MONDAY3pt AUGUST stroke, 100% 2, 2021size for VOL. top of 186 newspaper No. 146 = 8.9931 inches AMERICANBANKER.COM Follow us on Twitter @AmerBanker What PayPal is including 5 in its super app The payments company has completed Moving money development of its all-in-one portal. It’s The Zelle peer-to-peer payments network has grown an ambitious project, but the first few rapidly2.5pt strokesince = 6.75its inchesinception five years ago. It’s expected to services — such as bill pay and savings — are relatively straightforward. Page 5 top last year’s volume by as much as 63%. Diane Reyes, HSBC’s See story on page 4 6 highest-ranking woman in U.S., retiring this year The longtime global head of liquidity and 2pt stroke = 5.75 inches Total transaction volume cash management will step down in the $500B fourth quarter, HSBC announced in an $500B internal memo. She will be replaced by $400B Manish Kohli, Citigroup’s global head of payments and receivables. Page 5 $300B 1.5pt stroke = 4.6667 inches $307B $200B Citi reinstates mask 7 requirement in offices $187B $100B after CDC update $119B Citigroup has gone back to requiring $75B $0 1pt stroke$55B = 3 inches employees — regardless of their vaccination status — to don masks when they’re in the 2016 2017 2018 2019 2020 2021* office, according to a person familiar with Source: Early Warning (*company estimate) the matter. Page 6 Mastercard fleshes out 8 its crypto strategy dailybriefing Fees paid to Fannie The card brand has been pitching itself as 3 and Freddie could help a testing ground for central bank digital fund infrastructure plan currencies, a payment portal for stablecoins Proposed 36% APR cap A hike in guarantee fees charged to lenders and — most recently — an accelerator for 1 is tough sell to GOP, banks for the companies’ backing of loans was startups. Page 6 Democratic leaders in Congress want to due to expire this year, but lawmakers now extend the interest rate limit applying want to extend it to raise $21 billion for the House committee advances bill to service members to all consumers. bipartisan package. Page 3 9 to address Libor transition Republicans and industry representatives The legislation would establish a quick warn such a broad restriction will hamper Zelle becoming linchpin process for legacy financial contracts to swap lenders’ ability to price risk. Page 2 4 in faster payments in the Secured Overnight Financing Rate as its traffic grows after the London interbank offered rate all LendingClub, fueled by surge Transaction volume soared at the peer-to- but expires in 2023. Page 7 2 in loans, posts surprise profit peer service in the second quarter. That The digital lender, which bought Radius rising popularity among consumers, coupled Rethinking the power Bancorp in February, still expects to record with Zelle’s relationships with a growing 10 of market influencers a full-year loss partly because of merger- number of transaction rails, could make In his new book “The Day the Markets related costs. But its stock price soared the network a vital hub in the U.S. push for Roared,” the noted economist Henry Thursday after it reported second-quarter speedier payments. (See chart above.) Page 4 Kaufman gives a spellbinding account of net income of $9.37 million. Page 3 the interconnected forces of political power, influence and the lessons the market learns from history. Page 8 MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 2

being too restrictive. Sen. Pat Toomey, R-Pa., is essentially suggesting that it may be the CONSUMER LENDING the committee’s ranking member, noted that business plan of these companies to get a a $15 fee imposed on a $100 loan to be paid situation and client who they know even back over three months, would be calculated beforehand won’t be able to … pay.” Proposed 36% as a 60% annual percentage rate. Still, industry representatives and “This is a real product that a major Republicans on the panel fear that financial APR cap is American bank offers,” Toomey said. “But institutions won’t be able to offer short- it appears that would be illegal under the term, small-dollar products that consumers proposed 36% APR rate cap.” demand. tough sell to A 36% rate cap on consumer loans drew Sen. Jerry Moran, R-Kan., described the attention in 2006 when a former Republican interest rate cap proposal as a “Washington- GOP, banks senator, Jim Talent of Missouri, co- knows-best, one-size-fits-all interest rate sponsored the limit on credit products for cap that could not be more inconsistent with By Neil Haggerty military service members. It was included as states’ rights and federalism.” July 29, 2021 an amendment in a defense authorization Pommerehn said an “all-in” APR WASHINGTON — In 2006, Congress bill signed by President George W. Bush. calculation would potentially prevent banks passed a bipartisan measure imposing a Yet even Sen. Jon Tester, a Democrat from offering popular rewards credit cards. 36% interest rate cap on loans to members from Montana, said he was concerned that “Any card that imposes a fee of any of the military. But a Democratic proposal to Reed’s proposed legislation would severely sort, which most reward cards do, has the extend that cap to all consumer loans has a restrict tribal lending businesses, such as potential [of] violating an all-in APR, such as much steeper climb. Plain Green Loans, which is owned by the ... [the calculation] in the Military Lending The usury limit plan has percolated for a Chippewa Cree Tribe in Montana. Act,” said Pommerehn. “Card issuers would few years on Capitol Hill, but with Democrats “Plain Green Loans … gives good jobs, certainly hesitate to offer them.” now controlling both chambers of Congress good paying jobs, to a place that has about Still, Brown said he was unconvinced by and the White House, they are attempting to 80% unemployment, by the way, and invests arguments suggesting that consumers would shine a brighter light on the idea. in youth programs, does a lot of really have fewer credit options if the legislation is Senate Banking Committee Chairman good work,” said Tester. “The way this bill enacted. Sherrod Brown, D-Ohio, said at a hearing is written, it could eventually have very “We know the tired arguments against the Thursday that 36% rate limits enacted negative impacts on them.” bill — they’re the same ones we heard about in a number of states — including both Reed argued that the legislation is the Military Lending Act,” said Brown. “The ballot initiatives and legislative measures necessary to protect consumers from “debt payday industry claimed we would cut off — demonstrate that there is support for traps” that can result from expensive credit access to credit to service members. That enacting a federal cap. products, such as payday loans. didn’t happen.” “We’ve seen supermajorities of voters in “We’ve discussed and alluded to the issue Sen. Elizabeth Warren, D-Mass., even state after state … that support the 36% rate of the debt traps that people are caught in,” suggested that a 36% interest rate cap could cap,” he said. “It’s clear the public wants Reed said. “According to data that I see from extend beyond consumer loans to all small- these protections in very different kinds of the Consumer Financial Protection Bureau, business loans. states.” 80% of payday loans are rolled over, which “We need to keep fighting to protect But Republicans and industry representatives warn that such a broad restriction on loan pricing will hamper Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 financial institutions’ ability to account for Phone 212-803-8200 AmericanBanker.com credit risk. 3pt stroke, 100% size for top of newspaper = 8.9931 inches “The 36% rate cap leaves banks unable to Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 adequately price for risk in order to viably 2.5pt stroke = 6.75 inches offer affordable short-term credit,” said Managing Editor Dean Anason 770.621.9935 Reporters/Producers David Pommerehn, senior vice president 2pt stroke = 5.75 inches and general counsel at the Consumer Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 Bankers Association, who testified before Miriam Cross 571.403.3834 1.5ptWashington stroke = 4.6667 inches Bureau Chief Joe Adler 571.403.3832 the panel. Jim Dobbs 605.310.7780 The lead sponsor for the bill is Sen. Jack 1ptExecutive stroke = 3 inches Editor, Technology Reed, D-R.I. It is co-sponsored by Brown Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 and Sens. Chris Van Hollen, D-Md., and Jeff Hannah Lang 571.403.3855 Merkley, D-Ore. Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 Republicans also homed in on the Contributing Editor Daniel Wolfe 212.803.8397 annual percentage rate calculations that the Kevin Wack 626.486.2341 legislation requires lenders to calculate as

For up to date and complete coverage go to AmericanBanker.com MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 3 consumers from predatory lending,” said installment loans to consumers who are Warren. “But we can’t leave out small looking to refinance credit card debt, GSEs businesses and simply leave them at the tightened its loan approval criteria around mercy of anyone who wants to scam them. the start of the COVID-19 pandemic. For That’s why we need to take a close look at much of the next year, the company focused Fees paid to the gaps that exist in protections for small- on preserving capital and preparing for its business owners and consider solutions like acquisition of Radius Bancorp. Fannie and extending consumer credit protections to After that acquisition closed in February, small- business loans.” the firm reversed much of that tightening and reopened the lending spigot, and in the Freddie could meantime sharpened its underwriting and EARNINGS marketing processes, Sanborn said. help fund Those moves helped lead to a jump in loan originations to $2.7 billion, smashing LendingClub, LendingClub’s earlier guidance that its infrastructure loan originations would rise to at most $1.9 fueled by billion. plan The results helped lead to improvements in the company’s guidance for investors, By Hannah Lang surge in with the company saying it expects full- July 29, 2021 year losses of $3 million to $13 million, WASHINGTON — The Senate’s nearly $1 loans, posts a substantial decrease from its earlier trillion bipartisan infrastructure proposal projection of up to $167 million in losses. would be partially funded with an extension LendingClub, which has long operated of the hike in guarantee fees charged by surprise profit an online platform where borrowers get Fannie Mae and Freddie Mac. matched with lenders, now bills itself as the Congress originally mandated the By Polo Rocha nation’s first digital marketplace bank. 10-basis-point increase in fees lenders pay July 29, 2021 As part of the acquisition, LendingClub the government-sponsored enterprises in A bigger-than-expected jump in loan plans to hold some 15% to 25% of the loans it 2011 to fund payroll tax relief. That add- originations helped LendingClub turn a originates on its books, letting the company on was set to expire later this year. But in a profit in its first full quarter after acquiring earn more interest income. It plans to sell move sure to upset the mortgage industry, a bank, surprising both company executives the remainder of its loans through its online legislators are now considering extending and analysts. marketplace, where the company earns the additional fee to provide $21 billion The San Francisco company is still origination fees. in funding for the infrastructure package, expecting to report slight full-year losses The company’s net interest income according to a summary of the bill. The full partly due to merger-related costs earlier jumped to $45.9 million in the quarter, up text has yet to be finalized. this year. But executives reported a profit from $18.5 million in the first quarter of Under the infrastructure plan, lawmakers of $9.37 million in the second quarter, a big the year. LendingClub Bank’s net interest also propose raising $28 billion for the swing from a $47.1 million loss the prior margin rose to 5.51%, up from 3.3% in the package by applying information reporting quarter, and said they expect to continue the first quarter. requirements to digital assets, including momentum in the second half of the year. The rise in interest income “could imply cryptocurrency. Under that proposal, Loan volumes soared roughly a year after the beginnings of an enhanced earnings businesses would have to report crypto LendingClub intentionally dialed them trajectory for the business,” Credit Suisse transactions of at least $10,000. back. analyst Stephen Ju wrote in a note to clients. Industry trade groups including the “We significantly outperformed our Mortgage Bankers Association, the American expectations,” CEO Scott Sanborn told Bankers Association and the National analysts on Wednesday. “Across the board, Association of Realtors had sent a letter last the actions we took as we reentered the week to lawmakers urging them against market drove better results on a faster extending the guarantee fee add-on in order timeline than we had anticipated.” to pay for the infrastructure plan. Analysts seemed surprised as well. “We have indicated on numerous “Let me be a little exuberant here. This occasions that we were deeply troubled is amazing,” Henry Coffey, a Wedbush when g-fees were raised by 10 basis points Securities analyst, said during the earnings for 10 years to fund a two-month period call. The company’s stock jumped nearly of payroll tax relief in 2011,” said the letter, 54% in midday trading Thursday to $25.06. addressed to Sens. Kyrsten Sinema, D-Ariz., LendingClub, which specializes in and Rob Portman, R-Ohio, the co-negotiators

For up to date and complete coverage go to AmericanBanker.com MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 4 of the infrastructure plan. “That increase businesses and consumer advocacy groups “When you start to think about the scale of harmed homebuyers by raising the cost of cited interoperability as the most important Zelle, I can say with confidence that this year homeownership in all parts of the country — factor in making faster payments available we will move about a half trillion dollars and and continues to do so during the provisions across the country. about 2 billion transactions.” decade-long lifespan, which expires in Earlier this year Zelle said it was partnering It’s not just the numbers that continue to September.” with The Clearing House RTP to add more boost Ko and Early Warning’s confidence in Jaret Seiberg, an analyst with Cowen speed to peer-to-peer payments and make their P2P service. Washington Research Group, called the Zelle and RTP more appealing to smaller “It’s the everyday customer problems proposal to extend the guarantee fee tax banks. Zelle already works with traditional we are solving, and it is driving customer “deeply disappointing.” settlement rails like the automated clearing engagement right into the bank apps,” Ko “Our expectation was that the fee would house and debit rails like Visa Direct and said, adding that users will soon find it disappear on Oct. 1 when it was set to expire,” Mastercard Send to move payments when easier to send through Zelle Ready Friends, Seiberg said in a research note. “That could the receiving consumer’s bank is not a a feature that kicks in when a user types have helped keep mortgage rates low.” participant in the Zelle network, said Talie in a recipient’s name and is automatically Baker, a senior analyst with Aite-Novarica informed if the person is on the network and Group. which phone number or email that person P-TO-P PAYMENTS “The magic of Zelle is the fact that it is uses to receive funds. interoperable in the way cash and checks The Zelle service for small businesses are,” Baker said. “If your bank participates continues to expand, with the P2P process Zelle in Zelle, you can send money to nearly being integrated into banks’ business every single other bank whether they are checking accounts. becoming part of Zelle or not, thanks to the debit Bank of America informed Early Warning card networks. Technically, you should that 75% of its Zelle users no longer write think of Zelle as a giant directory, and this paper checks, Ko said. “And of those 25% of linchpin provides the interoperability. It associates users who still write checks, they went from consumers’ bank accounts and their mobile writing five checks [a month] before using in faster phone numbers or e-mail addresses but Zelle to two checks [a month].” moves money through the traditional In a CNBC interview earlier this month, settlement rails.” Bank of America CEO Brian Moynihan payments In the future, Zelle may be able to connect noted that Zelle plays a role in building the to new real-time payment networks like bank’s reputation as a trusted technology as its traffic the Federal Reserve’s FedNow, which is in company. BofA serves 40.5 million active development. Zelle’s ability to connect with digital customers in its consumer business, several U.S. networks makes it appealing to and Moynihan predicted the number will grows some as the possible connecting tissue for keep growing. faster payments. “Zelle at 14 million [Bank of America By David Heun “I think about Zelle a lot [regarding users], these are just stunning amounts of July 29, 2021 interoperability] because it is an example activity,” Moynihan said. Early Warning’s Zelle network on Thursday of a service provider that connects to all Even with its impressive growth, Early reported strong second-quarter growth, and networks,” said Reed Luhtanen, executive Warning cannot overlook the competition it’s connecting more payments systems director of the faster payments council. that PayPal’s Venmo and other service with each other — which experts say could “Zelle users don’t have to know what providers pose. contribute to U.S. efforts to develop faster network is being used, because it doesn’t Earlier this month, the credit union payments. matter to them,” Luhtanen said. “You just services provider Payveris responded to Zelle processed $120 billion of payments, send it on Zelle, and they receive it on Zelle, its members’ requests for a P2P service a 68% gain from a year earlier, and conducted and in between Zelle chooses the network to by adding the feature to its MoveMoney 436 million transactions, a 58% increase. reach those endpoints.” platform. The Payveris solution also moves During the quarter it also added the 1,000th Through the first two quarters of 2021, funds for U.S. accounts using the recipient’s financial institution to its network, the Zelle processed $226 billion in payments mobile phone number or email, eliminating Syracuse Fire Department Employees Credit and handled 828 million transactions. This the need to download a separate app. Union in New York. is a carryover from strong increases in 2020 Ko declined to comment about At the same time, Zelle has also been during the height of the pandemic, which competitors, but he acknowledged that a increasing its interoperability with other drove more consumers and businesses to bank is not likely to offer more than one P2P networks by linking to payment rails such digital money movement amid lockdowns solution to its customers. as The Clearing House’s real-time payments and social distancing. “The power of the Zelle network is that network. A recent U.S. Faster Payments “This thing is a freight train that keeps it has large banks, small banks and credit Council survey of people who work in banks, going,” said Al Ko, CEO of Early Warning. unions with virtually universal coverage,

For up to date and complete coverage go to AmericanBanker.com MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 5 with hundreds more being onboarded roll out in the next several quarters include and central banks across the world,” he said. regularly,” Ko said. personalized, AI-powered shopping offers, PayPal’s revenue during the second After a year operating as a bank joint the ability to manage PayPal’s buy now/pay quarter rose 19% over the same quarter a venture called clearXchange, Zelle made its later installment loans within the app and year ago to $6.24 billion, while net profit fell debut through Early Warning in 2017. That two-days-early access to direct deposits, 23% during the same period to $1.18 billion, year the network handled $75 billion in Schulman said. which PayPal attributed to fallout from its payments and 247 million transactions. The troves of data PayPal may amass about long separation from eBay announced six It has grown significantly each year, its users’ broad financial habits through its years ago. getting its biggest bump during the super app clearly will accelerate the San In 2015 eBay accounted for 26% of PayPal’s pandemic months of 2020, a year it finished Jose, California-based company’s vision of revenues and its revenue contribution is now with $307 billion in volume and 1.2 billion becoming an omnichannel operator serving in the single digits. By the end of this year transactions. users seamlessly online and in stores. eBay’s drag on PayPal’s growth should end, Customers who download the mobile “Every merchant, whether it’s small, Schulman said. app of a bank on the Zelle network are midsize or large, is envisioning a seamless PayPal added 11.4 net new accounts during automatically enrolled in the P2P service, omnichannel feature, where physical and the quarter and 1.5 million new merchant eliminating the need to download a separate online kind of blur together that they start accounts, bringing its total merchant base to Zelle app. to use that to digitally interact with their 32 million. customers to tie in their loyalty programs, Lower profits and slightly weaker revenue customize deals and offers to individual growth than expected caused PayPal’s stock EARNINGS consumers,” Schulman said. to fall about 8% in late-afternoon trading PayPal is still in talks with large merchants Wednesday. about how to integrate their loyalty programs What PayPal and coupons into its app, following the example of the successful CVS partnership, PAYMENTS is including in he said. Meanwhile, the Pay in 4 BNPL service PayPal introduced last year is surging as a Diane Reyes, its super app standalone product, with 80% of installment loans funded by debit cards, he said. HSBC’s By Kate Fitzgerald “We continue to think PayPal is one of July 29, 2021 the best positioned apps to become a super PayPal has finished coding its so-called app for financial services,” analysts at New highest- super app, but will still be adding core York-based Piper Sandler said in a note to services long after the product launches. investors. ranking PayPal isn’t coming on too strong with the Pay in 4 generated $1.5 billion in payment app’s imminent launch. The first services to volume during the quarter that ended June be added are a savings account, bill payment, 30, up 50% from the first quarter of this woman in cryptocurrency management and a new two- year, with 7 million consumers and 650,000 way messaging feature for person-to-person merchants participating, Schulman said. U.S., retiring payments. PayPal offers Pay in 4 to merchants at no extra Many of the biggest services slated for cost. the app are successful individually — a PayPal next month will expand its this year loyalty integration with CVS has exceeded cryptocurrency account management expectations, and the Pay in 4 installment services to users in the U.K. In coming By Allissa Kline lending product is also successful, the months, the company plans to integrate July 29, 2021 company says — but the challenge will be crypto wallets with ACH in the U.S. so Diane Reyes, HSBC’s highest-ranking whether bundling them into a super app consumers can more easily move and spend senior female executive based in the United improves their visibility or dilutes it. crypto funds, Schulman said. States, will retire from her post at the London- “It’s going to be a multiyear journey for Blockchain development in global markets based company by the end of the year. us,” Dan Schulman, PayPal’s president and is also on the agenda, as the company works In an internal memo sent Thursday to CEO, told analysts during an earnings call with regulatory agencies and central banks employees, HSBC announced that Reyes’s Wednesday afternoon. around the world to explore opportunities 10-year run as global head of HSBC’s liquidity “The way I’m looking at success with the with central bank digital currency, Schulman and cash management division would end super app is what kind of engagement levels said. during the fourth quarter. Reyes, who joined do we get, what’s happening to our average “We are clearly thinking about what the HSBC from Citigroup, will be succeeded by a revenue per active account,” Schulman said. next generation of financial systems looks like current Citigroup executive — Manish Kohli, Additional super app features slated to and we’re working with regulatory agencies who is the global head of Citi’s payments and

For up to date and complete coverage go to AmericanBanker.com MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 6 receivables business. their desks or while eating in the cafeteria, impact. “We have to be in this space because Reyes has been a mainstay on American according to the person, who asked not to be people are looking for answers.” Banker’s Most Powerful Women in Banking identified discussing personnel information. Mastercard and Visa both want to use their list for more than a decade, both at Citi and The U.S. Centers for Disease Control international scale and large bank networks HSBC. Last year, she led HSBC through a and Prevention advised fully vaccinated to win government and private-sector clients digital transformation that resulted in record individuals to once again start wearing masks as central bank digital currency projects payment volumes and value across online in public indoor settings in places where the advance and stablecoins expand as payment and mobile channels, according to her 2020 coronavirus is spreading rapidly. Most major options. Miebach spent part of the card Most Powerful Women in Banking profile. U.S. urban areas fall under the scope of that brand’s earnings call pitching Mastercard’s In the memo, Greg Guyett, co-CEO of global advisory, including New York City, where CBDC testing platform and the Purchase, banking and markets, and Barry O’Byrne, Citigroup is headquartered. N.Y., company’s decision this week to invite the CEO of global commercial banking, said Banks have been among the strongest crypto and digital asset startups to join its that under Reyes’s leadership, HSBC has proponents of returning staff to offices, Start Path program. “continued to gain market share and digitize though Citigroup isn’t expecting the vast CBDC development has moved slowly in at scale to make it faster and easier for [its] majority to come back until September. the U.S. and Europe, though both markets cash management and liquidity clients to do Chief Executive Jane Fraser has long said her face pressure to expedite their respective business.” The pair also highlighted HSBC’s decisions to allow more workers back would initiatives given the head start China has with investments in digital platforms, real-time be dictated by local health data and not its digital yuan, which is already live in some payments, liquidity solutions, commercial stringent deadlines or dates. markets and with retailers active in China cards and mobile collections. Citigroup’s move follows Walt Disney’s such as McDonald’s and Starbucks. Like Reyes, Kohli will be based in New announcement that it’s requiring masks The holdup for Western CBDCs stems from York. He has worked for Citi for more than again at its theme parks in Florida and concerns about the new currency’s impact two decades in Asia, Europe, the Middle East, California. Some technology giants are going on the existing banking industry; namely that Africa and most recently in the U.S. further than their counterparts on Wall consumers will draw down bank accounts in In Kohli’s new role, he will be in charge Street: Facebook and Alphabet’s Google have favor of government accounts. There’s also of growing global liquidity and cash told employees they will require them to be questions about how wholesale and retail management revenues and expanding vaccinated against COVID-19 in order to CBDCs will work together across borders, products and digital tools for clients. return. and whether the goals of CBDCs — such as He will report to Guyett and O’Byrne. faster payments — are achievable through less disruptive means. CRYPTOCURRENCIES Mastercard’s virtual test platform CORONAVIRUS simulates the issuance, distribution and exchange of CBDCs between banks, financial Mastercard service providers and consumers. The card Citi reinstates brand is additionally pursuing central banks, fleshes out commercial banks, technology companies mask and advisory firms to assess CBDC designs, validate use cases and study interoperability its crypto with existing payment rails. requirement “All of these countries have to make strategy a trade-off between existing delivery of in offices financial products and what a CBDC is By John Adams solving for, whether it’s financial inclusion or July 29, 2021 cross-border payments,” Miebach said. “We after CDC Mastercard has long signaled an interest have experience with all of that.” in digital currencies, a strategy that is taking The card brand is also attempting to update shape through a new program to help improve its connections to new companies startups and a virtual testing platform for that use blockchain or cryptocurrency By Bloomberg News central banks. technology. July 29, 2021 “What we believe we do is bring a Mastercard’s Start Path, which provides Citigroup has gone back to requiring perspective to the market as a multrail startups with access to technology and employees — payment provider,” said Michael Miebach, Mastercard’s executives, has added more regardless of their vaccination status — Mastercard’s CEO, during Thursday’sthan a half-dozen crypto participants, to don masks when they’re in the office, earnings call, referencing developments in including digital asset investment platforms according to a person familiar with the cryptocurrencies and central bank digital Uphold and Domain Money. matter. currencies that often still require technology Mastercard in February announced it Workers can remove their masks when at development or clarity on use cases and would process cryptocurrency transactions

For up to date and complete coverage go to AmericanBanker.com MONDAY AUGUST 2, 2021 AMERICANBANKER.COM PAGE 7 on its network, though it did not specify $2.69 billion to entice banks and retailers swap in the Secured Overnight Financing which cryptocurrencies would be included. to use cards and route transactions over its Rate — a benchmark recommended by the Most of Mastercard’s language has focused on network, according to Bloomberg, which Alternative Reference Rates Committee — stablecoins, which are pegged to traditional reports that’s higher than the $2.47 billion when most Libor settings end in 2023. currency valuations to hedge against analysts expected. The card brand projected The bill is aimed at allowing contracts to crypto’s volatility. Circle’s USDC stablecoin is third-quarter percentage growth in the high quickly adopt a version of SOFR instead of growing quickly, and the Facebook-affiliated 20s, noting that could change depending on Libor without the need for litigation. The stablecoin Diem is expected to launch the trajectory of the pandemic. legislation would authorize the Fed to issue shortly. Miebach also expressed opposition to any rules dealing with the use of SOFR in Libor- “We are getting ready to enable our tightening of the Durbin amendment, a part based contracts. network to carry stablecoins, provided of the Dodd-Frank law that governs debit “It is important that we pass [the bill] now the [currency operator] meets regulatory interchange. The Federal Reserve has recently because the Senate will take its time, then compliance, consumer protection and safety taken a posture that is more favorable to the the Fed has to draft regulations and this all [standards],” Miebach said. merchant position. The Fed also extended has to be done before they stop publishing Mastercard recently announced the comment period for changes to Durbin Libor, but even before that,” Sherman said at partnerships with Paxos, Circle and Evolve that would clarify that debit issuers should a committee markup Thursday. Bank & Trust to simplify crypto-to-traditional allow merchants to have at least two network A number of industry groups, including currency conversions to support payments choices to process debit payments for online the American Bankers Association, the Bank over Mastercard’s merchant network. purchases. Policy Institute and the Securities Industry Rival Visa is also investing in “We have had the benefit of seeing Durbin and Financial Markets Association, sent a cryptocurrency, recently reporting playing out for many years,” Miebach said, letter Wednesday to the committee, urging it processed more than $1 billion in opining that the rule has not met its intended members to advance Sherman’s bill. cryptocurrency payments in the first half of goal. “Costs for consumers have gone up and “We certainly do not take lightly the 2021, and like Mastercard drawing attention benefits have been reduced.” amending of contracts; however, in this to technology that allows easy conversions unique, once-in-a-lifetime financial event we between crypto and traditional currency for find no other feasible option for remediation retail payments. Visa has said it’s working INTEREST RATES of these contracts without the risk of with governments on CBDC structure and significant contractual uncertainty,” the has developed technology designed to act as groups said in the letter. a conduit for commercial banks that would House Without congressional action to address in theory be part of CBDC disbursements in the transition, regulators and industry groups different countries. committee have warned that courts could be quickly “Payment networks Mastercard and Visa swamped with litigation between contract would be natural processors of CBDCs and issuers and buyers. Sherman added in of privately-issued fiat-currency-backed advances remarks Thursday that all the federal banking stablecoins worldwide,” said Eric Grover, a regulators had also voiced their support for principal at Intrepid Ventures. “To be sure bill to the bill. processing CBDCs and stablecoins would Meanwhile, the ARRC also on Thursday be a different kind of payment than credit, formally endorsed term benchmarks tied to debit, and ATM transactions. Nonetheless, address Libor SOFR, Bloomberg News reported. The rates they’re electronic payments, and should be committee ratified CME Group Inc.’s term in Mastercard and Visa’s wheelhouse.” transition rates for one-, three- and six-month tenors While the yield on CBDC and private based on SOFR futures. stablecoin transactions is likely to be thin By Hannah Lang Yellen and Powell had both urged compared with retail credit and debit cards, July 29, 2021 lawmakers earlier this year to provide it would be largely incremental, Grover said. WASHINGTON—The House Financial automatic fallback language for contracts “The card networks should go for it with Services Committee voted Thursday to relying on Libor to incorporate an alternative g u s t o.” advance a bill to address the transition away rate benchmark. “These are contracts that For the quarter ending June 30, Mastercard from the London interbank offered rate, don’t provide for workable fallback rate, and reported revenue of $4.5 billion and earnings months after Federal Reserve Chairman so I think Congress does need to provide per share of $1.98, which beat analysts’ Jerome Powell and Treasury Secretary Janet legislation for the Libor transition,” Yellen expectations of $4.37 billion and $1.74, Yellen endorsed the need for legislation on said in March. according to FactSet. Visa and American the issue. Powell told lawmakers in February that Express also beat expectations for the most Rep. Brad Sherman, D-Calif., sponsored the “federal legislation creating a path for a recent quarter. Adjustable Interest Rate (LIBOR) Act of 2021, backup would be the best solution” to Mastercard’s gross dollar volume increased which, if enacted, would establish a process prepare for the end of Libor. 33%, to $1.9 trillion. The card brand set aside for legacy financial contracts to automatically

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important period in financial history, and to which information and why. For those of BANKTHINK the connections Kaufman and Sicilia make us who refer to financial history to debate have enormous implications for money and financial policy — including, I imagine, most banking in 2021 and beyond. readers of American Banker, myself included Rethinking We are today engaged in a robust debate — Kaufman and Sicilia make a compelling about inflation — whether sudden price rises case that cause and effect in markets are rarely the power are transitory, whether the Fed’s monetary as easy to discern as we like to think, even in policy regime is defensible, whether the instances as clear cut as August 1982. government is spending too much, whether Kaufman and Sicilia also give us good of market banks are lending enough. reason to pause when we recount our own That makes the context for “The Day the tales of market heroes and villains. The authors influencers Markets Roared” that much more poignant: give the Volcker Fed great credit in creating Following a half-decade of doldrums in the macroeconomic conditions for sustained By Peter Conti-Brown collapsing real wages, high inflation and low economic growth in the 1980s — something July 29, 2021 productivity, Ronald Reagan rode a wave of politicians of the era were unable to do on their When markets move suddenly, we look discontent to the White House in 1981. His own. But it also gives us reason to rethink the for a causal explanation. Many times this is a supply-side economics — that rising tides conventional wisdom that Volcker was the silly and vexing exercise. Why are traders — would lift all boats as we slashed taxes and hero who defeated stagflation. whether the robots following algorithms or put money back in the hands of high earners, In one of the most charming excerpts of the humans seeking to filter the news of the day deficits be damned — was not working to book, Kaufman and Sicilia quote a journalist through their own models of asset prices — restore vitality to credit and securities markets. writing about the strange 1982 rally in an acting the way they do? In most cases, we just Meanwhile, the Paul Volcker-led Fed had imagined dialogue between father and son: don’t know, but the human urge to attach launched a monetary revolution all its own SON: Hey Dad, I hate to bug you again, narratives to those uncertainties is often too beginning in October 1979, sending interest but you’ve got to tell me what happened in great to resist. rates soaring in an effort to tame inflation. the stock market last week. I hear prices went But sometimes the causal narrative is Recession followed. through the roof one day, and the next day, the appropriate and incontrovertible. Headlines Kaufman had long noted that these above- market traded 132 million shares. around Congress’s stalled bailout talks in mentioned trends, focusing on inflation in DAD: It’s very simple, son. Two of Wall September 2008 forced stocks lower. Or, more particular, were a drag on economic and Street’s big name economists — a fellow recently, the markets tanked as the breadth productivity growth. This gave him the named Henry Kaufman of Salomon Brothers and depth of the coronavirus pandemic moniker Dr. Doom in the press, but his more- and another guy with a really big name, Albert became more apparent. often-correct-than-wrong predictions had also Wojnilower of First Boston [who wrote a similar And there’s another example, one that given him significant credibility. And Kaufman report a day later] — said business was lousier many of us may have forgotten: when Henry remained skeptical of Reaganomics well into than they expected it to be and the chances of a Kaufman, a widely quoted and illustrious the president’s first term, continuing to point good recovery were getting dimmer. economic forecaster who served as head of to the consequences for interest rates of the There is an important depth to this satirical research for Salomon Brothers, predicted in president’s soaring deficits. exchange. The monetary revolution launched 1982 that interest rates would fall, sparking a Then, in August 1982, Kaufman changed by Volcker was not bloodless. The day the then-record market surge. his mind. He penned a memo that said the market roared was indeed a response to Kaufman, joined by the gifted business recession had no end in sight, unemployment Kaufman’s (mistaken, it turned out) prediction historian David Sicilia as co-author, gives was stuck at 9% and the prospect of a “smart that the recession was far from over and that readers a remarkable glimpse into the weeks business recovery” in the face of these pressures there was little banks could do to provide more (and months, and years) surrounding “The Day was unlikely. These factors, and many others, credit support to Main Street. The prediction the Markets Roared” in reaction to Kaufman’s put significant downward pressure on interest that the Fed would have to relent was very change in forecast. rates, he said, likely compelling the Fed to good news for investors, but was it good news Does a book on this subject by these authors bring them from their stratospheric highs for everyone else? seem dry, almost self-indulgent? Perhaps. somewhere closer to earth. I expect we will debate that point with Kaufman wrote a memoir in 2000 and another Markets promptly went berserk. Kaufman’s renewed vigor in the months and years to quasi-memoir in 2017, so one can be forgiven revised outlook and the prospect for a less- come. Fortunately, because of “The Day the for thinking the territory has been covered crippling interest rate environment marked Markets Roared,”we will do so with better before. And an entire book dedicated to a the beginning of the end of this curious period insights about how these vital dynamics have memo on interest rates and a market jump of financial history when politicians, bankers played out before. that few remember does not seem like fertile and businesses obsessed over the direction of ground for extended meditation. interest rates. Sound familiar? Peter Conti-Brown is an assistant But this delightful, slim volume is neither This book is essential reading for financial professor of legal studies and business ethics dry nor self-indulgent; rather, it is a micro- historians, market participants, and at the Wharton School at the University of history of a pivotal point in an extraordinarily policymakers interested in how markets react Pennsylvania.

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East and Africa region. finance gain mainstream acceptance, WEALTH MANAGEMENT In January, Citi combined its consumer money has been pouring into the space to wealth management and private banking fund startups and new ways of conducting units to form Citi Global Wealth, led by Jim financial transactions. Last month, State Citi sees $15 O’Donnell. The bank recently appointed Street created a new division, State Street regional private bank head Steven Lo Digital, led by Nadine Chakar, to expand the billion Asia and former Asia-Pacific retail head Fabio firm’s services for crypto, central bank digital Fontainha to lead Citi Global Wealth in Asia. currencies, blockchain and the tokenization of securities. wealth inflow “The growth in popularity of digital assets CRYPTOCURRENCIES is showing no signs of a slowdown and State as hundreds Street Digital is committed to continuing to build out the necessary infrastructure to State Street further develop our digital assets servicing hired models to help meet our clients’ growing to offer crypto demands,” Chakar said in the statement. q By Bloomberg News July 29, 2021 © 2021 Arizent and American Banker. Citigroup attracted close to $15 billion in services to All rights reserved. net new money across its Asia Pacific wealth management business in the first six months private-fund of 2021, as hundreds of new hires helped the lender mark one of its strongest half years on record for the unit. clients The U.S. bank added $8 billion in the second quarter, with assets under management up By Bloomberg News 21% during the first half from a year earlier, July 29, 2021 according to a statement on Thursday. Citi State Street is set to offer cryptocurrency added several hundred wealth professionals reporting, reconciliation and processing in Hong Kong and Singapore this year, part of services to its private-fund clients in the latest its plan to hire 2,300 staff in the Asia Pacific sign that digital assets are gaining acceptance region to grow client assets by $150 billion by on Wall Street. 2025. The firm is partnering with Lukka, a “We are capturing market share as provider of middle- and back-office crypto Asian clients increasingly require portfolio software, for the fund-administration advice, design and allocation geared toward services, State Street said in a statement diversification of asset types and geographic Thursday. exposures,” Peter Babej, chief executive for Lukka also will provide State Street’s Citi Asia Pacific, said in the statement. private-fund clients with data to support Citi is joining rivals including HSBC valuation services, Lukka spokesman Brian Holdings and Credit Suisse Group in Brown said. Boston-based State Street is one reaping the benefits of beefing up wealth of the world’s largest custodians, with $42.6 management in Asia since the pandemic to trillion of assets either under custody or boost fee-based income amid rock bottom administration. interest rates. Credit Suisse increased its Wall Street began experimenting with relationship managers in Asia-Pacific to 650 blockchain about five years ago, with banks from 600 during the first half, according to its including JPMorgan Chase, Goldman Sachs results presentation on Thursday. Group and Bank of New York Mellon and Asia-Pacific has 831 billionaires, more the crypto unit of Fidelity Investments all than any other region, according to a report offering clients various digital-asset services. by UBS Group and PricewaterhouseCoopers The startup Paxos Trust is using blockchain last year. technology to settle some equity trades in The U.S. bank is doubling down on wealth, near-real time, while Arca is offering digital with a focus on four centers in Hong Kong, shares in a U.S. Treasury fund, showing Singapore, the United Arab Emirates and that distributed-ledger technology can help London, even as it exits retail banking in 13 streamline finance. markets across Asia and the Europe, Middle As cryptocurrencies and decentralized

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