AFSPA
ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION
September 27, 2018
2018 edition: 77/104
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Can We Survive the Next Financial Crisis?

Ten years ago this week, Lehman Brothers Holdings Inc. collapsed, triggering the worst financial crisis in almost a century, a seismic event that still reverberates today.

Then the fourth-biggest U.S. investment bank, Lehman declared bankruptcy on Sept. 15, 2008. Stocks plunged and credit markets froze. Investors, not knowing how interconnected the biggest financial players were, feared the entire global financial system could implode.

A decade later, amid signs of new asset bubbles, a big question is whether the steps taken after the crisis have made that system strong enough to withstand the next shock.

While banks are safer on many counts than before the crisis, the economic and political repercussions are still being felt. Leverage has shifted to companies from consumers, and some risk has migrated to shadow banks from traditional lenders. Links between shadow and mainstream banks persist, and taxpayer bailouts, though less likely, are still possible.

The most important change for banks has been a sharp increase in capital requirements and what qualifies as a buffer against losses. Lehman and the other big firms had so little of it in 2007-about $2 for every $100 of assets-that it didn't take a lot of losses to erase that cushion. That meant the value of the assets had to fall just 2 percent for the equity to be wiped out. Now, with almost $7 for every $100, banks have a bigger buffer to handle unforeseen losses when the next downturn strikes.
Read more at BLOOMBERG

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Ten years after financial crisis: Is corporate debt the next bubble?

A decade after the financial crisis, the seeds are being sown for the next potential meltdown.

This time, the tinder isn't subprime mortgages but a mountain of risky corporate debt that looks eerily similar. UBS estimates there's a record $4.3 trillion in lower-quality corporate loans and high-yield bonds - up from $2.4 trillion in 2010 - that could begin to see rising defaults if the healthy U.S. economy starts to wobble.

"I view this as the most severe threat to the economy and financial system," says Mark Zandi, chief economist of Moody's Analytics.

Saturday marks the 10th anniversary of Lehman Brothers' bankruptcy filing, a seismic event widely viewed as the trigger of the financial crisis as it rapidly caused investors to lose confidence in banks and the financial system.

Banks not at center of troubles
One consolation is the nation's largest banks aren't the biggest players in the lower-grade corporate debt market as they were during the mortgage mess. That somewhat limits the potential damage to the economy, which depends on sound banks making loans to consumers and businesses. The shaky corporate debt is largely held by an assortment of private equity firms, hedge funds, insurance companies, mutual funds and other financial companies. Read more at USA TODAY

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Nearly 70% of Americans consider themselves middle-class-here's how many actually are

The definition of "middle class" can vary wildly depending on who you ask. For some, it's defined by certain attributes: If you're hardworking, thrifty and humble, for example, you're middle-class. For others, it means earning a substantial salary but not so much that you'd be considered rich.

That's according to new data from Northwestern Mutual's 2018 Planning & Progress Study, which found that 68 percent of Americans consider themselves middle-class, down 2 percent from last year. However, because of the fuzziness of the definition, far more Americans consider themselves middle-class than technically qualify based on income.

In reality, the middle class now makes up just over 50 percent of the total U.S. population, according to a recent report from Pew Research Center, which used 2016 data. That's compared to 61 percent in 1971.

Between 1971 and 2011, the share of adults in the middle class fell by 10 percent - but since 2011, Pew reports, the middle class has remained relatively stable instead of continuing to shrink. Read more at CNBC

Pew defines the middle class as those whose annual household income is two-thirds to double the national median, which was $57,617 as of 2016. By that definition, a middle-income three-person household earns about $45,000 to $135,000. If you're single, a salary of around $26,000 to $78,000 qualifies you as middle-income. Read more at CNBC

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Report examines consumer alternative cash use

Recently released data has revealed consumers are turning to debit cards, credit cards, and mobile wallet cash alternatives more frequently than ever before.

Analysis by CivicScience, the Federal Reserve, Forrester and Ally Bank determined three in four Ally customers polled noted they primarily use a credit card when purchasing goods and services in stores.

Conversely, officials said fewer than one in 10 Ally customers indicated their primary form of payment is cash.

"Customers want convenience, and a credit or debit card eliminates the guesswork in how much cash might be necessary when running errands, dining out or simply day-to-day expenses like gas, parking or coffee," Diane Morais, president of Consumer and Commercial Banking Products at Ally Bank, said. "Consumers are getting savvier also and taking advantage of rewards and protection while using a credit or debit card."

Morais said one advantage of using a card for transactions is the ability to track the spending, which she maintains helps with budgeting.

Consumers also are growing more comfortable paying individuals directly sans cash or a check, officials said, with person-to-person payment systems like Zelle.

Ally Financial officials said the organization is a digital financial services company with assets of $171.3 billion as of June 30, 2018. Read more at Financial Regulation News

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Wall Street, venture capitalists and crypto companies descend on Capitol Hill to debate regulation

Nearly 50 representatives from U.S. financial giants and cryptocurrency startups are set to meet with Washington lawmakers this week to talk through what some say is an incomplete and murky regulatory landscape.

Rep. Warren Davidson, R-Ohio, is hosting a roundtable, "Legislating Certainty for Cryptocurrencies," on Tuesday and asking industry experts to weigh in on how to police the new asset class ahead of a House bill he plans to introduce this fall.

"Your input is critical to helping us preempt a heavy-handed regulatory approach that could stall innovation and kill the U.S. ICO market," Davidson said in a letter to invitees.

The congressman outlined a list of eight questions for the meeting, including: "What is the best way to protect consumers from fraud?" The meeting will also cover private funding disclosures and token issuance laws, a spokesperson for Davidson said.

Representatives from Fidelity, State Street, leading venture capital firms Union Square Ventures and Andreessen Horowitz, the Nasdaq, and the U.S. Chamber of Commerce are among those confirmed to attend, according to an attendee list seen by CNBC. Cryptocurrency startups Ripple, Coinbase and Circle are also planning to be in the room. Read more at CNBC

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The Next Financial Crisis Will Look Like This
Marko Kolanovic is J.P. Morgan's top quant.

Here's how he envisions the next financial crisis.

The Next Financial Crisis
As Kolanovic explains as part of a 168 report issued earlier this month, a precipitous decline in stocks could cause the Great Liquidity Crisis.
Severe stock price declines. Lightening fast machine selling. Aggressive action by central banks.
The rise of passive investing and algorithmic trading could create the backdrop for a substantial stock market drop, according to Kolanovic.
While more recent flash crashes have occurred during periods of economic expansion, flash crashes during a recessionary period are less tested.

Kolanovic predicts those flash crashes could lead to declines in asset values and increased market volatility. Read more at FORBES 

Dreher Tomkies LLP Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.


Bank unveils digital small business lending process

To enhance customer service, US Bank officials said the institution has created a digital option for small businesses to apply for and to receive loans or credit lines.

"We created this new digital experience to deliver on our commitment to continuously improve the way we serve our customers," Tim Welsh, U.S. Bank vice chairman of Consumer Banking Sales and Support, said. "This is the first of several exciting digital initiatives we're pursuing that we believe will better serve the needs of small businesses and consumers."

Bank officials said the digital process serves as a portion of a broader evolution of how the bank interacts with customers, noting single-owner businesses within U.S. Bank's 25-state footprint can qualify for up to $250,000 through the all-digital process.

The application can be completed on any device, officials said, via mobile, tablet or computer. If approved, it will allow the borrower to review their loan details and electronically sign their closing documents.

"We know business owners want their bank to provide simple and secure solutions that they can access despite having very busy schedules," Scott Beyer, vice president and agile experience owner for U.S. Bank, said. "Imagine getting business financing through a trusted national source after your kids are in bed or before your weekend morning crew arrives for work? Now, thanks to U.S. Bank, it's possible." Read more at Financial Regulation News

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Here's How Much the Average American Household Has in a Savings Account

The number might surprise you.
It's easy to paint a pretty bleak picture about the state of Americans' savings. In fact, earlier this year, I reported that 40% of U.S. adults don't have enough savings to cover a mere $400 emergency.

But new data from Magnify Money tells us that Americans may not be doing as poorly as we thought on the savings front. Case in point: The average household's savings account balance is $16,420. However, that number doesn't tell the whole story.

The numbers aren't all pretty
Given the number of U.S. adults who couldn't come up with $400 at a moment's notice, it's encouraging to see that the average savings account balance is upward of $16,000. Furthermore, that figure refers only to savings accounts, which means that those with checking accounts, money market accounts, and CDs could be sitting on far more cash than that. That $16,420, to be clear, also doesn't factor in retirement savings. Read more at THE MOTLEY FOOL

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House committee advances investment regulatory relief measure

The House Financial Services Committee advanced last week the Small Business Audit Correction Act, which is designed to provide regulatory relief for small investment broker-dealers.

The bill, introduced by Rep. French Hill (R-AR), provides an exception from certain audit requirements and reinstates previous regulations.

"Often when we discuss regulatory relief in the financial services arena, we are talking about it in the vein of community banking, but so many other types of financial institutions are in need of regulatory relief, including privately-held, small non-custodial broker-dealers, which are often the gateway to the markets for Main Street businesses," French said. "That is why I am pleased the Committee advanced my bill to provide relief to these small businesses because the current regulatory one-size-fits-all requirements has heaped additional costs and has inhibited growth for these small firms with limited human and financial resources."

Officials said regulations require all investment broker-dealers, regardless of size, to hire an audit firm registered with the Public Company Accounting Oversight Board (PCAOB) to conduct audits using significantly more complex guidelines designed for larger, public companies.
Read more at Financial Regulation News

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