

    If you see a new account, often you can request to be upgraded.

    “That’s an easy way to get the benefit of the higher rate,” Tumin said.

    Also be more vigilant when a bank, such as Emigrant Bank, has more than one online division, Tumin said. In September, Emigrant’s Dollar Savings Direct division was the first to offer 3% on an account, which eventually climbed to 3.5%.

    Now, however, its My Savings Direct division has the highest rate for an online account, with 4.35%, Tumin noted.

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