Articles

Ignoring the impact of climate change on financial institutions and global financial stability is no longer an option for any financial regulator.   Given the Federal Reserve’s leadership role at the FSB, we should expect that together with other financial regulators around the world, the Fed should create and enforce regulations for banks and other financial institutions, so that they establish transparent frameworks to identify how climate change could impact their credit, market, and operational risk exposures, as well as their levels of capital and liquidity.

Years of allowing covenant-lite leveraged loans is now set to be a significant problem for creditors and loan investors.  Covenant-lite leveraged loan borrowers are reworking loans in ways that are likely to impact loan investors adversely.

It has been ten years since the Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed. Given the complex nature of rule writing and the fact that fifteen regulators were involved, not all rules were finalized or implemented. Since Trump came into power, many of the rules that were finalized have been tailored and watered down. Yet, the vast majority of both Democratic and Republican voters want strong consumer financial protections and tough regulation of the financial services industry.

The Federal Reserve has launched a seven-part series about racism and the American economy. This is an unprecedented conversation led by the Atlanta, Boston, and Minneapolis districts of the Federal Reserve.  Just in the first part of the series, Federal Reserve Presidents Raphael Bostic (Atlanta),  Neel Kashkari (Minneapolis) and Eric Rosengren (Boston) and their guests confronted the history and present state of racism and the American economy, the role of the Federal Reserve in these issues, and also explored public and private sector solutions that can benefit everyone in our country.

Perhaps, stock investors with a big risk appetite and a long-term horizon could eventually benefit from investing in Ally Financial. However, rising unemployment and recently announced job cuts do not bode well for Ally Financial. Stock and bond investors need to do their due diligence more than ever.

Trump loves to talk about how great he has been to people of color in the United States. Recent data do not support his claims. Be it employment, earnings, net worth, and risk of eviction, Blacks and Latinos significantly lag Caucasians. Given that these groups represent over one-third of the U.S. population, this does not bode well for the U.S. economy, now or in the future.

Trump may finally be the greatest at something, being the most leveraged president in U.S. history. Trump’s tax avoidance scandal showcases how banks apply credit standards differently to powerful borrowers.

Talented Blacks and other people of color are everywhere if Wells Fargo CEO Charles Scharf and his staff are willing to look for us. And finding us is very important for cognizant diversity in his organization.

Thirty-nine states do not have enough money to pay their bills, and unfortunately, their situation will only worsen. Accounting watchdog, Truth In Accounting (TIA), found that total states’ level of debt in fiscal 2019 was $1.4 trillion.

An impressive investigation by BuzzFeed and the International Consortium of Investigative Journalists (ICIJ) revealed what has been clear to many of us in the banking regulatory world. Existing regulations and bank compliance processes are insufficient. And unfortunately, new regulations to strengthen anti-money laundering are unlikely to be forthcoming any time soon.

As if COVID-19 had not affected states’ and municipalities’ finances adversely enough, numerous states and municipalities and investors in their bonds, also need to worry about the economic impact of rising sea levels. According to a Moody’s Investors Services report released yesterday afternoon, “More frequent and severe flooding from high tides and storm surges from major weather events threaten coastal economies, property values and critical infrastructure.”

The severity and uncertainty surrounding COVID-19 globally should compel any credit professional to change existing corporate credit risk management frameworks. That is lenders, have to develop corporate credit frameworks that include an analysis of other risks that impact companies’ profitability and liquidity, especially operational risk.

In the daily flurry of negative news, investors should be careful not to lose sight of the fact that while COVID-19 has caused thousands of companies to struggle, default on their debt, or to declare bankruptcy around the globe, it has also created great business opportunities. With thousands of schools, universities, and job training center closed around the world, many since February, the need for online education for educators, parents, students and life-long learners has never been more urgent.

Moody’s data shows that not only are rated company defaults rising, but also that over half of them are private equity-owned leveraged buy outs (LBOs). During the first half of this year, rated companies owned by such private equity firms as Blackstone, Goldman Sachs Group, KKR, and Thomas Lee have defaulted; Ares Management owns the highest number of defaulted private-equity owned rated companies.

Data in Fitch Ratings’ monthly publication ‘U.S. High Yield Default Insight’ shows that the second quarter 2020 default volume of $41.1 billion, was 4% more than the previous record of $39.5 billion set during the same period in 2009. The telecoms and energy sector accounted for 70% of the second quarter 2020 default volume.

Resolving longstanding frictions and challenges in cross-border payments has been a major objective of the Committee on Payments and Market Infrastructures (CPMI). According to CPMI, the international standard setter which promotes the safety and efficiency of payment, clearing, settlement and related arrangements, “Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.”