Finance

Opinion | We Aren’t Ready for a Financial Crisis

Published

2 years ago

December 21, 2022

Opinion | We Aren’t Ready for a Financial Crisis

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istock/Getty Photos

The Federal Reserve’s stability sheet is at present at about $8.6 trillion, whereas the nationwide debt is greater than $31 trillion. These are staggering quantities that may make it tough to deal efficiently with the subsequent monetary disaster. And the subsequent monetary disaster is inevitable.

Within the Seventies, financial historian

Charles Kindleberger

famous that monetary crises occur roughly as soon as each 10 years. Current expertise bears this out, with crises coming in 2009 and 2020. The subsequent monetary disaster might happen sooner on account of a brand new conflict, the bursting of an inflated asset bubble just like the one in housing, or the Fed’s efforts to battle inflation. The subsequent disaster may occur for some unexpected purpose, as with Covid.

The central-bank playbook for coping with a monetary disaster was devised within the nineteenth century by British banker

Walter Bagehot.

The principal part is to lend freely, which the U.S. authorities did in response to the pandemic in 2020. Starting with Congress’s passage of the Cares Act, the Treasury and the Fed adopted Bagehot’s prescription, infusing about $5 trillion into the economic system via 22 emergency Treasury packages and 14 direct Federal Reserve lending packages.

The financial and monetary authorities should work collectively. The Treasury funds its lending by issuing debt, and the Fed purchases that debt by printing cash. This expands the provision of cash, which is inflationary. Direct lending by the Fed additionally inflates the central financial institution’s property. By the top of 2020, when the monetary disaster had largely abated and monetary markets had been on the upswing, the Fed’s stability sheet topped $7 trillion.

Slightly than finish the emergency funding, nevertheless, the brand new Biden administration elected to proceed it in 2021 with the $1.9 trillion American Rescue Plan. The White Home wished to spend a further $3.5 trillion later that 12 months, however Congress properly stated no. By early 2022, the Fed’s stability sheet was at a traditionally unprecedented $8.9 trillion, with about $5.7 trillion in Treasury debt and about $2.7 trillion in mortgage-backed securities. The nationwide debt was greater than $30 trillion, resulting in the runaway shopper inflation we now face.

In 2008, earlier than the housing disaster, the Fed’s stability sheet was solely about $900 billion. However then the Fed started to monetize authorities bonds, together with government-guaranteed mortgage bonds. This was quantitative easing “to principally pay the federal government’s payments via cash creation,” as former Fed Chairman

Ben Bernanke

put it. That program was alleged to be non permanent, as Mr. Bernanke assured Congress in 2011, and the Fed’s stability sheet was alleged to normalize.

Nevertheless it didn’t, and stability sheet ranges rose to greater than $4 trillion in 2014 and dropped solely to $3.8 trillion in August 2019, proper earlier than the Covid disaster hit. The Fed couldn’t dump its Treasury or mortgage debt as a result of doing so would possible trigger these markets to crash. The Fed prefers to cut back its stability sheet by letting its money owed mature, resulting in sluggish declines.

When the subsequent monetary disaster arrives, the Fed’s stability sheet will nonetheless be inflated from its efforts to comprise the earlier one. There are two immutable legal guidelines of economics: Nothing is infinite and nothing is free. The U.S. is a rich nation, which allowed it to climate the Covid monetary disaster. The greenback’s standing because the world’s reserve forex signifies that international central banks maintain most of their international reserves in {dollars} within the type of Treasury debt, and the buck is the forex of selection for worldwide transactions. These elements create excessive demand for Treasury debt, however that demand isn’t infinite. The greenback additionally faces growing competitors from currencies such because the Chinese language yuan.

Because the nationwide debt will increase, demand for U.S. Treasury debt should in some unspecified time in the future diminish and rates of interest rise, leading to a crushing interest-rate burden on the U.S. economic system and elevated inflation. The Federal Reserve can also’t infinitely develop its stability sheet and the provision of cash with out inflicting hyperinflation. All of this implies that the U.S. might at some point face a monetary disaster with out enough wealth to problem huge quantities of debt and print cash. The end result could be financial melancholy or hyperinflation.

The plain reply is to cut back federal spending, thus reducing the nationwide debt and permitting the Fed’s stability sheet to run down extra shortly. Lowering total spending requires painful trade-offs between weapons and butter. Sadly, the world is a harmful place, and making a precedence of protection spending is prudent, however the Biden administration appears to really feel it may possibly nonetheless spend freely on all the things. Its $400 billion student-loan forgiveness program is one egregious instance. If the U.S. is to climate the subsequent financial crises, budgetary prudence and restraint are required immediately.

Mr. Adler served as deputy assistant Treasury secretary for the Monetary Stability Oversight Council, 2019-21. He’s co-author of “Shocked Once more! The COVID Disaster and the New Market Bubble.”

Appeared within the December 22, 2022, print version.

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Finance

US consumer finance watchdog fines payments firm Block over Cash App operations

Published

8 hours ago

January 17, 2025

Press Room

US consumer finance watchdog fines payments firm Block over Cash App operations

Block said the issues raised by the regulator were “historical” and did not “reflect the Cash App experience today” [File]
| Photo Credit: REUTERS

The Consumer Financial Protection Bureau (CFPB) on Thursday ordered payments firm Block to pay a penalty citing fraud and weak security protocols on its mobile payment service Cash App.

The regulator said Block, which is led by tech entrepreneur Jack Dorsey, directed Cash App users who experienced fraud-related losses to contact their banks for transaction reversals.

However, when the banks approached Block regarding these claims, Block denied that any fraud had occurred.

Cash App is one of the largest peer-to-peer payment platforms in the U.S. and allows consumers to send and receive electronic money transfers, accept direct deposits and use a prepaid card to make purchases.

“When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused,” said CFPB Director Rohit Chopra.

In response, Block said the issues raised by the regulator were “historical” and did not “reflect the Cash App experience today.”

“While we strongly disagree with the CFPB’s mischaracterizations, we made the decision to settle this matter in the interest of putting it behind us and focusing on what’s best for our customers and our business,” the company said.

The move is one of the final regulatory actions under the Biden administration as Washington awaits the inauguration of President-elect Donald Trump. Billionaire Elon Musk, who is slated to co-head a new government agency to slash government spending, has called for the elimination of the CFPB.

The CFPB’s order includes up to $120 million in redress to consumers and a $55 million penalty to be paid into the CFPB’s victim relief fund.

The regulator also alleged that Block deployed a range of tactics to suppress Cash App users from seeking help in order to reduce its own costs.

Block’s gross profit rose 19% to $2.25 billion in the third quarter ended Sept 30, with Cash App accounting for $1.31 billion of the total income.

On Wednesday, the company also agreed to pay $80 million to a group of 48 state financial regulators after the agencies determined the company had insufficient policies for policing Cash App.

Published – January 17, 2025 09:14 am IST

Finance

Logan Ridge Finance Corporation Schedules Fourth Quarter and Full Year 2024 Earnings Release and Conference Call

Published

15 hours ago

January 16, 2025

Press Room

Logan Ridge Finance Corporation

Call Scheduled for 11:30 am ET on Friday, March 14, 2025

NEW YORK, Jan. 16, 2025 (GLOBE NEWSWIRE) — Logan Ridge Finance Corporation (Nasdaq: LRFC) (“LRFC,” “Logan Ridge” or the “Company”) to release its financial results for the fourth quarter and full year ended December 31, 2024, on Thursday, March 13, 2025, after market close. The Company will host a conference call on Friday, March 14, 2025, at 11:30 a.m. ET to discuss these results.

By Phone: To access the call, please dial (646) 968-2525 approximately 10 minutes prior to the start of the conference call and use the conference ID 1779602.

A replay of this conference call will be available shortly after the live call through March 21, 2025.

By Webcast: A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis at https://edge.media-server.com/mmc/p/h9fj5e3y. The online archive of the webcast will be available on the Company’s website shortly after the call at www.loganridgefinance.com in the Investor Resources section under Events and Presentations.

About Logan Ridge Finance Corporation

Logan Ridge Finance Corporation (Nasdaq: LRFC) is a publicly traded, externally managed investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. Logan Ridge invests primarily in first lien loans and, to a lesser extent, second lien loans and equity securities issued by lower middle market companies. Logan Ridge Finance Corporation is externally managed by Mount Logan Management, LLC, a wholly owned subsidiary of Mount Logan Capital Inc. Both Mount Logan Management, LLC and Mount Logan Capital Inc. are affiliates of BC Partners Advisors L.P.

Logan Ridge’s filings with the Securities and Exchange Commission (the “SEC”), earnings releases, press releases and other financial, operational and governance information are available on the Company’s website at loganridgefinance.com.

Contacts:
Logan Ridge Finance Corporation
650 Madison Avenue, 3rd floor
New York, NY 10022

Brandon Satoren
Chief Financial Officer
Brandon.Satoren@bcpartners.com
(212) 891-2880

The Equity Group Inc.
Lena Cati
lcati@equityny.com
(212) 836-9611

The Equity Group Inc.
Val Ferraro
vferraro@equityny.com
(212) 836-9633

Finance

The brave new world of Open Finance

Published

23 hours ago

January 16, 2025

Press Room

Don Cardinal of Financial Data Exchange (FDX) explores how Open Finance extends beyond Open Banking, revolutionising financial data sharing.

Much ink has been spilt on the topic of Open Banking, but I wanted to take a step today into a larger world of Open Finance. Whereas Open Banking is most commonly associated with current accounts (checking, savings, credit cards), Open Finance is concerned with the totality of your financial world.

While current accounts are important in the personal financial management use case, when you look at more sophisticated needs, liability accounts like auto loans, home loans, and student loans are required to help give context to a personal balance sheet. Finally, the addition of investment and retirement accounts gives the wealth management user a full 360-degree view of the consumer’s financial health.

Additional use cases – such as account and balance verification, bill payment, and payroll needs like verification of income/employment and pay stub retrieval – along with the ability to retrieve tax forms like W2, 1098, 1099, and capital gain statements for tax preparation, round out the most common consumer demands for linking accounts.

These are all important use cases for consumers and small businesses, but it is also important to address why data providers like banks, brokers, and others would benefit from data sharing.

We know that one in three digitally-enabled consumers has shared access to their financial data in the last year and similar polls of financial institutions tell us that at least one-third (if not more) of their online banking traffic was credential-based access (screen scraping) to power these use cases.

Imagine if a data provider could reduce one-third of its entire load on its online infrastructure in favour of a portal 100 times more efficient than screen scraping. The introduction of secure APIs does just that. Lowering costs of hardware overall.

One of the other uses by data providers is data-in, to pre-fill new account applications as well as provide strong signals for Know Your Customer (KYC), including account tenure at a predecessor institution. Better data means faster, more accurate decisions leading to fewer abandons or declines, meaning more revenue for the institution.

As a banker for a number of years, one of the biggest questions we had was ‘What was our share of a given customer’s wallet?’ We often had to try to infer based on monies in and out, but with Open Finance, you can link to other institutions and know in real time what your share of wallet is. This allows you to be almost surgical in your marketing and product offering.

All this is made possible by secure, permissioned data sharing via a common API standard.

Looking forward

Avoid FUD (fear, uncertainty, and doubt). Many jurisdictions have implemented Open Banking (the UK, EU, Australia, Brazil, among others) and there has yet to be a mass exodus of consumers in any of these nations. Why? If you are confident in your product, your pricing, and your service, making data available via an API does nothing to incent consumers to leave, rather the opposite. The largest credit union in Brazil said at the FDX Spring 2024 Summit that they saw a net increase in digital engagement and accounts per customer after Open Banking was introduced.

A last bit of advice: APIs are a net new channel and will be the third leg in the digital stool. Online, Mobile, and API will be the troika. APIs are much more efficient and can deliver data that cannot be displayed visually. As you make your plans for 2025 and 2026 for your digital roadmap, you would be remiss in not including Open Finance APIs in your product mix. Your competitors are.

This editorial piece was first published in The Paypers’ Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.

About Don Cardinal

Don Cardinal is Managing Director of Financial Data Exchange (FDX) and has led it since its inception. Previously, he spent over 20 years with Bank of America, serving as head of digital for its Military Bank, VP of Digital Banking & Senior VP of Information Security. Don holds 18 US patents and CPA, CISA, CISM certificates.

About FDX

The Financial Data Exchange (FDX) is dedicated to unifying the financial industry around a common, interoperable, royalty-free standard for the secure and convenient access of permissioned consumer and business financial data: the FDX Application Programming Interface (FDX API). FDX is a global 501(c)(6) nonprofit organisation with no commercial interests operating in the US and Canada.