Fed Cuts Rates 50bps; FDIC Intros Recordkeeping Rule; Amazon & PayPal Partner

The Fed cuts rates by 50bps. FDIC introduces proposed custodial account recordkeeping rule. Heightened scrutiny of bank M&A. Nirvana raises Series A. Equifax and Prism Data partner. Goldman may take hit on Apple Card loans. Amazon and PayPal partner.

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Fed Cuts by 50bps

While a rate cut at last week’s FOMC meeting was a near-certainty, the Fed surprised some with a larger-than-expected 50bp cut, targeting a 4.75% - 5.00% range. The move comes amid a “vibe shift,” as inflation slowly but steadily moves toward the Fed’s long-term 2% target, and the central bank reorients to address a softening labor market. Fed Gov. Bowman voted against the larger cut, saying she would’ve preferred a more modest 25bp decrease. Bowman’s move marked the first dissent by a Fed governor since 2005.

Fed Chair Powell described the move as a “recalibration” of policy, designed to help maintain the strength of the economy, rather than to head off a potential recession. Equities markets jumped on the news, with the S&P 500 closing up about 1.70% on the day.

FDIC Introduces Proposed Enhanced Recordkeeping Rule

At last week’s FDIC board meeting, the agency proposed a new rule that would strengthen recordkeeping requirements for banks that offer certain kinds of custodial accounts. The proposed rule has been widely interpreted as a response to the collapse earlier this year of middleware platform Synapse, which resulted in hundreds of thousands of end users losing access to their funds, some of whom are still waiting to have their money returned to them.

The FDIC memo and statements from several board members explicitly mentioned the Synapse situation as an example of the need for rulemaking in this area. The rule would apply to what it terms “custodial accounts with transactional features.” It would require banks offering such accounts, including as part of bank-fintech partnerships, to maintain records that identify beneficial owners and the balances attributable to each beneficial owner.

The rule would further require covered banks to maintain certain internal controls, including by maintaining accurate balances and conducting reconciliation against beneficial records no less frequently than at the close of business daily. The proposed rule includes certain exemptions, including for custodial deposit accounts established by trusts, government depositors, and broker-dealers.

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Heightened Scrutiny of Bank M&A Activity May Be Bad Sign for CapOne/Discover Deal

Multiple federal agencies have signaled they will take a tougher look at bank M&A deals, especially those involving or resulting larger institutions. For example, last week’s FDIC meeting saw the board vote 3-2 to approve a final policy statement that will see the agency apply additional scrutiny to acquisitions and mergers that result in institutions with more than $100Bn in assets. The policy statement also clarified the FDIC will look beyond deposits and also consider concentration impacts in residential and small business loans when evaluating the impact on competition of proposed mergers.

While the FDIC doesn’t need to sign off on Capital One’s proposed merger with Discover, the OCC and the Department of Justice’s antitrust division are also taking a tougher lookat bank mergers. The OCC and the Fed would need to sign off on the CapOne/Discover deal at the bank and bank holding company levels, respectively. While bank regulators historically have taken the lead of bank M&A, the DOJ has signaled a stronger interest in such deals under the Biden administration.

Nirvana Announces $24.2Mn Series A

Health payments startup Nirvana recently announced it has raised a Series A round of funding. The $24.2Mn round was led by Northzone, with participation from Eniac Ventures, Surface Ventures, and Inspired Capital. The company aims to provide consumers with price transparency about medical costs before they incur them. Nirvana Chief Product Officer Kelvin Chan told Axios, “In some weird behavioral way, people were used to the fact that you would sit in a waiting room for six hours and get the bill six weeks later. Looking back, that's incredibly strange and archaic, but I think that mentality is starting to shift.” Nirvana embeds into a healthcare provider’s website and, using a few inputs from users, can determine whether or not a treatment is likely to be covered by their insurance and estimate co-pay and co-insurance costs. The company currently focuses on specialists, as it can more accurately estimate costs vs. those for a general practitioner visit, where the underlying condition and necessary treatment are more difficult to predict.

Equifax and Prism Data Partner

Equifax is teaming up with cashflow underwriting startup Prism Data. Prism, spun off from credit card startup Petal, offers its proprietary CashScore, which leverages bank account transaction data via open banking connectivity and deposit data from core banking systems to underwrite credit applicants. The partnership will enable Equifax customers to access Prism Data’s CashScore via their relationship with Equifax, enabling them to understand and test the promise of cashflow data for underwriting.

Goldman May Take Hit on $17Bn Apple Card Portfolio

Last week, the news was Goldman Sachs was taking a $400Mn write down on offloading its General Motors credit card program, as the portfolio faces credit quality issues. Now, reports indicate the bank is facing a similar challenge as it negotiates with JPMorgan Chase to take over its Apple Card partnership. Typically, such loan portfolios would sell at premium to face value. But JPMorgan Chase is seeking to pay below par for the approximately $17Bn in outstanding loans tied to the program. JPMorgan Chase is seeking a lower price, as performance of the card portfolio has been worse than expected, with elevated delinquencies and charge offs. Discussions are ongoing and terms of any potential deal, including price, have not yet been agreed to, according to reporting on the matter.

Amazon Extends Buy with Prime Through PayPal Deal

Two veterans of the web 1.0 era are teaming up. Amazon and PayPal announced a new tie-up that will expand the functionality of Amazon’s “Buy with Prime” capability to allow users to pay via PayPal and cards linked to their PayPal wallet. Amazon’s Buy with Prime launched in 2022, designed to allow third-party merchants to easily list and sell products on their own websites, with the transaction and fulfillment handled through Amazon. Amazon has reported a 45% annual increase in Buy with Prime orders, as well as 50% growth in the number of Prime members using the capability.