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Proposals by economists John Cochrane and Martin Wolf envision the elimination of fractional reserve banking in order to neutralize risk that resulted in the Great Recession. Wolf focuses on the risks introduced by the "private money" created as a byproduct of lending. He favors a system in which the government is given a complete monopoly on money creation. Cochrane argues that banks should be 100% funded by equity and that a tax should be placed on run-prone short-term debt. Krugman writes that Wolf and Cochrane's proposals each underestimate the complexity of regulating such a model and questions the assumption that banking problems were the root cause of the crisis.
Several national companies that offer small loans at high interest rates have agreed to refund money to more than one thousand Vermont borrowers. The agreement is the result of a lawsuit brought by Vermont Attorney General Bill Sorrell. Vermont is one of 15 states that restrict payday loans, but that hasn’t stopped dozens of unlicensed national lenders from offering the products. Sorrell says settlements reached with three of the lenders and one payment processor will result in refunds exceeding $1 million for borrowers and will stop the companies from issuing any more loans in the state. Vermont is the only state with a law addressing the third party processing companies.
FDIC officials have presented a new white paper exploring how the use of mobile phones could broaden banking access to unbanked and underbanked borrowers. The paper noted that 68% of unbanked adults have access to a cell phone, of which 49% are smartphones. "MFS is likely to be a more useful financial tool for the underserved if ways can be found to reconcile and meet the underserved's needs for electronic transactions with their need for paper payments or cash," the report said. Among the study's recommendations were steps to bridge the delivery of mobile financial services with the traditional payment methods underbanked consumers use, such as checks, money orders and cash.
Virginia Community Capital has partnered with Goldman Sachs on the 10,000 Small Businesses education program, a nationwide initiative offering small business owners training from business experts and peers as well as classes at Babson College. Program participant Merissa Sachs owns personalized clothing vendor Marketing on Main Street. "The personal interaction with Goldman Sachs professionals, Babson professors and my peers was a significant benefit," she says. "I think of Babson as a CEO on my advisory board; I can turn to them at anytime for advice and guidance."
The CDFI Fund has opened the FY 2014 application period for the Bank Enterprise Award Program, making up to $18 million in awards available to eligible banks and thrifts. Application materials are available on the CDFI Fund's website. The award application consists of two parts. The first part must be submitted through Grants.gov by 11:59 p.m. EDT on June 2 and the second part must be submitted through myCDFIFund by 5:00 p.m. EDT on June 4. The CDFI Fund will also be conducting three informational webinars: two focusing on the BEA Program application materials and the award process to be held April 29 and May 6 as well as a third focusing on the CDFI Information Mapping System April 29.
Boston based Charles Street African Methodist Episcopal Church has agreed to sell the Roxbury Renaissance Center in order to pay back the nearly $5 million it owes creditors including OneUnited Bank and emerge from bankruptcy. The church already has an offer from a local non-profit to buy the community center for $2 million. OneUnited said the proposition, which would leave OneUnited Bank with a $900,000 loss, still falls short of meeting the church’s obligations. “The bank believes that the proposed sale of certain assets does not maximize value to creditors,” OneUnited said in a statement. The bank warned litigation could be an option.
Several big hedge funds that stand to win billions of dollars for their shares in Fannie Mae and Freddie Mac are said to be backing new investors' rights groups airing attacks ads and statements against the Johnson-Crapo housing finance reform legislation. Hedge fund managers oppose the legislation because it would codify a contentious 2012 change to the terms of Fannie and Freddie shareholders' agreement in which Treasury imposed a sweep on all GSE shareholder company profits. Investors are currently fighting that action in more than a dozen lawsuits. Although the advocacy groups portray themselves as working for smaller investors, the anonymous nature of contributions has led to speculation that hedge funds are financing the operations.
Stepped-up demands from liberal Democrats and conservative Republicans are threatening prospects for the Johnson-Crapo mortgage market reform legislation. Liberal Democrats want to add mandates requiring private lenders to offer loans to minority groups. Conservative Republicans are insisting that Fannie and Freddie be entirely eliminated. Too much motion in either direction would kill the bill's bipartisan support. Analysts expect the bill to pass through the Senate Banking Committee, but its prospects for passing the chamber are dim with elections looming. Legislators increasingly are willing to hold on to Fannie and Freddie as cash cows for the government, and the companies’ shareholders are getting bolder about asserting their rights to share in their good fortunes.
Walmart has announced a new service allowing customers to make store-to-store money transfers within the United States at cut-rate fees. The offering is aimed largely at lower-income shoppers who often rely on check-cashing stores for simple transactions. Walmart has become a big player in alternative financial products including prepaid debit cards and check cashing. Walmart's new service will offer transfers of up to $50 will cost $4.50 and transfers of up to $900 costing $9.50. In comparison, sending $900 via Western Union could cost as much as $76. But Western Union and MoneyGram pointed out that their hundreds of thousands of global affiliated locations overshadow Walmart's roughly 4,000 U.S. locations.
The shuttered Urban Partnership Bank building in Chicago's South Shore neighborhood will become a canvas for artists until it is redeveloped. The art installations are part of a partnership with The Neighborhood Foundation, a local nonprofit that helps improve vacant buildings with public art. The organization plans to paint a tableau of the neighborhood’s landmarks on the building's boarded up windows, including a bike trail and southbound train. The bank closed on March 22 and many community groups expressed interest in using art to beautify the building. Urban Partnership spokesman Brian Berg said the bank liked the idea. “We wished it had been done sooner, but it was part of our plan all along,” he said.