Wednesday, June 21, 2017

New Obstacle for Banking

It is easy to criticize our banks. They constantly seek ways to get a piece of our piggy bank dollars that they hold in their vaults. We forget that they have many costs in providing branch outlets that are close to our homes. My personal beliefs is that banks should be regulated like utilities and that could help in protecting them from being themselves. Wherever you stand with your feelings about our banking industry, the bottom line is that they are needed.
They have survived and they generally oppose all types of regulation. For example, they originally opposed the FDIC. Now, they realize what a great economic addition this was for our society and the health of their industry. We no longer have runs on our banks. I should add a disclaimer to that because some people can't leave well enough alone. I will get to that in a moment.
If one would check the stock prices of publically traded bank shares since the economic crisis of 2008, one would see that the banking industry as a whole is doing fine and dandy. Again, CEOs of individual banks will complain, but they make money hand over fist.
As stated, they have survived the recession of 2008, co-existed with Dodd-Frank and managed in this low interest rate environment, but now, a new obstacle is appearing on the horizon in a report from the Financial Times by Ben McLannahan.
Tech Loans 
The leader in this new competition for loans is none other than Amazon. They started quietly, but they now hold a portfolio of $3 billion in loans. They are not alone. Pay Pal and Square are also making loans. The first question one would ask is can they do this? They are not chartered like banks, but they found a loophole. They are not creating money which banks do and use for such purposes. They are using their own money like a personal loan that you make with your cousin or uncle.
Now, the total amount of money is very small, but keep this aspect in mind.
Once Upon A Time... 
retail laughed at the $18 stock of a startup named Amazon that entered retail with books online. Can you see where this is going? Some tech companies have more money sitting offshore than GDP of countries. This could be a serious obstacle for the banking industry in the future and I did not even mention the competition from online banks like Soft Bank. There is also another danger for the banking industry and this one is also seriously dangerous for you and me. Republicans, I told you before, you can never trust them, are seeking to pass a new banking rule and law called Choice Finance.
The bill would do away with OLA (orderly liquidation authority) which is the dissolving of a bank that has insufficient funds to operate by the FDIC agency. This is BAD, very BAD. This is how you start runs on banks because not only is there no mechanism to dissolve the bank, but another feature would allow banks to seize your money to recapitalize itself and stay in business. The bill has passed the House, but hopefully, won't pass the Senate. In another sad state of affairs, the bill would override an executive order from President Trump who now says that he will sign the bill if passed...And the Beat Goes On.