PayPal gets cryptocurrency license; Fed official warns on monetary policy risks

Receiving Wide Coverage ...

License to spend

PayPal “will soon begin offering support for cryptocurrencies, including at the checkout,” after the New York State Department of Financial Services “said it had granted PayPal a conditional ‘Bitlicense,’ permitting it to trade and hold cryptocurrencies, ” the Financial Times reported.

“PayPal’s big differentiator over existing digital wallets will be that consumers can spend their store of bitcoin and other cryptocurrencies at more than 20 million online retailers. Customers would be able to use cryptocurrencies as a funding source for online transactions next year, in the same way as they would top up their wallet using a bank account or debit card today.”

“Support for bitcoin and other cryptocurrencies paves the way for PayPal to work with other kinds of digital currencies, including those that might be issued by central banks, in the coming years.”

The Wall Street Journal offers a primer on digital currencies and why central banks, including the Federal Reserve, are exploring the possibility of issuing their own.

“PayPal isn’t the first company to open its platform to cryptocurrencies, but in its technique it is more hands-on than most payment providers,” American Banker’s Kate Fitzgerald reports.

Financial Times

Opening salvo

Goldman Sachs’s Asia business was fined a record $350 million by Hong Kong’s securities regulator “for serious deficiencies in risk compliance and money laundering controls in relation to Malaysia’s 1MDB. The Hong Kong fine is the first of more than $2 billion of new penalties set to be announced on Thursday as regulators from the U.S. to the U.K. and Singapore punish Goldman for its role in the looting of billions that was raised for Malaysia’s economic development and siphoned off in a money laundering and bribery scandal.”

Dropped suit

“One of Abu Dhabi’s sovereign wealth funds has dropped a lawsuit” against Goldman Sachs for its role in the 1MDB scandal. “The news comes the day before the expected announcement of a long-awaited global regulatory settlement that includes more than $2 billion of new fines for Goldman and a guilty plea from one of its Asian subsidiaries to close a chapter in a scandal that has cast a shadow over the bank for nearly five years.”

“The Abu Dhabi fund guaranteed around $3.5 billion of the $6.5 billion of debt issued by Goldman Sachs on behalf of 1MDB between 2012 and 2013.”

Washington Post

Message delivered

Morgan Stanley’s dismissal this week of its two most senior commodities traders for unauthorized communications through the WhatsApp messaging app shows that “the big investment banks may have been less effective in policing staff behavior” when they were working remotely, a Bloomberg op-ed says.

“The departures highlight the challenge for banking executives and regulators in overseeing remotely working traders. After the tens of billions of dollars of fines imposed on Wall Street since the financial crisis — much of which was documented in electronic chat rooms — banks are suddenly having to grapple with an explosion of interactions taking place away from their direct oversight. From Zoom to Skype to WhatsApp, bankers are often encouraged by clients to connect on platforms that are hard to vet. By holding those at the top of the chain of command responsible for setting standards, Morgan Stanley is sending a strong message to its workforce that it won’t tolerate anything that even creates the possibility of misconduct.”

Opting out

There’s a reason millennials are switching from brick-and-mortar banks to virtual ones, a Bloomberg article says: “Terrible customer service.”

Elsewhere

Slimming down

Deutsche Bank “is in advanced talks” to sell it Postbank Systems IT unit to an Indian buyer, Bloomberg reported (subscription required). The sale of the unit, “which employs about 1,400 people, would bring CEO Christian Sewing closer to his job-cuts target.”

“Sewing last year unveiled a restructuring plan centered on cutting 18,000 jobs, with about half of those expected in Germany. Deutsche Bank is currently merging Postbank’s IT with its own, which is expected to render the services provided by PB Systems obsolete by the end of next year. The plan, known internally as Project Unity, is expected to contribute the lion’s share to Sewing’s goal of cutting 1 billion euros of expenses in the German retail operations.”

Closer to launch

Agility Bank, the “Houston-based, woman-owned, predominately digital community bank,” has received conditional approval from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to launch, the Houston Business Journal reported. “Agility Bank expects to gain final regulatory approval by the second quarter of 2021.”

The bank is in the process of raising $30 million in capital ahead of the launch. “Agility Bank will be a digitally focused community bank specializing in commercial lending to small to medium-sized business customers.”

Double-edged sword

The Federal Reserve “needs to study how low rates can affect financial stability risks, Cleveland Fed Bank President Loretta Mester said Wednesday,” Reuters reported. “While monetary policy that leads to a stable macroeconomy encourages financial stability, it is also possible that in an environment with low neutral rates, a persistently accommodative monetary policy could, in some cases, increase the vulnerabilities of the financial system,” Mester said.

Low rates could encourage “higher levels of borrowing and financial leverage, increased valuation pressures, and search-for-yield behavior,” she said.