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China’s Banking Upgrade, SVB’s Buyer Cries Foul, 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. 
Future of finance

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

China Wants to Keep Things In House. That’s Great News for State-Run Banks.

What happened: China’s desire to be technologically independent means turning towards the inefficient state-run banks to fund massive industrial projects, a rejection of what looked like a democratization of finance in the decade prior.

Why it’s important: “A nation’s financial future has a lot to do with the nature of its economy. A consumption-oriented society, such as the U.S., gives rise to a more diverse ecosystem of funding options…The opposite is true in China, where the government thinks an industrial upgrade, rather than domestic consumption, will drive the economy in the future. The development of its capital markets is thus necessarily slowed.”

What’s next: A country focused on TikTok’s meteoric rise not might realize it yet, but China’s industrial ambitions are clearly going to be a headwind to further cultural dominance. The American consumer-oriented lifestyle is not yet in danger of being eclipsed by a new rival. (By Shuli Ren, Bloomberg)

SVB’s Buyer Says HSBC Stole the Bulk of What It Wanted to Buy

What happened: SVB purchaser First Citizens is suing HSBC over what it says was a well-coordinated, Easter Sunday mass resignation its rival allegedly dubbed “Project Colony”. 

Why it’s important: First Citizens $1 billion lawsuit claims that a former top banker at SVB who left for HSBC helped fashion a plan to “steal” more than three dozen of the dead bank’s very profitable life-sciences and technology-banking team. The value of SVB, First Citizens claims, was largely in the relationships the bank held with top clients, relationships that would be imperiled by HSBC’s hires. 

What’s next: 42 bankers resigning simultaneously and then being hired by a rival less than 30 minutes later certainly looks suspicious. Whether it’s worth being compensated for, though, will be up to a jury. (By Josh Mitchell, The Wall Street Journal)

If CBDCs Are Going to Work, Credit Card Companies Will Be Partly Responsible

What happened: Central Banks are searching for use cases for digital currencies, with the help of partners like Mastercard and Visa. Now that search has taken them to remote farms in Brazil who suffer from a lack of funding options.

Why it’s important: “The problem Visa’s project is trying to solve is the difficulty that local farmers, which are usually small businesses, have in negotiating contracts. Because of a lack of investors or financing partners, the farmers have to use factoring, or a traditional financing method in which the farmer sells future crops at a discount to get funds to buy supplies and pay salaries. By adding more potential sources of funding, the farmers, in theory, could get better terms through competition.” 

What’s next: Experiments like this one are few and far between, including a similar project in the Bahamas. The uptake and results are unknown at the moment. What’s interesting are the lengths to which fintechs on the bleeding edge will go to demonstrate a use case, including to places where few have probably ever heard of a smart contract. (By John Adams, American Banker)

Binance’s Bank Allegedly Commingled Funds, Meaning More Headaches for the Exchange

What happened: Internal whistleblowers armed with documents claim that Binance’s U.S. bank, Silvergate, which collapsed in March, helped the exchange commingle customer funds

Why it’s important: A lack of internal controls are usually a very bad sign for everyone. “The commingling of customer and corporate funds can be a precursor to heavy losses for clients of financial firms. In December, the SEC and CFTC alleged that the founder of the collapsed FTX crypto exchange, Sam Bankman-Fried, for years had commingled client funds at his trading firm and used the monies to finance venture capital investments, political donations and real estate purchases.”

What’s next: Binance has denied the allegations. It’s already facing civil charges from the CFTC and an open investigation by the DOJ. More civil investigations, and possibly criminal charges, may come soon. (By Angus Berwick and Tom Wilson, Reuters)

What Happens If the Government Just Doesn’t Pay Its Bills

What happened: Nothing yet. But if the debt ceiling standoff goes on much longer, the Treasury’s inability or unwillingness to make interest or principal payments could throw the global economy into chaos.

Why it’s important: “The plumbing of global finance works through collateral: You and I can agree to do stuff in the future, without necessarily knowing each other well or trusting each other much, because we have posted collateral to ensure that we’re good for our promises.” Treasuries are often the best form of collateral. But what happens if they’re not?

What’s next: Jamie Dimon says just going to the brink could be catastrophic. Other bankers insist that ever since the 2011 debt-limit crisis, banks have gotten better at figuring out how to keep things moving even as the government threatens default. The bigger point is: no one really knows. (By Matt Levine, Bloomberg)

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.