Change Keeping Global Banks On Their Toes

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Some of the world’s largest banks were met with big change in recent days. Demonetization in India has financial institutions operating at full speed to exchange out discontinued bank notes but with some unexpectedly pleasant consequences. U.S. banks, meanwhile, have risen in financial stability regulators’ ranks for how much of a risk they pose to the global financial system should they fail. Plus, the latest developments on Wells Fargo and what its scandal means for its market peers. We dive into the latest banking news from around the world.

 

$30 billion in overdraft bank loans have been provided to large U.K. corporates over the last five years, a 25 percent increase between 2011 and 2016, according to alternative lender Funding Options. The company’s CEO, Conrad Ford, highlighted the data against that of bank overdraft loans to SMEs, which decreased by 37 percent during the same five-year period. Ford said the decline in bank overdraft lending to small businesses means these companies cannot invest in themselves. And with the holiday season here, these companies often need overdraft loans to manage irregular cash flows, the executive added. “As banks concentrate on providing overdrafts to large businesses, SMEs have to look elsewhere to support their short-term funding needs,” he wrote.

$190 million in settlements, 2 million fraudulent accounts opened and 5,300 fired employees later, Wells Fargo is reportedly looking to settle out of court to put this fiasco behind it. The U.S. Office of the Comptroller of the Currency, meanwhile, is exploring revised sanctions guidelines against banks in the wake of the Wells Fargo case. Reports last week said a memo from the office is exploring whether it should be more stringent in exempting banks from having regulators screening new executives in leadership roles and other similar measures. Instead, the office is suggesting that these sanctions be waived on a case-by-case basis after a thorough review conducted by the OCC itself. Wells was granted some of these exemptions by the office, and reports said Bank of America and Citibank have previously seen the same in sanctions leniency.

30 banks worldwide have made the Financial Stability Board’s shortlist of being systemically important to the global financial system. The latest shortlist was released last week, and three of the U.S.’s largest banks have made the ranks: Citigroup, Bank of America and Wells Fargo. The Industrial and Commercial Bank of China is also in the rankings. Meanwhile, the FSB said Barclays, HSBC and Morgan Stanley have all moved down the list of banks that pose a risk to global financial stability compared to their rankings last year. The list of 30 financial institutions ranks banks according to the level of risk they pose to the global economy should they fail, with riskier banks subjected to greater capital requirements.

36 members of R3 are eyeing a $59M investment in the blockchain consortium, but it may not be cause for celebration: It’s less than half of what R3 had hoped to raise. An unnamed source told reporters late last week that R3 wants to raise $150 million from members and strategic investors, a decline from its original $200 million target. The original 42 members of R3 were invited to participate in the investment, as well as about 30 other banks R3 works with, reports said. The source said the 36 banks have shown interest in providing between $1 million and $3.5 million each. In addition to the lackluster investment interest, R3 has also seen its membership numbers dwindling. Last week, reports emerged that Goldman Sachs, Morgan Stanley, Banco Santander and National Bank of Australia have all opted out of the investment activity and are slated to leave R3 altogether.

32 days left for India to trade in old Rs 1,000 and Rs 500 notes at the banks, and that’s led to many SMEs paying off old bank debts in cash, reports said. “We are seeing that people are willing to pay in cash to repay old loans,” said one executive at Axis Bank. “We have seen repayments in agriculture and our small business group.” Indian banks expect SMEs to increase their loan repayments in cash towards the end of December when the trade-in deadline approaches. In many cases, reports said, SMEs have surplus cash in these higher-value notes that will soon be rendered useless and are taking the opportunity to offload those notes to repay bank loans.