The Federal Reserve said yesterday that its stress test for big banks will imagine a rapid increase in unemployment, as it announced the details of the hypothetical scenario that banks must survive to pass the latest round of the exams, the Wall Street Journal reported. The Fed’s latest “severely adverse” scenario imagines unemployment rising by six percentage points to 10 percent, along with stress in corporate lending and commercial real-estate markets. “The hypothetical scenario features the largest unemployment rate change to date,” said Randal Quarles, the Fed’s vice chairman for supervision, in a written statement. “We are confident this scenario will effectively test the resiliency of the nation’s largest banks.” Big banks must show the Fed they can survive the hypothetical scenario with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders. Test submissions are due in April and the results will be announced by the end of June, the Fed said.
The Federal Reserve said yesterday that a growing number of banks reported tightening their standards for some loans in the fourth quarter and said they expected loan demand and performance to weaken, the Wall Street Journal reported. After a year in which banks continued to lend freely despite steadily rising interest rates, the Fed’s January survey of senior loan officers showed an increasing number of institutions bracing for a lending slowdown. “Banks reported expecting to tighten standards for all categories of business loans as well as credit-card loans and jumbo mortgages,” the survey said. “Meanwhile, banks anticipate that loan performance will deteriorate for all surveyed categories.”
The U.S. Supreme Court has been asked to review the ruling that could end Jefferson County, Alabama’s long-running bankruptcy appeal, Bond Buyer reported. Attorney Calvin Grigsby said on Tuesday that he’d filed for a writ of certiorari seeking to have the Supreme Court review the August appellate decision that ended his clients’ appeal of the county’s bankruptcy case. Grigsby, in a 59-page petition, asks the Supreme Court to consider several questions, including whether the “doctrine of equitable mootness” should bar his clients’ appeal of the county’s plan of adjustment because it alleges that the plan violates the 10th amendment, which reserves municipal utility ratemaking to the states and local governments. Grigsby, a former broker-dealer who is representing a group of ratepayers on the county’s sewer system, has said numerous times in court filings that his clients participated in the bankruptcy case but were never given an opportunity to have a hearing on the merits of their claims. Getting the justices to consider the petition might be difficult, said bankruptcy attorney John Whitlock, who is of counsel with Locke Lord LLP. The firm is not involved in the case. Jefferson County Commission President Jimmie Stephens said he expects the county to prevail if the Supreme Court agrees to review the lower court decision.
Now that PG&E Corp. has filed for protection from its creditors because of California wildfire liabilities, all eyes are on the bankruptcy court. But another federal judge may wind up playing a prominent role in the case, WSJ Pro Bankruptcy reported. Judge William Alsup of the U.S. District Court for the Northern District of California oversees a criminal case involving PG&E, which is on federal probation after being found guilty of violating the Pipeline Safety Act in connection with a natural gas pipeline explosion that killed eight people in San Bruno, Calif., in 2010. Judge Alsup is set to hear whether the utility violated its probation in that case — and whether he should impose tougher safety restrictions on the company — after the state found its electrical equipment sparked more than a dozen California wildfires in recent years. Judge Alsup has the authority to intervene in the chapter 11 bankruptcy case, which is being overseen by U.S. Bankruptcy Court Judge Dennis Montali. Some observers believe he will do just that. “They could sell tickets for that,” said one former PG&E executive, who noted that Judge Alsup has shown intense interest in protecting the public from PG&E safety lapses. While it would be unusual for a U.S. district court judge to take an active role in a bankruptcy case, it isn’t without precedent. U.S. district judges have the power to issue a “withdrawal of reference” and take back cases, in whole or in part, from bankruptcy courts at any time.
Across rural America, the government shutdown has eliminated one of the best options for low- to middle-income homebuyers, a zero down payment mortgage from the U.S. Department of Agriculture, Bloomberg News reported. That’s leaving deals and would-be buyers’ lives in limbo. They’re begging sellers for extensions and struggling to decide when to mention their plans to landlords, said Shane Siniard, a loan officer with SWBC Mortgage Corp. in the Atlanta area, where the biggest share of the USDA loans are made, according to an analysis by Zillow. Siniard, one of the most prolific originators of the loans, has one client with a buyer who is unable to sell because he’ll need a payoff statement from the government.
The White House will announce a plan by next month to end government control of Fannie Mae and Freddie Mac in a bid to resolve a long debate over the fate of the two companies that dominate the mortgage market, a top regulator said, Politico reported. Joseph Otting, acting director of the Federal Housing Finance Agency, told employees last week that the administration would not wait on Congress, where attempts to overhaul the housing finance system have repeatedly faltered in the years since Fannie and Freddie were rescued during the financial crisis. “In the next two to four weeks you’re going to be able to see some communication that comes out of the White House and Treasury that really sets a direction for what the future of housing will be in the U.S. and what the FHFA’s part of that will be,” Otting said at a Jan. 17 staff meeting.
Medical problems contributed to 66.5 percent of all bankruptcies, a figure that is virtually unchanged since before the passage of the Affordable Care Act (ACA), according to a study published yesterday as an editorial in the American Journal of Public Health. The findings indicate that 530,000 families suffer bankruptcies each year that are linked to illness or medical bills. The study, carried out by Dr. David U. Himmelstein, Profs. Robert M. Lawless, Pamela Foohey, Deborah Thorne, a sociologist from the Consumer Bankruptcy Project (CBP), and Dr. Steffie Woolhandler, surveyed a random sample of 910 Americans who filed for personal bankruptcy between 2013 and 2016, and abstracted the court records of their bankruptcy filings. These figures are similar to findings from the CBP’s medical bankruptcy surveys in 2001 and 2007, which were authored by three researchers in the current study (Himmelstein, Thorne, and Woolhandler), and then-Harvard law professor Elizabeth Warren. The current study found no evidence that the ACA reduced the proportion of bankruptcies driven by medical problems: 65.5 percent of debtors cited a medical contributor to their bankruptcy in the period prior to the ACA’s implementation as compared to 67.5 percent in the three years after the law came into effect.
In the fourth quarter, investors trimmed the amount of margin debt they used to buy stocks at the fastest pace since the financial crisis. But some Wall Street and brokerage executives say those loan levels stabilized or moved higher last month as the S&P 500 rebounded, posting its best January performance since 1987, the Wall Street Journal reported. Margin debt, which is generally considered a gauge of investor confidence, tumbled more than $90 billion in the fourth quarter to $554.3 billion, the lowest tally since December 2017, according to the Financial Industry Regulatory Authority. Although the pace of the decline was jarring, analysts at Bank of America Merrill Lynch and other firms say that the pullback supports the case that the stock market has bottomed and is poised for a rebound — albeit with ongoing spikes in volatility — similar to other recoveries following drawdowns in February 2016 and September 2011.
White House officials are considering new candidates for at least one and possibly both empty seats on the Federal Reserve Board for President Donald Trump to nominate, Bloomberg News reported. Fed economist Nellie Liang withdrew from consideration earlier this month for one of the vacancies. Less clear is whether the White House will re[-]nominate Carnegie Mellon University economist Marvin Goodfriend. Efforts the White House has made to contact potential new nominees show that, despite Liang’s withdrawal and the delay in a decision on re[-]nominating Goodfriend, the administration isn’t putting on hold appointments to the Fed board. Trump nominated Goodfriend for the board in 2017, but the Senate didn’t vote on his confirmation. Goodfriend didn’t appear on a list of dozens of re-nominations the White House submitted to the Senate this year.
The Administrative Office of the U.S. Courts (AO) estimates that federal courts can sustain funded operations through Jan. 31, according to an AO press release. The Judiciary continues to explore ways to conserve funds so it can sustain paid operations through Feb. 1. No further extensions beyond Feb. 1 will be possible. The Judiciary previously had revised its estimate for exhausting available funds from Jan. 18 to Jan. 25. The extensions have been achieved through a multi-pronged strategy of deferring non-critical operating costs and utilizing court filing fees and other available balances. Most of the measures are temporary stopgaps, and the Judiciary will face many deferred payment obligations after the partial government shutdown ends. In recent weeks, courts and federal public defender offices have delayed or deferred non-mission-critical expenses, such as new hires, non-case-related travel, and certain contracts. Judiciary employees have been reporting to work and currently are in full-pay status.