Another extraordinary week in markets, the economy, and the FinTech sector. 

This week, we analyze the recent jobless claim data, a summary of the policy response, and best practices for investors monitoring their lending portfolio. Let’s dig in.

A Eulogy for the Great Recovery

We would expect the NBER to mark the beginning of the recession sometime this past March. 

The abrupt halt in economic activity brings to an end a record 113 straight months of continuous job growth. 

A startling 3.28 MM filed for U.S. jobless benefits – nearly five times the previous record high and comparable to the entire population of Utah. State unemployment sites choked at the velocity of applications and we expect continued job losses in the weeks ahead.

During this period the workforce expanded by 22 million – including low-wage hourly laborers, disabled people, minorities, former inmates and others – found work.

The unemployment rate, which was 3.5% in February, had been at levels not seen since man flew to the moon.

Chart of The Week – How the CoronaVirus is Rippling Through the Economy


Source: S&P Global Ratings, PeerIQ

Summary of CoronaVirus Relief Bill

The Coronavirus Relief Bill, the largest economic relief package in history and on the highest end of expectations ($2 Tn), was signed into law this Friday. 

The bill extends relief to broad swathes of the economy individuals (~$560 Bn), small business ($377 Bn), state & local governments ($339 Bn), public health institutions ($153.5), and large corporates ($500 Bn).

Individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. This bill creates a new temporary Pandemic Unemployment Assistance Program through the end of this year to help 1099 incomes, which typically do not qualify for unemployment (e.g., contractors, freelancers, self-employed). 

The bill offers $350 Bn in forgivable loans via the SBA program. A small business can apply for up to 2.5x their average trailing 12 months payroll. Any portion of the loan used to maintain payroll, keep workers on the books or pay for rent, mortgage, and existing debt could be forgiven, provided that workers stay employed through the end of June.

We recommend this summary of the CoronaVirus Relief Bill to see what stimulus measures may soften your consumer and small business credit exposure.

Investors – What Data to Ask From Your Lender?

One of the most frequently asked questions we are asked by our data & analytics customers is what fields to focus on to model risk. Our response, servicer reports – metrics that indicate the proactive servicing and appropriate response (e.g., loan modification policies, etc.) Is servicing at risk due to social distancing measures? Has the lender performed “hot swaps” with backup servicers to test for readiness?

We also recommend the following data sources for starters for consumer loans. Reach out to your PeerIQ client delivery representative for more ideas or help updating and integrating your data. 

Indicator Rationale
Loan modification (True/False)
  • Loan modifications may lower default risk
1099 vs. W-2 Unemployment
  • 1099 income generally has no state-level unemployment insurance
Industry Type
  • Certain industry categories are at higher risk (e.g., retail, food services, gig economy, travel, etc.)
Loan Purpose
  • Easy to game, but still shows risk separation
Is Loan on Autopay via ACH (True/False)?
  • Lower risk of missed payment
Was Loan distributed via direct ACH? (True/False)
  • Lower risk of fraud
Indicator for Paystub, Tax, or income verification
  • Lower risk of fraud
Geographic Indicator (Zip)
  • Unemployment spike varies by region

On the regulatory front, bank regulators are considering relaxing crisis-era regulation to let banks get back to lending.

Capital buffers at the largest U.S. banks would enable banks to boost lending by $1.6 trillion. By deploying their excess capital, the eight largest lenders alone could expand their balance sheets by $1 trillion.

The Federal Reserve has encouraged the nation’s leading banks to use so-called management buffers, capital that’s in excess of required regulatory minimums, to boost the economy.

Of course, there are very good reasons why banks do not make these loans today, and regulatory pressure may pose the risk of stuffing the banks with bad loans.

How is the FinTech Sector Helping?

FinTech’s are in a unique position to lend against underserved sectors of the economy including the underbanked. Consumers that are living paycheck to paycheck turn to FinTechs for assistance during the Coronavirus pandemic.

Consumers are taking advantage of the early wage access programs offered by fintechs like PayActiv, DailyPay and Branch. Some of these providers are making their service free.

Dozens of FinTech firms such as Roostify and StreetShares, are offering free technology to banks during the Coronavirus Crisis. (Send a note if you’d like your FinTech included on this list.)

OnDeck, and 21 other FinTech companies, sent a letter to Congress indicating that they stand ready to assist in deploying the financing via their proven transparent networks. Key excerpt: “The private sector is ready to help including with data, expertise, and engineering resources. We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers.”

Regulators Encouraging Digital Banking – “FedAccounts” 

Senator Sherrod Brown, a top Democrat on the Senate Banking Committee, is proposing a “FedAccount” digital wallet that would allow consumers to receive money quickly and inexpensively: “My legislation would allow every American to set up a free bank account, so they don’t have to rely on expensive check cashers to access their hard-earned money.”

Account holders would receive debit cards, online account access, automatic bill-pay, mobile banking, and ATM access. 

Each post office or bank with less than $10 billion of assets would be reimbursed each quarter by their regional Federal Reserve bank for the actual and reasonable operational costs incurred in offering the pass-through digital dollar wallets.

Finally, in financing and M&A news, deals are picking up again. Brex, the $2.6 billion credit card startup, acquired 3 startups amidst uncertainty.


Industry News:

Lighter Fare:


Hedging stock market risk with bitcoin

— Downtown Josh Brown (@ReformedBroker) March 24, 2020