Tag: banking

Bias isn’t the only problem with credit scores—and no, AI can’t help

Mary Pat Campbell

Link: https://www.technologyreview.com/2021/06/17/1026519/racial-bias-noisy-data-credit-scores-mortgage-loans-fairness-machine-learning/

Excerpt:

But in the biggest ever study of real-world mortgage data, economists Laura Blattner at Stanford University and Scott Nelson at the University of Chicago show that differences in mortgage approval between minority and majority groups is not just down to bias, but to the fact that minority and low-income groups have less data in their credit histories.

This means that when this data is used to calculate a credit score and this credit score used to make a prediction on loan default, then that prediction will be less precise. It is this lack of precision that leads to inequality, not just bias.

…..

But Blattner and Nelson show that adjusting for bias had no effect. They found that a minority applicant’s score of 620 was indeed a poor proxy for her creditworthiness but that this was because the error could go both ways: a 620 might be 625, or it might be 615.

Author(s): Will Douglas Heaven

Publication Date: 17 June 2021

Publication Site: MIT Tech Review

Federal Reserve to End Emergency Capital Relief for Big Banks

Mary Pat Campbell

Link: https://www.wsj.com/articles/federal-reserve-to-end-emergency-capital-relief-for-big-banks-11616158811

Excerpt:

The Federal Reserve said it was ending a yearlong reprieve that had eased capital requirements for big banks, disappointing Wall Street firms that had lobbied for an extension.

Friday’s decision means banks will lose the temporary ability to exclude Treasurys and deposits held at the central bank from lenders’ so-called supplementary leverage ratio. The ratio measures capital — funds that banks raise from investors, earn through profits and use to absorb losses — as a percentage of loans and other assets. Without the exclusion, Treasurys and deposits count as assets. That will likely force banks to hold more capital or reduce their holdings of those assets, both of which could ripple through markets.

Analysts have been keying on the issue, which is widely viewed on Wall Street as carrying potential implications for markets from bonds to stocks to commodities.

Author(s): Andrew Ackerman, David Benoit

Publication Date: 19 March 2021

Publication Site: Wall Street Journal

Aldermen Vow to Keep Pressure on Banks that Hold the City’s Cash to Lend Equitably

Mary Pat Campbell

Link: https://news.wttw.com/2021/03/22/aldermen-vow-keep-pressure-banks-hold-city-s-cash-lend-equitably#new_tab

Excerpt:

Aldermen endorsed a measure Monday that would allow the city to expand the number of banks authorized to hold its cash — even as city officials vowed to keep pressuring financial institutions to do a better job lending to Black and Latino Chicagoans.

Led by Ald. Harry Osterman (48th Ward), the chair of the City Council’s Housing Committee, and Treasurer Melissa Conyears-Ervin, city officials plan to form a task force and a working group to draft new requirements for banks to meet if they want to keep the city’s lucrative business.

Author(s): Heather Cherone

Publication Date: 22 March 2021

Publication Site: WTTW News

Fed Policy Is Smothering Private Lending

Mary Pat Campbell

Link: https://www.wsj.com/articles/fed-policy-is-smothering-private-lending-11615250626

Excerpt:

The 25 largest U.S. banks currently hold 45.7% of their assets in loans and leases, according to Fed data released Friday, down from 54.1% this time last year. Meantime, their year-over-year holdings of Treasury and agency securities increased 33.5%. This reflects more-stringent borrowing standards and diminished loan demand. But it also reveals a subtle yet persistent change in how banks operate.

Banks have pulled back from making risky loans in favor of engaging more directly with the Fed — avoiding the type of lending that spawned stricter regulatory standards after 2008 while readily accommodating the Fed’s expressed satisfaction with an “ample reserves” regime. Bank lending to small businesses has remained low throughout the postcrisis years, with the largest declines in small-business lending at large banks, as shown in a 2018 report commissioned by the Small Business Administration.

The switch is understandable. The cost of regulatory compliance is a huge disincentive for banks, and selling government-backed securities to the Fed and piling up reserves can turn out to be a profitable business model.

Author(s): Judy Shelton

Publication Date: 8 March 2021

Publication Site: Wall Street Journal

America Went on a Borrowing Binge, but Banks Were Left Out

Mary Pat Campbell

Link: https://www.wsj.com/articles/america-went-on-a-borrowing-binge-but-banks-were-left-out-11612953008

Excerpt:

Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5% drop was just the second decline in 28 years.

Bank of America Corp.’s loans and leases dropped by 5.7%. Citigroup Inc.’s loans dropped by 3.4% and Wells Fargo & Co.’s shrank by 7.8%. Among the biggest four banks, only JPMorgan Chase & Co. had more loans at the end of the year than the start.

Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery.

Author(s): Ben Eisen

Publication Date: 10 February 2021

Publication Site: WSJ

Banks in Germany Tell Customers to Take Deposits Elsewhere

Mary Pat Campbell

Link: https://www.wsj.com/articles/banks-in-germany-tell-customers-to-take-deposits-elsewhere-11614594601?mod=djemwhatsnews

Excerpt:

Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG , have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.

That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.

Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.

Author(s): Patricia Kowsmann

Publication Date: 1 March 2021

Publication Site: Wall Street Journal