News

White House Says Shutdown Trims 0.1 Percent From GDP Every Two Weeks - ABI

The ongoing partial government shutdown will cut U.S. economic output by about 0.1 percent every two weeks, the chairman of the White House Council of Economic Advisers said, Bloomberg News reported. “Our estimate is that GDP in the first quarter could go down by about a tenth if this were to resolve in the next few weeks,” CEA Chairman Kevin Hassett said yesterday. While it wasn’t immediately clear whether Hassett was referring to the level of GDP or the annualized pace of growth, his estimate appears to be broadly in line with those from private forecasters. Earlier this week, Macroeconomic Advisers by IHS Markit lowered its forecasts for fourth-quarter and first-quarter growth each by 0.1 percentage point on the assumption the shutdown will last for three weeks. JPMorgan Chase & Co. analysts estimated that each week of the shutdown will reduce GDP growth by about 0.1 to 0.2 percentage point, and the drag should mostly reverse once the government fully reopens.


Federal Courts May Feel Pinch of Government Shutdown Soon - ABI

The federal courts have largely maintained normal operations during the current government shutdown so far, but that could change quickly if the stalemate lasts beyond next week, the Wall Street Journal reported. Officials at the Administrative Office of the U.S. Courts say that the judiciary will begin to face significant challenges after Jan. 11 if funding hasn’t been restored. The courts have been dipping into court fees and other sources that aren’t dependent on new congressional appropriations, but those funds have their limits. If the shutdown continues, federal courts will have to come up with plans for managing reduced operations, and funding could be in jeopardy for jurors, court reporters, public defenders and some court staffers, as well as for some supervision and other services the courts provide to offenders on probation. The Supreme Court faces the same funding timeline as the rest of the courts, a high-court spokeswoman said yesterday. However, the courts won’t simply shut down, said David Sellers, a spokesman for the Administrative Office. Federal law allows courts to continue their work to the extent it is necessary to support the exercise of judicial powers — a phrasing that lets judges continue issuing rulings and keeping some critical cases moving through the pipeline.


OCC: U.S. Banks ‘Well-Positioned’ for Adverse Market Conditions - ABI

The U.S. banking system has strong capital and liquidity and is well-positioned to manage more adverse market conditions, a spokesman for the Office of the Comptroller of the Currency said yesterday. In a statement to Reuters, Bryan Hubbard said that the banking regulator was monitoring the effects of falling stock markets on the nearly 1,300 institutions it oversees and would share any relevant systemic information with fellow supervisors through the appropriate interagency forums. U.S. stocks posted a loss in 2018 for the first time in a decade due to fears over a weakening global economy and the U.S.-China trade war, sparking fears turmoil could spread to other parts of the financial system. “The federal banking system ... is strong with capital and liquidity near historical highs and improved earnings and risk management. From this strength, the federal banking system is well positioned to manage more adverse market conditions,” Hubbard said in the statement. He added that OCC expects supervised institutions to understand exposures within their portfolios and take appropriate action to mitigate any risks. These could include adverse effects on liquidity, pricing, or terms for corporate loans and bonds, he said.


Shutdown Delays Payouts to Bankruptcy Creditors - ABI

The partial government shutdown is delaying payments from collapsed companies to former workers and other creditors who weren’t paid during a business’s final days of operation, WSJ Pro Bankruptcy reported. The country’s bankruptcy trustees, who are in charge of sending out those payments after a business files for chapter 7 protection, aren’t able to get approval for payment plans from the Justice Department, which supervises the payout process. The shutdown threatens to delay the already long process of paying a bankrupt company’s final bills, which can take months. Trustees made more than $2 billion worth of payments in 2016 to creditors of more than 43,000 bankruptcy cases, according to latest data from the Justice Department.


Corporate Debt Is Reaching Record Levels - ABI

U.S. corporate debt has climbed to roughly 46 percent of gross domestic product, the highest on record, according to data from the Federal Reserve and Commerce Department, the Wall Street Journal reported. Businesses in emerging markets, such as China, have gone on an even bigger borrowing binge, taking advantage of ultra-low interest rates and, in some cases, state-driven policies designed to propel economies forward. So far, businesses have been able to service their debt without too much difficulty. Among midsize businesses, there is has been an uptick in so-called direct lending in which business obtain loans from nonbanks, many of them private-equity firms, with traditional banks playing little part in the process. Nonbanks held more than half a trillion dollars worth of loans to midsize companies at the end of 2017, up from roughly $300 billion in 2012, according to estimates by private-equity firm Ares Management LP.


Bankruptcy Bill Aims to Keep More Small Businesses Open - ABI

Small businesses with less than $2.5 million in debt would be able to file bankruptcy more quickly and cheaply under bipartisan legislation teed up for consideration in 2019, Bloomberg Law reported. The bill (S. 3689, H.R. 7190) would add to the Bankruptcy Code a separate subchapter for small businesses. Small businesses, which account for 80 to 90 percent of business bankruptcy filings, would be treated more like individuals than corporate filers under the bill. Small business owners would find it easier to keep their ownership interests because a standing trustee would oversee every case, a procedural protection preferred by creditors. Advocates say the current Bankruptcy Code makes it difficult for small businesses to reorganize and forces them to use alternatives that often result in liquidation. “It’s a well-balanced bill that streamlines the process for small businesses that need it and increases recovery for creditors where it is used,” Professor Edward Janger, Brooklyn Law School, Brooklyn, N.Y., told Bloomberg Law. The bill’s sponsors include Sen. Chuck Grassley (R-Iowa), the departing chairman of the Senate Judiciary Committee, and Rep. Doug Collins (R-Ga.), who is expected to be the top Republican on the House Judiciary Committee next Congress. They were joined by Sheldon Whitehouse (D-R.I.) and David Cicilline (D-R.I.), who serve on the Senate and House Judiciary Committees respectively. The bill is likely to be reintroduced next year with many of the same sponsors despite House and Senate leadership changes, said Samuel J. Gerdano, executive editor of the American Bankruptcy Institute, Alexandria, Va. There’s a “good chance” that Collins will reintroduce the legislation, according to Collins' communications director.


Farmers Are Worried About Their Aid Payments in Trump Shutdown - ABI

Just when U.S. farmers thought they were catching a break with a second round of federal aid, now there’s concern the impasse in Washington could hamper payments, Bloomberg News reported. After crop prices tumbled amid the U.S.-China trade war, the Trump administration made good on its promise to help farmers by approving the second-round payments this month. The U.S. Department of Agriculture has said the total aid could reach as much as $12 billion, with soybean growers taking the biggest share. But the partial U.S. government shutdown is raising questions about delays for the plan, called the market facilitation program. On Dec. 21, the USDA said in a statement that the aid would continue during the first week of a shutdown, but payments would halt after that for producers who hadn’t certified production. The deadline to apply for the program is Jan. 15.


Bankruptcy Bill Aims to Keep More Small Businesses Open - ABI

Small businesses with less than $2.5 million in debt would be able to file bankruptcy more quickly and cheaply under bipartisan legislation teed up for consideration in 2019, Bloomberg Law reported. The bill (S. 3689, H.R. 7190) would add to the Bankruptcy Code a separate subchapter for small businesses. Small businesses, which account for 80 to 90 percent of business bankruptcy filings, would be treated more like individuals than corporate filers under the bill. Small business owners would find it easier to keep their ownership interests because a standing trustee would oversee every case, a procedural protection preferred by creditors. Advocates say the current Bankruptcy Code makes it difficult for small businesses to reorganize and forces them to use alternatives that often result in liquidation. “It’s a well-balanced bill that streamlines the process for small businesses that need it and increases recovery for creditors where it is used,” Professor Edward Janger, Brooklyn Law School, Brooklyn, N.Y., told Bloomberg Law. The bill’s sponsors include Sen. Chuck Grassley (R-Iowa), the departing chairman of the Senate Judiciary Committee, and Rep. Doug Collins (R-Ga.), who is expected to be the top Republican on the House Judiciary Committee next Congress. They were joined by Sheldon Whitehouse (D-R.I.) and David Cicilline (D-R.I.), who serve on the Senate and House Judiciary Committees respectively. The bill is likely to be reintroduced next year with many of the same sponsors despite House and Senate leadership changes, said Samuel J. Gerdano, executive editor of the American Bankruptcy Institute, Alexandria, Va. There’s a “good chance” that Collins will reintroduce the legislation, according to Collins' communications director.


BankThink Robinhood’s stumble is a wake-up call - ABI

That is why the Consumer Bankers Association and its member institutions have been growing increasingly concerned as new nonbank financial institutions enter the deposit space. It is not out of a fear of competition — after all there are more than 5,000 banks across the country, so competition is something banks are well prepared for and accustomed to. What is a concern, however, is the differences in protections these accounts offer consumers.  We are concerned promoting “insured” accounts by nonbanks and FinTechs' could leave consumers with the false impression these accounts are just as safe as those in the well-regulated, FDIC-insured banking industry.  Just last week, Robinhood Financial, a large non-bank financial service company, introduced its take on the traditional bank account. The new offering, Robinhood Checking & Savings, promised a 3% interest rate. Robinhood pitched the service to its roughly six million customers as being akin to a traditional checking or savings account with debit cards and ATM access. The marketing material used by Robinhood described the product as a traditional banking product.


FDIC, echoing NAFCU, clarifies Volcker rule requirements - ABI

FDIC Board Member Martin Gruenberg this week made clear that relief language in S. 2155 regarding the Volcker rule is intended for community banks – not all banks regardless of asset size as some have argued. Gruenberg's conclusion on the intent of the language supports NAFCU's view, which was shared with the FDIC and other bank regulators earlier this month.  "There has been some discussion that the new statute can be read in a way that would allow any bank, regardless of asset size, to be exempt from the Volcker Rule if its trading assets and liabilities are five percent or less of its total consolidated assets … This was not the intent of the new statute as I understand it … I believe it is clear that this statutory exemption … appl[ies] only to banking organizations with $10 billion or less in total consolidated assets and that the limitation on trading assets and liabilities is an additional limitation placed on this defined group of banking organizations," Gruenberg said.