SVB’s Further Fallout, the Trouble With ’Finfluencers’ and More (Future of Finance | Week in Review)

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation. 

A Reminder that The Convergence of Finance and Tech Is a Two-Way Street

What happened: In 2017, Goldman Sachs CEO David Solomon hired execs from Google and Amazon and invited employees to pitch ideas, turning the investment bank into a wanna-be start-up hub. Now the incubator’s first real startup is leaving the nest.

Why it’s important: Traditional banks facing threats from every angle have already started to hedge by investing in fintech disruptors. Some, like Goldman, are trying to move even lower down the ladder, soliciting ideas and owning a larger share of a new company.

What’s next: Finance firms have long created software products and dabbled in incubators. But if Goldman’s first test case, Louisa — a “LinkedIn on steroids,” with Goldman itself as Client No. 1 — gains any traction, expect the big players to lean in harder. (By Hugh Son, CNBC)

Necessity Is the Mother of Invention for Regional Banks and the FDIC

What happened: The regional banking crisis mop-up shifted into a new phase as regional banks sought creative ways to figure out what to do with their U.S. Treasury holdings, which now trade at prices well below what the banks paid for them. One idea is to replenish the FDIC fund with the very same Treasurys.

Why it’s important: There’s tremendous political pressure to avoid anything that looks like a bailout. Hence the creative thinking behind replenishing an FDIC fund with Treasuries rather than cash, in the hopes that one day those Treasurys, currently worth 90 cents on the dollar, will soon again be worth a dollar.

What’s next: If the past few weeks are any indication, a lot more creative thinking! Loans from the FDIC to the banks, backed by the Treasurys, are currently on the table. Whatever mechanism prevents further bank runs while not explicitly handing taxpayer dollars to banks that made bad bets looks like it’ll be considered. (By Matt Levine, Bloomberg)

China Is Terrified of Capital Flight and Trading Apps Are Taking the Hit

What happened: China’s securities regulator has started to take a tougher stance on where citizens can invest their money. That’s led to two Nasdaq brokerages making their apps unavailable in China. 

Why it’s important: “Chinese regulators have increased their scrutiny of foreign businesses in recent weeks, including questioning staff in consulting firm Bain & Co.’s Shanghai office and detaining the Beijing-based employees of U.S. due-diligence company Mintz Group. Foreign executives have become increasingly worried about shifting boundaries for offering services in China.” 

What’s next: What’s unknown is how far the crackdown will go. Other, China-based companies offer customers the chance to trade overseas. China’s premiere recently pledged to treat all companies, both foreign and domestic, by the same rules. But the actions of regulators may make that promise feel hollow. (By Elaine Yu, The Wall Street Journal)

‘Finfluencers’ Have Regulators Worried, Fans Enthralled

What happened: The pandemic-era rise of retail traders has seen a corresponding rise in those wishing to wield influence via social media. Naturally, regulators are a little scared.

Why it’s important: The biggest risk, obviously, is losing lots of money really fast. Even though ‘finfluencers’ are so mainstream some of them now have their own ETFs, the SEC and the UK’s Financial Conduct Authority have begun to issue warnings, both to investors and the ‘finfluencers’ themselves.

What’s next: Expect more of the same, though with a slightly more professional sheen. The traditional asset management industry once might’ve looked down upon investment gurus with no experience dispensing knowledge. Now that there’s a worldwide competition for trading volume, even bluebloods like BlackRock are paying ‘finfluencers’ to tout its products. (By Emma Boyde, The Financial Times)

SVB’s Failure Exposes Cozy Relationship WIth Regulators

What happened: Silicon Valley Bank CEO Greg Becker served on the board of directors for the Federal Reserve’s regional branch in San Francisco. That relationship wouldn’t matter as much if the bank hadn’t imploded in a financial disaster the board’s supervisors have been criticized for not anticipating.

Why it’s important: Inquiring minds have started to ask if the Fed banks’ century-old structure still makes sense today. ”They’re like a glorified advisory committee,” said Kaleb Nygaard, who researches central banks at the University of Pennsylvania. ”It causes massive headaches in the best of times, potentially fatal aneurysms in the worst of times.”

What’s next: The ethics of regional Fed boards have been questioned before. Like in 2008, the relationship is now garnering bipartisan interest in Congress. But a proposed bill to limit directorships only to directors of small banks may be D.O.A., in part because stripping power from banks requires a big political lift. (By Jeanne Smialek, The New York Times)