BPInsights: January 22, 2022

Stories Driving the Week

Exposing Serious Untruths About Bank Mergers, Branches and Access

A common criticism of bank mergers is that they lead to a disproportionate number of branch closures and thereby diminish access to banking services, but a new BPI research note examines 40 years of data and shows this is false: branches are just as likely to be closed by banks that do not merge or acquire.

Are Loans to Carbon-Intensive Firms the New Subprime?

  • What’s happening: Global banking regulators are developing scenarios that examine how climate risk could affect banks. The climate risk scenarios include both “physical risks” of climate change – such as frequent hurricanes, wildfires and warming temperatures – and “transition risks,” or disruptions from policy changes in the transition to a lower-carbon economy.
  • What to watch: One scenario used by the Bank of England (“late action”) assumes the U.S. would suffer a recession as severe as the 2007-2009 global financial crisis. This particular genre of scenarios, the “disorderly transition scenario,” tends to concentrate the stress in financial and economic variables over a three- to 10-year horizon.
  • The big picture: New BPI research examines some of the outcomes in the BoE disorderly transition scenario and concludes that more research is needed to evaluate how disorderly transition risk, such as abrupt increases in a carbon tax, affects the world economy.

Fed Releases CBDC Paper

The Federal Reserve on Thursday released its much-anticipated paper on central bank digital currency. The central bank described it as “the first step in a public discussion between the Federal Reserve and stakeholders,” said it was not aimed at advancing a specific policy outcome and made clear that no decision was imminent on whether to issue a CBDC. Any U.S. CBDC should be “privacy-protected, intermediated, widely transferable, and identity-verified,” said the paper, which examined CBDC benefits and risks. The Fed is seeking comments on a potential CBDC, with a deadline of May 20. The central bank said it “will only take further steps toward developing a CBDC if research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods” and “would only pursue a CBDC in the context of broad public and cross-governmental support.”

  • Our take: BPI released a statement on the report. “We welcome the paper and its lengthy comment period, which shows a commitment to the seriousness, and a recognition of the uncertainty, of the subject matter, and the need for further research,” SVP and Associate General Counsel Paige Pidano Paridon said.

Brown Plans Early February Hearing for Fed Noms

Senate Banking Committee Chairman Sherrod Brown (D-OH) said this week that the panel will hold a hearing for the three new Federal Reserve nominees in early February. The nominees, Sarah Bloom Raskin, Philip Jefferson and Lisa Cook, will appear together in a joint nomination hearing, Brown said.

U.S. Bank/Union Bank Deal on Track for First Half of 2022

U.S. Bank’s proposed acquisition of MUFG Union Bank will likely close “later in the first half” of this year, CEO Andy Cecere said this week. Regional bank mergers are at stake in the ongoing policy debate over bank M&A limits.

SoFi Gets Conditional Approval for Bank Charter

Digital finance firm SoFi received conditional OCC approval for a bank charter, the OCC announced this week. SoFi will become a full-service national bank and acquire Golden Pacific Bank. The approval included an agreement that the new bank will not engage in crypto-asset activities. “Today’s decision brings SoFi, a large fintech, inside the federal bank regulatory perimeter, where it will be subject to comprehensive supervision and the full panoply of bank regulations,” Acting Comptroller Michael Hsu said in a statement.

  • BPI tweetThe approval “is an excellent example of FinTech doing it right. SoFi didn’t try to manipulate existing rules or take advantage of loopholes to avoid regulation and supervision. They worked diligently to meet transparent eligibility requirements and established an insured bank in order to conduct banking activities. Their customers & the entire financial system are better off as a result. If only this was a model followed by all FinTech companies…”

In Case You Missed It

Democrats, EU Target Crypto’s Energy Drain

Democrats in Congress are taking aim at cryptocurrency’s environmental effects: namely, the energy-intensive process of crypto “mining.” The House Energy and Commerce Committee held a hearing on the topic this week.

  • GOP take: Republicans say the U.S. should foster crypto innovation on its turf, suggesting that the Chinese ban on crypto mining creates a competitive advantage for the U.S.
  • In Europe: Meanwhile, a top European financial official said regulators should consider banning the crypto mining method used by Bitcoin, which is more energy-intensive. Erik Thedeen, vice chair of the European Securities and Markets Authority, warned that crypto posed a risk to meeting Paris Agreement climate goals.

Bank of Russia Proposes Crypto Ban

The Bank of Russia proposed a blanket ban on mining and using crypto in the country, according to Bloomberg this week. The central bank said crypto threatens the nation’s financial stability. But a crypto ban is also backed by the Russian security service, the FSB, for more sinister reasons: to prevent anonymous donations to political opposition figures, according to the article.

Citi Releases TCFD Report, Setting Out Net-Zero Path

Citigroup released its latest TCFD Report, which lays out markers for its transition to net zero emissions in 2050 and outlines steps it is taking to address climate risk. The report “represents our continued leadership in climate change and disclosure,” CEO Jane Fraser wrote in a blog post this week.

Fifth Third to Buy Solar Energy Financing Firm

Fifth Third plans to acquire solar power lender Dividend Finance, according to American Banker. The acquisition would help customers finance solar upgrades and related home improvement projects through the lender’s point-of-sale loan platform.

M&T Expands ‘Multicultural Banking Centers’

M&T Bank will designate 100 more branches as multicultural banking centers, offering services in customers’ preferred languages and employing more bankers from the local communities they serve. The project aims to expand financial services access in diverse communities.

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.