Stricter rules for US banks

This is an audio transcript of the FT News Briefing podcast episode: ‘Stricter rules for US banks’

Marc Filippino
Good morning from the Financial Times. Today is Friday, July 28th, and this is your FT News Briefing.

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The European Central Bank says it might pause interest rate rises at its next meeting, and US banking regulators announced stricter rules yesterday. Plus, the FT’s Elaine Moore says the Twitter X rebrand doesn’t really make sense. But that’s kind of the whole point.

Elaine Moore
Because Twitter is no longer a public company, you’re not answering to shareholders. If your favourite letter is X, then you get to call your social media company X as well.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The European Central Bank raised interest rates by a quarter of a percentage point yesterday. It was the ECB’s ninth consecutive rate hike, but the central bank signalled that it might take a pause when it meets next in September. I’m joined now by the FT’s Frankfurt bureau chief Martin Arnold. Hi, Martin.

Martin Arnold
Hello, Marc.

Marc Filippino
All right. So Eurozone inflation was 5.5 per cent in June, which is down considerably from double digits last year, but it’s still way higher than its 2 per cent target. Why would the ECB consider pausing interest rates at this point?

Martin Arnold
As everybody knows, Marc, when you raise interest rates, it takes a while for that to feed through the banking system and into the cost of lending and through into the real economy and then to have an impact on pricing. So it doesn’t happen immediately. And so what’s happening is that we’re starting to see that the incredibly fast and aggressive tightening of monetary policy that we’ve seen both in the US and in the eurozone is starting to take effect. And we see that in that, as you said, inflation is falling and we see that the economic activity is weakening. Policymakers are starting to think that they’ve raised rates enough and they just have to wait now for it to slow economic activity and for that to bring price growth back down towards 2 per cent.

Marc Filippino
So is it that the ECB is leaning more towards a pause or is there any chance that they could raise rates at the next meeting in September?

Martin Arnold
Well, this is a . . . this is a crucial moment really in central banking because for the first time both the Fed and the ECB have stopped signalling that they think there are more rate rises ahead. They’ve now got a very neutral approach to guiding for future decisions. So what they’re saying is they . . . it’s possible they could raise rates but it’s also possible they could pause. And it’s the first time that they’re really just saying they’re going to make their decision based on the data that will be published between now and their next meeting.

Marc Filippino
Martin Arnold is the FT’s Frankfurt bureau chief. Thanks, Martin.

Martin Arnold
Thanks a lot, Marc.

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Marc Filippino
US regulators want large banks to carry more cash. The Fed, among others, announced the draft rules yesterday. The idea is to make banks less prone to the kind of financial distress that we saw in 2008 and in the regional banking crisis that we saw earlier this year. Here to explain is the FT’s US banking correspondent Stephen Gandel. Hi, Stephen.

Stephen Gandel
Hello!

Marc Filippino
All right, Stephen, break down some of these proposals for me. What’s the big one?

Stephen Gandel
Well, traditionally, banks themselves get to say how risky their loans and securities investments are. The big change in these rules is it takes that out of the hands of the banks and puts it into the hands of regulators and standardises it across the industry. And so the thought is that when regulators are looking at the loans that banks make, they’ll rank the assets investments riskier and require banks to hold more capital — the money that they have to hold in reserve to cover any potential losses they might have.

Marc Filippino
Now, what do banks think about these proposals?

Stephen Gandel
The banks, generally, they don’t like holding more capital because it hurts profits. And what they’ve said is that they’ll have to increase what they charge borrowers for loans or they might not be able to make certain loans or do certain things anymore because these rules will make them too onerous. One bank lobbying group that represents large banks said these rules will make the US less competitive with the rest of the world, and so they’re pushing back. As one Wall Street analysts said, the banks seem to be pushing back more than at any time since the financial crisis on these new regulations.

Marc Filippino
OK. But in the grand scheme of things, how much will this actually affect banks?

Stephen Gandel
The concerns that more capital requirements are going to make it harder for them to lend, we never, we haven’t really seen that. I mean, the capital requirements went up after the financial crisis and banks lend more now than they did then. So I’m not sure how much it matters in terms of to the economy. The other thing I will say is I’m not sure how much it matters to preventing the next financial crisis. These capital requirements are kind of a reaction to those crises, right? We’re now adding back in the unrealised losses. That’s another move that comes out of this that contributed to Silicon Valley. We’re making capital . . . banks hold more capital against mortgages, which contributed to the 2008 financial crisis. But there could be some other risk out there that we’re somewhat underweighting.

Marc Filippino
Stephen Gandel is the FT’s US banking correspondent. Thanks, Stephen.

Stephen Gandel
Thanks for having me.

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Marc Filippino
Elon Musk earlier this week replaced the Twitter logo with an X. It was a huge corporate rebrand as Musk kissed the bird goodbye. I’m joined now by Elaine Moore. She’s the deputy head of the FT’s Lex column. Hi Elaine.

Elaine Moore
Hi.

Marc Filippino
All right. So Twitter is already losing money and the brand was considered a valuable part of the company. So, yeah, I hate to be so blunt about it, but does this move make any sense? (laughter)

Elaine Moore
No, but that’s sort of the whole point of this. If you are a billionaire and you’ve spent $44bn buying your favourite social media app, then this is exactly the kind of move that you get to make. Because Twitter is no longer a public company, you’re not answering to shareholders. If your favourite letter is X, and we know that Elon Musk’s favourite letter is X — that’s what he’s called one of his Tesla cars and his son and his rocket company — then you get to call your social media company X as well.

Marc Filippino
So is that just it or is there any rationale behind the decision?

Elaine Moore
I think there’s rationale behind the decision. The FT had a great story that the new CEO, Linda Yaccarino, went to advertisers and said, “Please come back, please start advertising on Twitter or on X, because this is all part of our grand scheme to turn the company into this everything-app.” So this is, Elon Musk has talked about this for a long time. But what he wants is for Twitter, X, to be more than just a microblogging site. He wants it to be a place that you go to make your doctor’s appointment, to buy your movie ticket, to look for a job. He wants it to be an Asian-style everything app, and calling it X is, supposedly, the first part of that plan.

Marc Filippino
What is the reaction been like? Are users excited about this? Has there been any word from advertisers about whether or not they are excited about this change?

Elaine Moore
The reaction has been extreme, I think. You have to remember that before Elon Musk bought Twitter, nobody was talking about Twitter. It was barely profitable. People are much more interested in TikTok or Facebook. So for all of the criticism that Elon Musk gets, he has made Twitter into a global conversation starter. A lot of the commentary is very negative. There’s been a lot of people saying they’re going to delete their account. And yet Twitter remains the place that I see the most activity. So there’s quite a lot of negative attention. I quite like the new brand as brands, rebrands go, I think it’s quite striking.

Marc Filippino
Elaine Moore is the FT’s deputy head of the FT’s Lex column. Thanks, Elaine.

Elaine Moore
Thank you so much.

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Marc Filippino
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Tom Stokes, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.