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Westlake Legal Group > Banking and Financial Institutions (Page 7)

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Consumer Bureau’s Complaints Database Is ‘Here to Stay,’ Director Says

Westlake Legal Group 19cfpb1-facebookJumbo Consumer Bureau’s Complaints Database Is ‘Here to Stay,’ Director Says Mulvaney, Mick Kraninger, Kathy Consumer Protection Consumer Financial Protection Bureau Banking and Financial Institutions

The Consumer Financial Protection Bureau will continue to publish its database of consumer complaints about financial companies, ending — for now — a battle over public access to one of the agency’s most powerful tools.

“The database is here to stay,” Kathleen Kraninger, the bureau’s director, said Wednesday at a consumer conference in Rosemont, Ill., outside Chicago.

Since 2011, the bureau has maintained an open and searchable record of more than one million consumer accusations of inaccurate bills, illegal fees, improper overdraft charges, mistakes on loans and a long list of other issues. Companies have complained that the database unfairly harms their reputations by spreading unverified negative information, but consumer advocates say it’s a vital tool for spotting problems and patterns of bad conduct.

Consumer groups had worried that the database — which contains information the bureau is legally required to collect — could be made private as the bureau shifted in a business-friendly direction under President Trump, who has pushed to reduce government regulation.

Mick Mulvaney, Mr. Trump’s acting chief of staff, who ran the bureau temporarily, suggested shielding the complaints data from public view. He told a banking conference last year, “I don’t see anything in here that says I have to run a Yelp for financial services sponsored by the federal government.”

When Mr. Mulvaney initiated a public call for feedback on the bureau’s complaint process, more than 26,000 people, companies and advocacy groups responded. Ms. Kraninger called that outpouring of comments “staggering” and persuasive.

Ms. Kraninger said that the database would remain public and that the bureau would add new features to help consumers contact companies and research answers to common questions. The bureau will also release data visualization and analysis tools to help people interpret the data in context.

“These are the kind of tools that our researchers already use internally, and I think making them available to the public will greatly improve the functionality of the database,” she said.

In a rare moment of alignment, industry trade groups and consumer advocacy organizations were cautiously optimistic about Ms. Kraninger’s announcement.

“I’m gratified that the complaint narratives will remain public and hope that the C.F.P.B. will continue to encourage consumers to submit complaints when they face problems,” said Lauren Saunders, associate director of the National Consumer Law Center.

The U.S. Chamber of Commerce called Ms. Kraninger’s plans “a step in the right direction.” Richard Hunt, the chief executive of the Consumer Bankers Association, said the changes Ms. Kraninger outlined would help make the bureau’s complaints system fairer.

While consumer advocates were heartened by the preservation of the public database on Wednesday, they were lining up to criticize another decision Ms. Kraninger made this week. On Tuesday, she flipped the bureau’s position in a court fight about its independence, joining critics who say its leadership structure is unconstitutional.

The legislation that created the consumer bureau contained a provision saying that the bureau’s director could be removed only for cause, defined as “inefficiency, neglect of duty or malfeasance.” That provision has been repeatedly challenged in court by adversaries who have said it gives the bureau’s director too much unchecked power — a position the Justice Department took early in Mr. Trump’s presidency.

The bureau had resisted, maintaining that its structure was legally permissible — until this week. Consumer groups including the National Consumer Law Center and Public Citizen criticized Ms. Kraninger’s reversal, saying it undermined Congress’s ability to create independent agencies.

In her speech on Wednesday, Ms. Kraninger urged the Supreme Court to take up a case involving Seila Law, a California firm that has asked the court to hear its challenge to the agency’s structure, including the terms of the director position.

“My decision to no longer defend the removal provision does not mean that the bureau will stop its work,” she said. “We will continue to defend the actions that the bureau takes now and has taken in the past.”

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The Fed Is Poised to Cut Rates Again. Here’s What to Watch.

Westlake Legal Group 18dc-fedpreview2-facebookJumbo The Fed Is Poised to Cut Rates Again. Here’s What to Watch. United States Politics and Government United States Economy Powell, Jerome H Interest Rates Federal Reserve System Federal Open Market Committee Banking and Financial Institutions

WASHINGTON — Federal Reserve officials are expected to cut interest rates for a second time on Wednesday, a move that could prove divisive among Fed officials and aggravate President Trump’s anger toward the central bank.

The Fed’s rate decision, which will be announced at 2 p.m. in Washington, will be accompanied by a fresh set of quarterly economic projections and followed by a news conference at 2:30 p.m. with the chair Jerome H. Powell.

That means markets will have plenty of information to digest as they try to game out what comes next for the Fed, which lowered its policy interest rate by a quarter point for the first time in more than a decade in July as officials tried to protect the economy against uncertainty created by Mr. Trump’s trade war and a global economic slowdown.

Mr. Trump has been pushing for an extensive cut, one that leaves rates at or below zero, but investors anticipate another quarter-point move — setting rates in a range of 1.75 to 2 percent. Here’s what else to watch out for.

The Fed will release an updated version of its postmeeting statement Wednesday, and economists are looking for any changes to the language that could provide clues about whether officials are becoming more or less concerned with the economic outlook.

Perhaps more crucially, the Fed’s 17 participants will publish new economic projections at this meeting, giving an updated snapshot of where the group believes growth is headed and whether officials believe the Fed might need to provide additional support.

“The most important question” coming out of this meeting, according to Goldman Sachs economists, “is how many participants will project additional rate cuts.”

The last set of Fed funds rate projections — commonly referred to as the “dot plot” because it depicts rate expectations as blue dots on a graph-paper background — showed that as of June, not one policymaker expected more than two rate cuts by the end of 2019.

But risks have mounted since then, putting the Fed under increasing pressure to help keep America’s record-long economic expansion going.

Mr. Trump ramped up his trade war with China immediately after the Fed’s rate cut in July.

While China and the United States plan to resume talks next month, a resolution is hardly assured and the global economy continues to wobble. Manufacturing data has been deteriorating globally, job growth in the United States is decent but moderating, Britain’s smooth exit from the European Union is still a question mark and airstrikes on Saudi oil facilities could heighten geopolitical tensions.

Will it be enough to tip some officials in favor of future rate cuts? Probably, based on their public remarks. James Bullard, the president of the Federal Reserve Bank of St. Louis, suggested in a recent interview with Reuters that he would favor a half-point rate cut — the equivalent of a third cut, for dot-plot purposes.

But not everyone is expected to agree with even a moderate cut. Esther George and Eric Rosengren, who are also voting members of the rate-setting Federal Open Market Committee, have been less enthusiastic about getting ahead of risks before they turn into economic reality. They dissented against the July rate cut and could do so again at this meeting.

When it comes to the data, things actually look pretty good. At 3.7 percent, unemployment is hovering near a 50-year low. Overall growth has held up, and consumers are still spending strongly, though the University of Michigan survey suggests that they are becoming less confident as the trade war spooks many.

Inflation is still stuck below the Fed’s target of 2 percent — as it has almost been pretty regularly since the central bank formally adopted that goal in 2012 — but it has been showing signs of creeping back up.

The Fed will release new projections for growth, joblessness and price gains through 2022, and those could offer insight into what officials are expecting. They previously forecast that the unemployment and inflation rates would climb slightly in the coming years while growth moderated.

Perhaps the biggest wild card at this meeting is Mr. Powell’s news conference. The Fed chair roiled markets after the July meeting because investors interpreted his statement that the Fed’s rate cut was a “mid-cycle adjustment” as a sign that the central bank did not plan to aggressively cut borrowing costs.

Mr. Powell has little to gain by making definitive promises: Trade policies are one of the major risks on the horizon, and they have the potential to change quickly. The Fed could face very different conditions by its Oct. 29-30 meeting, which comes after United States and Chinese officials are scheduled to meet.

“We think Powell will steer clear from the phrase mid-cycle adjustment that caused waves in July, favoring instead an open-minded recalibration of rates,” economists at Evercore ISI wrote in a research note previewing the meeting.

Whatever Mr. Powell says seems likely to draw a reaction from the White House. While Mr. Trump has no ability to directly influence Fed policy — the central bank is insulated from politics and answers to Congress, not the White House — he has made a habit of weighing in on its decisions.

Mr. Trump has ramped up his attacks on Twitter in recent months, figuratively calling Mr. Powell a bad golfer, labeling him an enemy and saying that he and his colleagues are “boneheads.” He has even suggested that the Fed should adopt negative rates, a policy intact in the eurozone and Japan, which have very low inflation and more fragile economies.

You might also hear the phrase “standing repo facility” bandied about around 2 p.m.

A little background: There has been some turmoil in the money markets this week as a corporate tax due date and Treasury bond issuance combined to fuel a cash shortage. That creates problems for the Fed — it makes it harder for it to keep its policy rate under control, and risks tightening financial conditions in ways that slow down borrowing and spending.

As a result, some economists believe the Fed will discuss ways to keep those markets chugging along smoothly — while also steadying the Fed funds rate — at their meeting. Analysts think options might include a technical tweak to the Fed’s rate-setting tool, a resumption of bond-buying that will keep the Fed’s balance sheet growing alongside the economy to guard against future cash crunches in money markets, and a standing repo facility.

“Repo” is short for Treasury repurchase agreements, short-term loans taken out overnight by financial institutions like hedge funds and banks. The “standing facility” refers to a regular Fed program that allows banks to convert Treasury securities into reserves — money holdings at the central bank — on demand, at a rate the Fed sets.

In theory, such a tool would keep reserves, which banks sometimes prefer to hold for regulatory reasons, from becoming scarce. That would help money markets function better at times of stress, because banks would be less likely to hoard their reserves. As a result, it would keep the Fed from having to step in to cool things down. The central bank had to do so twice this week, a first since the financial crisis.

It is not clear whether the Fed is going to make any big changes at this meeting. Its officials tend to be a contemplative bunch, and they have not foreshadowed a shake-up. But market conditions could drive the institution’s hand, so it is worth watching for moves in that direction.

“I had been skeptical that they were going to introduce a standing repo facility — I think now the probability on that has gone up,” said Seth Carpenter, chief United States economist at UBS.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

FRANKFURT — The European Central Bank took unexpectedly aggressive steps on Thursday to head off a downturn before it gained momentum, but the bank signaled that it was reaching the limits of what it could do to stimulate the eurozone economy.

The central bank cut a key interest rate and revived a money-printing program, but later issued an unusually strong call for eurozone governments to do more of the economic heavy lifting.

Those countries that can afford it should stimulate growth by increasing public spending, Mario Draghi, the central bank president, said during a news conference.

Asked whether the message to political leaders was that they can’t expect the central bank to come to their rescue forever, Mr. Draghi answered: “Definitely yes.”

Mr. Draghi’s call for government action, which he said had the unanimous support of the bank’s 25-member Governing Council, was also an expression of unity with his soon-to-be-successor, Christine Lagarde. Ms. Lagarde, who will become the European Central Bank’s president in November, issued a similar plea when she spoke to members of the European Parliament last week.

For much of the last decade, the European Central Bank has prevented the eurozone economy from collapsing with an array of sometimes unprecedented crisis measures. But economic growth has almost stalled, and there is a growing consensus among analysts that wealthier countries like Germany or the Netherlands need to pump money into their economies, and by extension the rest of the eurozone, with tax cuts or public works projects.

Central banks are “not the only game in town,” Ms. Lagarde said at the European Parliament last week.

Read more: Central banks around the world are cutting rates to fend off recession.

The measures that the European Central Bank announced Thursday go beyond what many analysts were expecting. Recent comments by members of the Governing Council had cast doubt on whether the bank would restart purchases of government and corporate bonds. It has been only nine months since the bank ended a previous bond-buying program, an initiative that started in the midst of the financial crisis.

The bank will buy 20 billion euros’ worth of bonds, or $22 billion, every month starting in November, a form of money printing intended to inject money into the system and hold down interest rates.

In a bid to increase lending, the bank also pushed even lower the so-called negative interest rate it imposes on commercial banks that hoard cash.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a negative rate — essentially, a charge — on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent. It was the first cut in interest rates since 2016.

The deposit rate is one of the few remaining levers the bank can use to push down market interest rates. Its benchmark interest rate, the rate at which it lends to banks, is already at zero and cannot go any lower.

The move was symptomatic of the upside-down world of modern finance, in which interest rates are so low that insurance companies and other investors must pay governments and even some corporations to keep their money safe.

The central bank acknowledged Thursday that negative interest rates have some unwanted side effects and took steps to ease the pain. Some bank holdings will be exempt from the penalty, a practice known as tiering.

Despite Mr. Draghi’s plea for governments to do more, the idea of debt-financed spending, even on such favorable terms, is politically touchy in Germany. Germans are proud of their balanced budgets, and a constitutional amendment effectively forbids deficit spending.

ImageWestlake Legal Group merlin_160661526_6442e930-0759-41b6-83cb-6ca02a20d88d-articleLarge E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

Mario Draghi, the European Central Bank president, at a news conference after the meeting of the Governing Council in Frankfurt on Thursday.CreditRalph Orlowski/Reuters

With Germany on the brink of recession, weighed down by slumping exports caused by the United States-China trade war, some domestic leaders have begun to question that orthodoxy. “We should think about whether a break-even budget is the right path,” Wolfgang Tiefensee, economics minister of the state of Thuringia, said in an interview last month.

“We should use increased tax receipts to invest in infrastructure — bridges, streets, railways, broadband,” he said, “everywhere there is an urgent need to catch up.”

“Many people share this view,” Mr. Tiefensee added, “but not yet a majority.”

The European Central Bank also exceeded expectations by making an open-ended commitment to keep interest rates low, and sweetening a program that encourages banks to lend money to consumers and businesses.

The bank said it would not begin raising interest rates “until it has seen the inflation outlook robustly converge to a level” below but close to 2 percent, the official target. The annual rate of inflation in August was only half that much. The open-ended commitment was in contrast to previous statements when the bank outlined a specific time frame.

Further, the bank said it would ease the terms of a program that allows banks to borrow money on favorable terms, provided they lend it to customers. The loans will be extended to three years from two, and for banks that meet certain benchmarks the interest rate will be negative. In other words, banks won’t pay any interest and won’t have to repay all of the money they borrowed.

President Trump, who has been pressing the Federal Reserve to cut its benchmark rate, responded to Thursday’s move by needling his own central bank. The European bank, he said, is “trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting U.S. exports … And the Fed sits, and sits, and sits.”

President Trump wants negative interest rates. Here’s how that would work.

The euro slipped against the dollar on Thursday, but Mr. Draghi rejected the idea that currency manipulation was behind the bank’s action.

“We have a mandate, we pursue price stability, and we don’t target exchange rates, period,” he said.

Some prominent economists say that it’s time for the European Central Bank to get more creative. The bank’s balance sheet already includes €2.6 trillion, or about $2.9 trillion, in government and corporate bonds. They were bought with newly created euros to inject money into the financial system and push down interest rates.

Analysts say that the bank has limited scope to buy more government bonds because it already owns such a big chunk of the market.

“As I see it, he has only about €60 billion of sovereigns he can buy,” Carl Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y., said in an email. “That does not support sovereign bond purchases lasting for very long.”

Some economists have begun urging the bank to consider printing money and distributing it directly to citizens.

Among them is Stanley Fischer, former vice chairman of the Fed and Mr. Draghi’s thesis adviser when he was a doctoral student at M.I.T. Mr. Fischer was among the authors of a report published last month by the fund manager BlackRock.

“An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough,” the report said.

“That response will likely involve ‘going direct,’” the report said. “Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be highly contentious. “Giving money to people in whatever form, it’s a fiscal policy task,” Mr. Draghi said Thursday. “It’s not a monetary policy task.”

He added, though, that Ms. Lagarde might reconsider the issue.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero

Westlake Legal Group 11DC-TRUMPFED-facebookJumbo Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero United States Politics and Government United States Economy Trump, Donald J Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Europe Banking and Financial Institutions

WASHINGTON — President Trump urged the Federal Reserve to cut interest rates below zero, suggesting a last-ditch monetary policy tactic tested abroad but never in America.

His comments came just one day before European policymakers are widely expected to cut a key rate further into negative territory.

In a series of tweets, Mr. Trump said that “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt,” adding that “the USA should always be paying the the lowest rate.”

Mr. Trump continued to criticize his handpicked Fed chair, Jerome H. Powell, saying “it is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

He concluded by calling Mr. Powell, whom he nominated to head the central bank in 2017, and his colleagues “Boneheads.”

Mr. Trump’s request is extraordinary for several reasons. The United States economy is still growing solidly and consumers are spending strongly, making this an unusual time to push for monetary accommodation, particularly negative rates, a policy that the Fed debated but passed up even in the depths of the Great Recession. It is also typical for countries with comparatively strong economies to pay higher interest rates, not the “lowest” ones.

Negative rates, which have been used in economies including Japan, Switzerland and the Eurozone, mean that savers are penalized and borrowers rewarded: Their goal is to reduce borrowing costs for households and companies to encourage spending. But they come at a cost, curbing bank profitability.

While it’s unclear how effective they have been as a policy tool — some research suggests negative rates could curtail lending — they are increasingly a reality in much of the world as central banks rush to support economic growth and investors look for safe assets.

The timing of Mr. Trump’s tweet is also significant. The European Central Bank is expected to cut a key interest rate to a record-low negative 0.5 percent and roll out additional stimulus measures at its meeting on Thursday, in a bid to shore up very-low inflation and waning growth in important economies like Germany. Central banks around the world have been lowering their policy rates, partly because Mr. Trump’s trade war is combining with Brexit jitters and a global manufacturing slowdown to threaten growth in many nations.

The American president has commented on foreign central bank rate moves before, tweeting in June that “they have been getting away with this for years,” when Mario Draghi, who heads the European Central Bank, indicated that officials might provide additional stimulus to shore up the eurozone economy.

The Fed itself has already cut rates for the first time in more than a decade in July and is poised to lower borrowing costs further as risks to economic growth loom. Mr. Powell and his colleagues lowered interest rates to a range of 2 percent to 2.25 percent at their July meeting, and they are widely expected to cut by another quarter of a percentage point at their meeting next Tuesday and Wednesday in Washington.

“The Fed has, through the course of the year, seen fit to lower the expected path of interest rates,” Mr. Powell said in a speech last week, adding “that’s one of the reasons why the outlook is still a favorable one, despite these crosswinds we’ve been facing.”

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China Injects $126 Billion Into Its Slowing Economy

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BEIJING — Beijing has called on banks to open the lending spigots as China’s trade war with the United States rages and its economic slowdown shows little sign of abating.

The People’s Bank of China on Friday lowered the amount of cash that Chinese banks are required to hold in their coffers, freeing up $126 billion to flow into the financial system at an important time politically and economically.

The move indicates that China is willing to ease back some from its broad campaign to rein in excessive borrowing. Years of debt-fueled growth has led to bubbles in the financial system and created worries about hidden bombs deep within the country’s financial system.

By calling on banks to lend more to companies and debt-laden local governments, it is hoping to incite growth. Many businesses are finding it harder to keep their doors open, unemployment is creeping up and families are shouldering higher daily costs.

Still, the move was relatively modest by comparison with the size of the Chinese economy. Meanwhile, a yearlong trade war with the United States has worsened China’s economic predicament.

A growing number of economists have lowered their expectations for economic growth next year as the trade war shows no sign of ending.

“Policymaking in China’s case tends to be behind the curve, which means that in an ideal world the government should do more to support the economy. These policy measures are too mild and too little to stop the slowdown,” said Larry Hu, the chief China economist at Macquarie Group.

Mr. Hu said he plans to revise down his expectations for growth in 2020 from an original estimate of 6 percent to lower than 6 percent. Wang Tao, an economist at the Swiss bank UBS, said she expected growth to slow to 5.5 percent next year.

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Trump Moves to Send Mortgage Giants Back to Private Sector

Westlake Legal Group defaultPromoCrop Trump Moves to Send Mortgage Giants Back to Private Sector United States Politics and Government Real Estate and Housing (Residential) Mortgages Federal National Mortgage Assn (Fannie Mae) Federal Home Loan Mortgage Corp (Freddie Mac) Banking and Financial Institutions Affordable Housing

WASHINGTON — The Trump administration on Thursday unveiled a long-awaited plan to end federal control of two mortgage giants that were bailed out by taxpayers during the 2008 financial crisis and return them to the private sector.

The administration’s 49 recommendations to overhaul America’s housing finance system are unlikely to find an eager audience in Congress, which has been deeply divided on the issue and is now consumed with other fights in the run-up to the 2020 elections.

But the proposal could accelerate the administration’s attempts to privatize the mortgage giants, Fannie Mae and Freddie Mac, which collectively backstop a little less than half of the nation’s $11 trillion mortgage market.

The plan — released by the Treasury and Housing and Urban Development Department — was ordered up by President Trump in the spring, more than a decade after the government took over the mortgage giants at the height of the financial crisis. It includes recommendations meant to limit the federal government’s role in the mortgage market and inject more private competition into it. Officials say it would promote affordable housing and protect taxpayers from bailing out Fannie and Freddie in the event of another housing crash.

But releasing Fannie Mae and Freddie Mac from their federal embrace has proved politically difficult, because the entities effectively subsidize the 30-year fixed-rate mortgages that are most popular among American home buyers. Affordable housing advocates have warned that returning the firms to the private market could threaten those mortgages or make them more expensive and more difficult to obtain for low-income home buyers.

“The administration says it is trying to save taxpayers from the risk of another future catastrophic meltdown, but it is essentially turning the system over to Wall Street,” said Nikitra Bailey, executive vice president of the Center for Responsible Lending.

In a nod to those concerns, administration officials insisted in a Thursday briefing with reporters that their plans would create more competition in housing finance and would reduce costs for borrowers, not raise them.

While officials said the 30-year mortgage would be protected, the report suggested that such long-term mortgages could remain widely available without government support, or that “the United States could perhaps follow the lead of other countries” and shift toward other types of mortgages, like ones with variable rates.

The report went on to say that “stability in the housing finance system is crucial, and generally counsels in favor of preserving what works in the current system, including the longstanding support of the 30-year fixed-rate mortgage loan.”

Despite talk of privatized mortgage markets, the report said the government should provide a full, taxpayer-backed guarantee of mortgage-backed securities — and called on Congress to create one.

Critics say such a move would allow investors to take risks in the mortgage market and reap rewards, but leave taxpayers on the hook in the event of another housing crash. Such a scenario is what helped fell Fannie Mae and Freddie Mac in 2008.

How the plan’s goals would be met remain vague — for example, the proposal offered options for Fannie Mae and Freddie Mac to raise the capital they would need to go private, such as engaging in a stock offering, but it did not specify which options the administration prefers. Many are recommendations for congressional action that are unlikely to be enacted anytime soon.

Several are likely to draw condemnation from housing advocacy groups. Those include overhauling federal affordable housing requirements and setting new restrictions that appear to be meant to discourage the companies from investing as heavily in mortgages for apartment buildings in areas, such as New York, that have adopted rent-control laws, which the administration says impede housing development.

Administration officials say it is long past time to rebuild Fannie and Freddie’s capital reserves and release them from federal conservatorship, reducing the risk that taxpayers would be forced to bail out the mortgage market if another housing crisis led to a wave of foreclosures. Privatization could bring a windfall for hedge funds and other investors that bought Fannie Mae and Freddie Mac stock after the crisis for pennies, then pushed the administration to hasten the process.

“The housing finance system is in serious need of reform,” the report declared, noting that after 10 years in government conservatorship, Fannie Mae and Freddie Mac “continue to be the dominant participants in the housing finance system. Although they remain critical to the functioning of that system, they are not yet subject to capital and other regulatory requirements tailored to the risks they pose to financial stability. This lack of reform has left taxpayers exposed to future bailouts.”

Recommendations that require congressional action could disappoint some investors, who had hoped the Trump administration would move quickly to boost the companies’ financial cushion, then quickly sell the government’s stakes in them. Treasury Secretary Steven Mnuchin, who has long advocated removing Fannie Mae and Freddie Mac from government control, has also said that he believes that they should be restructured in the context of broader housing finance legislation.

The proposal kicks other key decisions to the Federal Housing Finance Agency, an independent regulator headed by a longtime champion of free-market competition in home lending, Mark Calabria.

Mr. Calabria has said repeatedly that he has the authority to start the process of returning Fannie Mae and Freddie Mac to private hands without Congress. In a recent interview, he said he expected to take steps this fall to allow the firms to begin building cash reserves by Jan. 1.

Currently, the entities are required to send all profits to Treasury, above a certain capital limit. Mr. Calabria said he expected that practice to end shortly, though the report did not explicitly call for that. He also said the process of returning Fannie Mae and Freddie Mac to private hands, including raising money from a possible stock offering, could take years.

“There’s a lot of things you need to exit,” he said. “You can’t just do those things over a weekend.”

Any proposal by the Trump administration to make major changes to housing finance laws will likely be met with deep skepticism from groups that have been critical of its effort to scale back government regulations meant to reduce racial, ethnic and income segregation in federally subsidized housing and development projects.

Ms. Bailey of the Center for Responsible Lending said that she feared the Trump administration’s plan would drive up the cost of mortgages for all borrowers. She said this would be particularly painful for rural residents, low- and moderate-income families and communities of color that are already struggling to find affordable housing.

Ms. Bailey said that higher mortgage costs could disrupt the housing market and the broader economy and that the administration should not forget the lessons of the financial crisis.

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The Trump Secrets Hiding Inside Deutsche Bank

Deutsche Bank’s disclosure on Tuesday that it has tax returns related to President Trump’s family or business set off a frenzy of speculation about what those materials might reveal.

But a trove of other data and documents that his longtime lender is sitting on might prove more revelatory to investigators digging into Mr. Trump’s finances. That includes records of how Mr. Trump made his money, whom he has partnered with, the terms of his extensive borrowings and what transactions he has engaged in with Russians or other foreign nationals.

For nearly two decades, Deutsche Bank was the only mainstream financial institution consistently willing to do business with Mr. Trump, who had a long record of defaulting on loans. The bank over the years collected reams of his personal and corporate information.

Two congressional committees have subpoenaed Deutsche Bank for a vast array of records related to Mr. Trump — including any tax returns since 2010. The investigators are hoping the materials will shed light not only on the president’s finances but also on any links he has had to foreign governments and whether he or his companies were involved in any illegal activity, such as money laundering for people overseas.

Here is what might be lurking in Deutsche Bank’s electronic vaults about the president, his family and his businesses.

After the two House committees subpoenaed the bank, Mr. Trump sued to block it from complying. The case is pending with a federal appeals court.

In a court filing on Tuesday, Deutsche Bank confirmed that it has at least some of the tax returns that were demanded by the congressional committees. The filing didn’t disclose whose tax returns the bank possesses, or for what years, but current and former bank officials have told The New York Times that Deutsche Bank has the first several pages of Mr. Trump’s returns for multiple years.

Beyond that, congressional investigators are seeking dozens of other items (the list on the subpoena is six pages of single-spaced type). The request would cover most, if not all, of the extensive documentation Deutsche Bank has amassed about Mr. Trump’s businesses and personal finances. That includes information about his corporate balance sheet, his income from various assets and documents that map out how his businesses are set up.

While Deutsche Bank has been lending to Mr. Trump since 1998, the most detailed information would cover the period since 2011, when the company’s private-banking division struck up a relationship with the future president and his family.

For a president who has kept his business affairs largely hidden from public view, the materials would together provide the most complete picture yet of Mr. Trump’s finances.

Mr. Trump broke with decades of precedent in refusing to release his federal tax returns, and for more than three years Democrats and journalists have been trying to get their hands on them.

The summary pages of the returns alone would not illuminate Mr. Trump’s income sources or his business partners. On the other hand, the tax-return summaries likely would show whether Mr. Trump has paid any taxes in recent years. (We already know that Mr. Trump for years may have avoided paying federal income taxes.)

But the tax documents, coupled with the other financial materials that the bank has, would likely fill in some of the gaps about the true extent of Mr. Trump’s fortune, which he has described as being in the billions of dollars.

In addition, materials that the congressional committees have subpoenaed — including anything relating to the due diligence the bank conducted before agreeing to lend him money — could contain new information about where and with whom Mr. Trump, his companies and his family have been earning money.

ImageWestlake Legal Group merlin_157663029_aefa3f70-0268-4ea7-9c8f-27e783a55478-articleLarge The Trump Secrets Hiding Inside Deutsche Bank Trump, Donald J Trump Tax Returns Russian Interference in 2016 US Elections and Ties to Trump Associates Deutsche Bank AG Banking and Financial Institutions

Deutsche Bank has confirmed that it has at least some of President Trump’s tax returns that were demanded by the congressional committees.CreditJeenah Moon for The New York Times

Since before Mr. Trump was elected president, critics of the president have speculated that Russian companies or individuals were secretly providing him with financial assistance, possibly via Deutsche Bank.

It isn’t hard to understand how such speculation got started. Deutsche Bank has a long history of operating in Russia, working with Kremlin-linked companies and laundering money for wealthy Russians.

Mr. Trump has a history in Russia. He once staged the Miss Universe pageant there, and he also sold a mansion to a Russian billionaire for $95 million. During the 2016 campaign, Mr. Trump’s company was looking to build a tower in Moscow — with the help of a Russian bank, VTB, that has long-running ties to Deutsche Bank.

And, of course, Russia interfered in the presidential election, seeking to tilt it in Mr. Trump’s favor.

So far, though, no evidence has emerged that shows Deutsche Bank’s extensive lending to Mr. Trump — a total of well over $2.5 billion worth since 1998 — was connected to the Russian government, companies or individuals.

Numerous current and former Deutsche Bank executives, including those with direct knowledge of the loans, have said the loans made since 2011 were financially attractive to the bank because Mr. Trump agreed to personally guarantee much of them — in other words, if he were to default, Deutsche Bank would be able to seize his personal assets, including tens of millions of dollars that he kept in accounts at the bank.

Still, Deutsche Bank’s internal files will most likely contain additional information about at least some dealings with Russia — although not necessarily involving Mr. Trump himself.

Congressional investigators subpoenaed any materials about suspicious activity that the bank detected in the accounts of Mr. Trump, his company or his family members, including Jared Kushner, Mr. Trump’s son-in-law and adviser. In 2016, Tammy McFadden, a former anti-money-laundering compliance officer at the bank, flagged transactions connected to Mr. Kushner as potentially suspicious.

Those transactions involved money flowing to Russian individuals, and Deutsche Bank’s files almost certainly include more information.

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