This week’s highlights include news from the FOMC, a $50 Mn financing in Prosper led by FinEx, a bank partnership, and highlights from ABS East.
On the back of Hurricane Irma, ABS East continued as scheduled in Miami this week. Ram Ahluwalia spoke on the ‘Trends in Online Consumer Lending: Less Tech, More Fin?’ panel, from which we included two slides below. Overall, yield compression and uncertainty around credit risk is driving investor demand for shorter duration assets. Despite credit deterioration in the unsecured personal loan space, strong structural protections and credit enhancement has enabled ABS spreads to tighten.
We highlight market performance data in the charts below:
Fed Reducing Balance Sheet and Not Offering Regulatory SandBox
On Wednesday, the FOMC announced it will begin to reduce the Fed’s $4.5 Tn balance sheet in October 2017 and is on track for a rate increase later this year. As detailed in June 2017, the Fed will:
- Reduce its principal reinvestments by $10 Bn in each the next three months ($6 Bn from treasuries and $4 Bn from MBS).
- Every three months, the Fed plans to reduce principal reinvestments by an additional $10 Bn, until it reaches $50 Bn per month ($30 Bn from maturing Treasuries and $20 Bn from maturing MBS).
- This plan will effectively reduce the Fed’s assets by $420 Bn in 2018, and $600 Bn in subsequent years.
To put it into perspective, the Fed purchased $27 Bn agency MBS during August 2017, if the new plan would have been in place, the Fed would have purchased $23 Bn. The chart below shows how the Fed’s balance sheet changed over time since the financial crisis.
In other regulatory news, Gerald Tsai, director of applications, enforcement, and FinTech at the Federal Reserve Bank of San Francisco, .
A regulatory sandbox would typically allow banks and other firms to trial new technology with more relaxed supervisory requirements from the Fed and other agencies. Regulatory sandboxes have been successfully used in other markets (see for example the success of the UK and “challenger banks”). Tsai noted that the lack of a system for regulatory safe harbors has not hampered financial innovation.
JP Morgan – Another Bank Partnership
Earlier this week, JPMorgan Chase made an investment in Bill.com and plans to integrate Bill.com’s systems into their own early next year. Bill.com facilitates B2B payments by eliminating the need for physical checks and allowing users to process everything online. Prior investors in Bill.com include Bank of America, American Express, and Fifth Third Bancorp. JPMorgan Chase previously announced partnerships with dozens of other FinTechs including OnDeck, Truecar, and Roostify.
Lastly, with the end of the quarter approaching, stay tuned for PeerIQ’s upcoming securitization tracker.
- Ram will speak on the “Legacy of Madden” Panel at 9:40AM at the Online Lending Policy Summit on September 25th in Washington, DC. Speakers also include Keith Noreika, Acting Comptroller of the Currency, Congressman French Hill, Congressman Greg Meeks, and representatives from OCC, CFPB and Treasury. Register here.
- Ram will speak at the 1010Data Discovery Summit on October 5 in New York, discussing PeerIQ’s data partnership with 1010Data at 11:15-11:55AM.
- Bond Buyers Stick With SoFi (AB Alert, 9/22/17) The exit of SoFi founder Mike Cagney isn’t dampening investor enthusiasm for the company’s asset-backed bonds.
- PeerIQ Pokes Around SoFi Fallout, Recent Securitizations (AlternativeLending.io, 9/18/17)
- SoFi CEO Resigns; Goldman & Mosaic Ink Deal; SoFi & Lending Club Deal Analysis (PeerIQ), Rated: AAA (Lending Times, 9/18/17)
- US Consumer Finance Agency Expected to Punish Equifax (NYT, 9/22/17) Equifax is not strictly a financial company and there are questions about whether the CFPB has the power to penalize the firm for the breach.
- JPMorgan Seeks to Banish Paper Payments With a Fintech Venture (Bloomberg, 9/19/17) JPMorgan to start offering Bill.com’s services to clients in 2018.
- Federal Reserve Attorney: US Not Interested in Fintech Sandboxes (Crowdfund Insider, 9/18/17) Report in Bloomberg Law that Federal Reserve Attorney in which Gerald Tsai indicated the US is not that interested in creating a regulatory Sandbox or Fintech Sandbox.
- Fed to Start Paring Holdings, Keeps December Rate Rise on the Table (WSJ, 9/20/17) The Federal Reserve indicated Wednesday it remained on track to raise short-term rates later this year and said it would begin shrinking its portfolio of bonds next month.
- Don’t let court squander online lenders’ chance to reach underserved (American Banker, 9/19/17) Nathanial Hoopes illustrates the adverse impacts stemming from the Madden decision.
- First Associates Loan Servicing Earns Morningstar’s Highest Ranking (PRWeb, 9/20/17) First Associates Loan Servicing announced the release of the Morningstar ranking report certifying their overall excellence in loan servicing.
- Scientists Discover a Jewel at the Heart of Quantum Physics (Wired, 12/11/13) Physicists reported the discovery of a jewel-like geometric object that dramatically simplifies calculations of particle interactions and challenges the notion that space and time are fundamental components of reality.