The US economy added 155 k jobs in November, slightly below expectations.Wage inflation came in strong at 3.1%YoY and the unemployment rate remains at a multi-decade low of 3.7%. The economy continues to hum along as the Fed reported that consumer credit increased by $25.4 Bn in October. Growth in consumer credit was driven by credit card debt which grew by the most in 11 months. The full report is available here.

Equity and credit markets had a rough week. The SP500 was down by 4.7%, investment-grade credit spreads (CDX IG) were wider by 8 bps and high-yield credit spreads (CDX HY) were wider by 30 bps. CommonBond and LendingClub are out with securitizations this week and we will be keeping an eye on the impact on pricing due to market volatility.

In this week’s newsletter, we will look at a preview of PeerIQ’s newly-launched Consumer Credit Digest, and comment on the historic regulatory shifts underway at the FDIC.  

Launch of PeerIQ’s Consumer Credit Digest

PeerIQ has launched its Consumer Credit Digest, powered by TransUnion data. The digest is a detailed market report that analyzes credit supply, credit demand, and performance across trillions of loans. The report enables investors and risk officer to stay on top of US consumer credit trends and questions such as:

  • How have originations and outstanding balances trended over time? (page 4)
  • How do delinquencies differ between borrowers who get a loan from a bank and those who get a loan from a FinTech company? (page 30)
  • How has the credit card utilization of borrowers with a personal loan changed over time? (page 56) 

Our first issue, on Consumer Unsecured Term Loans, is available now for free preview here!The preview covers Jan 2014 – June 2016. The paid report covers all loans from June 2000 to present. Contact us to learn more.

         Source: PeerIQ

FDIC’s Bold Steps to Encourage the Formation of New Banks

The Trump Administration, with direction from Secretary Mnuchin, has instituted a leadership change at FDIC, FSOC, FRB, OCC, CFPB, CFTC, NCUA, SEC, Dept. of Labor, and soon at the FHA.

Until the recent appointment of FDIC Chair Jelena McWilliams, the FDIC has been amongst the most recalcitrant regulators to embrace FinTech as its peers have.

In an op-ed, FDIC chair Jelena McWilliams noted that only eleven new banks have opened since 2009, a number dwarfed even by the new openings in World War II. The FDIC is looking to streamline the process of getting a new bank charter and to encourage the formation of new banks. The chair would like bank startup activity to increase substantially and wants to make FDIC deposit insurance available to FinTech startups that apply for banking charters.

We summarize her key observations and initiatives below:

  • Formation of new banks is at an historic low

Formation of new banks post-crisis is historically low. More banks have failed since 2009 than have new banks opened.This trend could leave some communities severely underbanked.

The FDIC wants to encourage new banks to startup and wants innovative FinTech firms to be part of that process. The agency wants to streamline its application process and is seeking comments on how that can be done.

PeerIQ View: Encouraging innovation in the banking sector and expanding access to financial services in underbanked communities is a step in the right direction. The US runs the risk of maintaining international competitiveness without re-thinking its approach to FinTech. In the UK for instance, Zopa a post-crisis FinTech lender, was recently awarded a banking charter – one of several examples in that market and others.

This initiative would enable non-banks to de-risk their liquidity and funding when capital markets inevitably hiccup.

  • FinTech startups can qualify for FDIC deposit insurance

FinTechs have struggled to compete effectively with established banks in the absence of a regulatory swim-lane. The OCC’s Special Purpose National Bank (SPNB) charter allows FinTechs to operate as banks. The FDIC has now cleared the last hurdle by offering FinTechs the ability to receive deposit insurance, just like a traditional bank does.

PeerIQ View: The FDIC’s latest initiative makes the OCC’s SPNB charter even more attractive for FinTechs. SoFi,among others, has launched a checking account as FinTechs look to round out their financial offerings with deposits and wealth management products.However, at least today, these are not true sources of funding for FinTechs. A well-capitalized FinTech with an SPNB charter and FDIC deposit insurance can compete nationally with traditional banks.

FinTechs that apply for the SPNB and FDIC’s deposit insurance will be held to the same high capital and regulatory standards that are in place today for established banks. FinTechs need to weigh the benefits of the charter with the costs of compliance to make the right decision. PeerIQ works with leading FinTechs and community banks to help them to comply with their risk management and capital requirements. Reach out to learn more.

  • FDIC is seeking comments on how to improve the deposit application process

The FDIC wants to streamline the application process for deposit insurance. The agency would like comments on:

How the FDIC should support the continuing evolution of emerging technology and FinTech companies

Aspects of the application process that may discourage potential applications

Possible changes to the application process for traditional community bank proposals

Other suggestions for improving the effectiveness, efficiency, or transparency of the application process.

PeerIQ View: Reducing the friction in the application process will save applicants both time and money. This initiative is especially helpful for smaller organizations who would view these cost savings as significant, and will encourage more applications.

  • FDIC’s new initiative on transparency

The FDIC wants to foster trust in and improve the transparency of the application and the examination processes. The FDIC has reissued its guidelines for application processing times and wants to act on each proposal promptly.

The FDIC has also established a review process for draft applications before organizations submit their final applications. The FDIC will review these proposals and provide feedback in order to smooth out the final application process. This initiative is expected to benefit FinTechs due to the unique differences in their online business models. The FDIC will also provide technical guidance and engage in pre-filing discussions.

PeerIQ View:  Transparency in examination processes enables banks to focus on achieving measurable standards and reduces subjectivity and misunderstandings in the current process.

Save the Date: PeerIQ’s Webinar on Lending Earnings Insights   PeerIQ is hosting a webinar on Wednesday 12/12 at 2 pm EST on a study of Lending Earnings Insights. We will analyze the earnings of bulge-bracket banks, credit card issuers, and FinTechs looking for any signs of changes in the credit cycle, and other related topics.   You will also see an overview of our newly-launched products – Benchmarking and Stress Testing. Click here to register and to add the invitation to your calendar.

Download 4Q2018 Lending Earnings Insight Report

PeerIQ is hosting its annual holiday party on Wed Dec 12th. If you are a customer or partner and haven’t received an invite, please reach out for details!

PeerIQ Mentions

Industry Update:

Lighter Fare:

  • All the Light There Is to See? 4 x 10⁸⁴ Photons (NY Times, 12/3/18) The universe has produced four trillion trillion trillion trillion trillion trillion trillion photos of light, a number which sounds large but is equivalent to a 60-watt bulb seen from 2.5 miles away.