Posts filed under ‘General’
I don’t know whether to be more confident about the fate of mankind or even more scared for my daughters this morning.
OK maybe that is a little melodramatic, but think about it. Yesterday, it was announced that more than a thousand scientists from around the world worked together and were able to detect a gravitational shimmer in the fabric of the universe caused by the collision of two black holes more than a billion light years away.
In contrast, the limits of the dismal science euphemistically described as economics were on display as Janet Yellen explained that the economic outlook is a lot more uncertain that it was just a little more than a month ago when the Fed raised interest rates for the first time in almost a decade. What’s more, Yellen reported that the Fed has studied the feasibility of implementing negative interest rates in the event the economy tanks.
Central banks are so desperate to spur banks to put more money in the economy that some have actually started charging banks that place their deposits with them. The logic is that if banks have to choose between losing money and lending it out they will lend it out. Japan has taken this approach as has the European Central bank, the Danes, the Swiss and, just this past week, the Swedes.
All very interesting, you’re thinking, but how does this impact me? Well, most importantly, if the economy does get so bad that negative interest rates become a real policy consideration, it would be an absolute disaster for credit unions and community banks, for that matter. As the Economist pointed out this past week, negative interest rates are particularly dangerous for mutual institutions. First, they are more dependent on deposits to fuel their growth and are less likely to pass on the increased cost of storing their funds to consumers. Furthermore, with mortgage rates unlikely to substantially rise any time soon, credit unions and banks would see a margin squeeze of potentially unprecedented proportions.
Now, I am not suggesting that anyone panic. Yellen made it quite clear that negative interest rates will probably never be introduced, but the mere fact that she was unwilling to take them off the table shows how precarious the economy is right now. It isn’t too early to start making it clear to the Fed in no uncertain terms that a policy so damaging to credit unions that it would put many of them into their own personal black hole should never be seriously considered.
Yesterday, Governor Cuomo wrote a strongly worded letter urging the Justice Department to block the acquisition of First Niagara by Key Bank arguing that the merger would cost thousands of jobs and leave consumers no alternative but to seek out high cost alternative lenders.
On October 30th Key announced an agreement to acquire First Niagara. According to the Albany Business review, First Niagara and Key employ approximately 2,000 workers in the Albany area. Crucially, from the Governor’s perspective, about 30 percent of the banks’ branches overlap so there will be branch closings and job cuts.
“The consolidation is expected to result in thousands of lost jobs at the corporate and branch levels, with little hope these individuals will find alternative work in the retail banking field due to the oversaturated market conditions. In addition, to the loss of jobs in local communities, consumers will face further limitations on branch access. As it stands, tens of thousands of Buffalo area residents do not have access to reliable bank deposit services. Eliminating branches will only exacerbate the existing problem.” [from the Governor’s letter, reprinted by the Review].
In addition, the loss of banking services “will likely push consumers to rely on non-bank alternatives, such as payday loans and check-cashing, which come with higher consumer transaction costs.”
I can’t help but think about the fact that even as dynamics within the industry understandably push banks like Key push to further consolidate the financial services industry, the Banking industry is strenuously objecting to NCUA’s proposed Field Of Membership regulations. By giving community credit unions greater flexibility to expand to areas in and around Core Based Statistical Areas, and making sure that proper classifications are made when analyzing whether areas are underserved by other financial institutions, the FOM regulations would help areas like Buffalo and Niagara that were already in need of more banking options even before this acquisition was announced.
I have no way of knowing if the DOJ will block this merger, but I do know that Consolidation is inevitable and FOM reform could help consumers impacted by this trend.
I love it when people send me emails or comments on my blog because there are many times as I sit here and comment on the news that I feel as if I am living in a parallel universe.
Case in point is the announcement that the Federal Reserve Past Payments Task Force has agreed on the criteria that will be used to “assess faster payments solutions.” It is the Fed’s hope that the 36 effectiveness criteria identified by the 320 member task force will act as a guide for innovation in the payments industry. The criteria are grouped into six broad categories addressing the ubiquity, efficiency, safety and security, speed, legal and governance of a faster payments system. Each one of these criteria comes complete with a further explanation of individual criteria.
Can someone say paralysis by analysis? Don’t get me wrong. I have been pointing out for a while that the laws and regulations surrounding the payment system are woefully outdated and growing more so by the day. But, this is an issue that requires swift and decisive leadership. In contrast the Federal Reserve is acting as if it can methodically develop a payment system that will be adopted by the industry as a whole.
In fact, the modern payment system is evolving organically and regulators can only hope to influence its development if they stop pretending like they have years to come up with perfect solutions. For example, our existing regulations don’t address viability for peer to peer lending. They were developed in an age before Smart phones made it possible for consumers to remotely deposit checks and technology companies engrafted themselves onto payment systems.
In short, there is plenty of practical work to be done and done quickly. In a best case scenario, the material being developed by the Fed will help standardize the adoption of technology by giving developers a sense of what their payment solutions are going to be expected to achieve. But even this seems like a pipe dream to me. In an age when major banks are already investing billions of dollars into developing their own block chain technology even this seems like a fanciful dream.
NYC’s medallion credit unions recently suffered another legal setback in their effort to level the regulatory playing field between the heavily regulated yellow cab industry and ride sharing companies such as Lyft and Uber.( Melrose Credit Union v. City of New York, 15-cv-9042)
This morning’s New York Law Journal is reporting that on January 26th federal judge Southern District Judge Analisa Torres rejected claims that NYC’s Taxi and Limousine Commission was violating the equal protection rights of medallion owners. In its complaint the plaintiff’s contended that, by imposing onerous requirements on medallion cabs without imposing similar requirements on ride sharing networks they were being subjected to unequal treatment under the law, which has already diminished the value of their medallions by 40%.
According to the NYLJ, “Torres said the different rules for taxis and for-hire vehicles were “rationally related” and “allow the TLC to achieve the legitimate government objectives of increasing the accessibility, availability, and diversity of cost-effective transportation.”
That same day a separate court refused to block from taking effect regulations requiring half of the city’s medallion cabs to be wheelchair accessible by 2020.
So it begins
Your blear-eyed blogger had the first of several late nights last evening watching the results of the Iowa caucuses. Bernie Sanders and Hillary Clinton essentially tied-49.6 to 49.9- for Hillary and Ted Cruz soundly defeated “The Donald” who eked out a second place finish against Marco Rubio.
The line of the night was from Republican Mike Huckabee, the former Arkansas governor and past caucus winner. He announced he was quitting the race explaining that he was not withdrawing because of the vote-he finished tied for ninth-but “because of illness…obviously the voters are sick of me. ”
My take away: both parties are in for one of the most drawn out and competitive primary seasons in modern history. The electorate doesn’t know what it’s in favor of but it sure does know what it’s against, which is just about everything. We are a nation of rebels in search of a cause.
In the movie The Untouchables, in which Kevin Costner plays an idealistic Eliot Ness trying to take down Al Capone within the law, an exasperated, street-wise beat cop played by Sean Connery explains that to take down the mob, if they put one of your guys in the hospital, you put one of their guys in the morgue.
News Flash: The banking lobby is out to kill the credit union industry or at least maul it beyond recognition. This is one of those times when it’s important to fight back for the sake of fighting back. I am usually not a big fan of comment letters for the sake of comment letters but this is an exception. And if you get a chance, tell your Congressmen and Senators that the Bankers have gone off the deep end.
The ostensible issue triggering the latest scrap is NCUA’s proposed amendments to its Chartering and Field of Membership manual to give federal credit unions greater flexibility in expanding their fields of membership. As highlighted by an article in this morning’s American Banker, the bankers are going downright apoplectic over the proposal, implying that NCUA is trying to circumvent the law and putting tax dollars at risk. We have heard it all before. (http://www.americanbanker.com/news/community-banking/fight-over-credit-union-membership-flares-up-again-1079054-1.html?utm_medium=email&ET=americanbanker:e5995385:4561993a:&utm_source=newsletter&utm_campaign=daily%20briefing-jan%2028%202016&st=email&eid=346f8f5eef3bcd6205524af410f42291)
In reality, many of the proposed changes, though important, are not the type of fundamental changes that would provide huge benefits for all credit unions. This is not a criticism of NCUA simply a recognition of the fact that it is adhering to the laws that bankers are suggesting they are seeking to violate. The result is that the banking industry is more ginned up in opposing these regulations than the industry is about supporting it. And that has to change. There are some fights that have to be fought out of principal, and this is one of them.
I’m not suggesting that NCUA will back away from these amendments. What concerns me is that, in an age when the person who screams the loudest, no matter how incoherently he rants, gets the most attention. Banks are coming across as more upset over the proposal than credit unions are enthusiastic about it. While both reactions make some sense this is the latest skirmish in which the industry has to fight back and fight back hard.
Why is it so important? The banking industry has a two prong strategy for attacking our industry: (1) Keep it from growing by strangling credit unions within their antiquated FOM constraints; and (2) end the tax exempt status of the industry by arguing that it is putting community banks at risk and is somehow unworthy of the exemption.
The first goal can be achieved primarily with lawsuits and regulatory advocacy. The second goal is a legislative one.
The uncompromising opposition of bankers to any credit union growth already has impacted all credit unions. The implicit message the banks consistently send to politicians is that helping credit unions simply isn’t worth the hassle. And NCUA’s amendments, while helpful, are still more restrictive than they need to be. The industry has to lay the groundwork for amendments more dramatic than HR 1151. If it doesn’t use this and other opportunities to be heard above the banker noise, this is never going to happen.
I’ve been intrigued by this question for a while now. While some costs related to data breaches, such as the replacement cost of compromised cards, are easy enough to quantify, the costs related to reputational damage are both much harder to quantify and potentially much more impactful to your credit union’s bottom line.
Against that backdrop, I’ve always been on the lookout for surveys gauging consumer attitudes toward cybersecurity. The latest such survey I found was recently released by the consulting firm Morrison and Foster. The most intriguing take away from its analysis is that at least once in the last year, 35% of its 900 respondents had decided not to purchase products or services because of privacy concerns. In addition, when you look at the privacy issues that most concern consumers, there is little wonder why financial institutions have a particularly acute interest in mitigating cyber theft. Half of the respondents said that identity theft was their biggest privacy concern.
When the survey broke out what consumers consider their most sensitive pieces of information, there is little wonder why financial institutions have to take cyber security particularly seriously. In both 2011 and 2015, survey respondents listed their social security number, passwords and IDs used to access accounts and services, and payment card information as their most important concerns.
Finally, consumers take the risk of identity theft much more seriously than they did four years ago. In 2015, 52% of the respondents indicated that identity theft was their primary privacy concern compared to only 24% in 2011. In contrast, only 3% of respondents listed government monitoring as their primary privacy concern, a decrease of 4% since 2011.
Does all this mean that you run the risk of losing members based on the perception of your cyber protections? Maybe not. When the same respondents were asked why they trusts companies with their personal information, 24% responded that no company is perfect. As the survey analysis explained, “some consumers have given up on the ability of companies to protect sensitive and personal information.”
Consumer ambivalence is what intrigues me so much about this issue. On the one hand, they expect and deserve a baseline commitment to protect their privacy. On the other hand, the CEO could easily bankrupt the credit union investing is cybersecurity technology. The challenge is finding the sweet spot that mitigates risk, provides consumers with the latest technology and is respectful of the bottom line.
The latest example of how the New York middle class is being pushed to the breaking point comes courtesy of Long Island.
It goes without saying that whenever politicians talk about holding the line on taxes, you can bet fees are going to go up; but my Long Island brethren are taking this to an extreme. The fees homeowners have to pay for processing real estate transactions in Nassau and Suffolk Counties are going through the roof. Even if you are one of those Up-Staters, who proudly proclaim that they have never driven on the Long Island Expressway and never ever will, the story is worth noting. Many counties across the state are both looking for funds and trying to keep taxes down.
Just how bad is it on Long Island? According to the January 15th issue of the Long Island Business News, 2016 has seen fees increase as much as 300 percent, causing closing costs to rise to as much as $2,000. According to the paper, real estate fees now cost the Nassau County home owner $1,920 in Nassau, $945.50 in Suffolk but only $345 in Westchester. Just how ridiculous is it? A Mortgage Satisfaction Letter now costs $570.50 in Nassau County and $245 in Suffolk but “only” $120 in Westchester and $112 in NYC. It costs $645 to record a deed in Nassau, $315 in Suffolk but only $120 in Westchester. http://libn.com/2016/01/15/fee-fright)
I know some of you are saying that this is the price people choose to pay for living on Long Island; the problem is that these fees are inherently regressive. They have to be paid by everyone regardless of whether or not they scrimped and saved to buy a relatively modest starter home or their dream home. Also, you are talking about areas that already have among the highest recording taxes in the nation.
Besides Nassau and Suffolk are extreme examples of what troubles me about the State as a whole. While there are many areas in the state where people can be assured of their kids getting a world-class education; the middle class is being nickeled and dimed out of existence and being forced to pay for the maintenance of government services that are simply not sustainable. A nephew of mine in his twenties has moved to Austin and if I was in my twenties I would go south as well. That’s where the growth is. Low taxes and warm weather are an attractive combination.