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Commentary: Banks Need to Brace for Trump’s Tariffs*

ABI Bankruptcy Brief

July 26, 2018

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Commentary: Banks Need to Brace for Trump’s Tariffs*

When Federal Reserve Chair Jerome Powell testified before Congress earlier this month, lawmakers didn’t just focus on monetary policy. Instead, they were much more interested in finding out what Powell thought about the potential effect of President Trump’s tariffs on their constituents. While Powell reminded legislators from both chambers that the Fed’s tools are for monetary policy — and that it is they who have the tools to influence trade policy — he made it clear that he did not think tariffs would be good for the economy in the long run, according to a commentary in American Banker. Indeed, the Trump administration’s attitude toward global alliances and treaties is already having a clear effect on corporate investment in the U.S. Banks of every size should not wait to figure out how tariffs and reduced foreign direct investment may affect their credit portfolios. In the short term, trade tariffs will disrupt the supply chain of numerous companies, while in the long term, an intensifying trade war and reduced foreign direct investment will hamper U.S. GDP, according to the commentary. It’s especially important for community and regional banks in states with a significant number of jobs supported by exports, or those with customers that are importers of products like steel and aluminum, to evaluate the likelihood of job losses and subsequent loan delinquencies. This is also a good time to review loan covenants, along with the quality and price of collateral posted, for existing loans.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

 

Analysis: How Farm Aid Became a Fixture

The U.S. government has been spending directly on agricultural-support programs ever since the Great Depression, according to an analysis in the Wall Street Journal. This week, the Trump administration said it would extend up to $12 billion in emergency aid to farmers hurt by trade tariffs. That comes on top of about $21.5 billion the government is already expected to spend this year on existing farm-support programs, according to the Congressional Budget Office. Those existing programs are meant to shield farmers from crop-price downdrafts, help young farmers get started and encourage conservation. “Most of these [programs] were put in place in the 1930s originally as temporary programs,” said Joseph Glauber, a visiting fellow at the American Enterprise Institute and a former chief economist for the U.S. Department of Agriculture. “Here we are, however many years later, and they’re ingrained.” Over the century following the country’s founding, the U.S. government supported agricultural production through steps such as public land sales and establishing the land-grant university system, which pursues regional crop research. Government spending also funded early irrigation and drainage projects that boosted agricultural output. It worked — in some cases, too well, according to the analysis. American farmers’ expanding harvests helped pushed down crop prices in the years leading up to the Great Depression, prompting the government to look at national-level farm support programs.
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Analysis: CFPB Enforcement Is Back — with a Softer Touch

The Consumer Financial Protection Bureau, after pausing the policing of financial firms under Trump-appointed leadership, has restarted enforcement using a more collaborative approach than in the Obama era, according to an analysis in the Wall Street Journal. Mick Mulvaney, the CFPB’s acting director who has introduced pro-business changes at the bureau, said in an interview that the bureau’s enforcement strategy now emphasizes negotiating with target companies to settle disputes, rather than moving as quickly as Obama administration officials did to file civil lawsuits. “If I can protect consumers without filing lawsuits, why would I file lawsuits?” Mulvaney said. “Lawsuits are sort of the last resort.” Mulvaney added that the CFPB would reward companies for self-reporting problems, taking that into consideration when negotiating settlements. Since Mulvaney’s arrival in November, the bureau hasn’t sued a single company. But the acting director said the CFPB would still resort to tough tactics when needed, saying he would “absolutely” be authorizing new lawsuits when warranted. Mulvaney said the bureau has roughly 100 active investigations, and new cases are being added regularly, yet critics say some of the bureau’s recent settlements show companies are getting away with less stringent penalties than during the Obama administration. The CFPB’s resumption of enforcement work comes as Mulvaney prepares to hand over the bureau’s leadership to Kathy Kraninger, a nominee for permanent director and a Mulvaney associate.
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Commentary: If the Trade War Starts to Damage the Economy, Here’s How You’ll Be Able to Tell*

There’s no question that some American companies are feeling the bite of the trade war that the Trump administration is waging against much of the world. But it’s a mistake to assume that the difficulties of individual companies and industries are the same as a force powerful enough to bend the overall trajectory of the U.S. economy, according to a commentary in the New York Times. “The direct effects on the U.S. economy are small, because the economy is really big and it is mostly domestically driven,” said Beth Ann Bovino, chief U.S. economist at Standard & Poor’s Ratings Services. “Still, tariffs hurt, and we’re starting to see some precursors of an impact already.” To assess how the trade war could affect growth, the job market and inflation at the macroeconomic level, you need data. The trouble is that much economic data operates with long time lags. By the time there would be solid evidence that the trade war was doing damage, the damage would already have been done, according to the commentary. But certain indicators are likely to provide early signs of trouble: data that is more big picture than individual anecdotes, but more timely than things like GDP and the unemployment rate.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Op-Ed: Chairman Rob Bishop Is Now Impeding Puerto Rico’s Recovery*

A congressman who previously called for less political interference in Puerto Rico’s recovery may now, ironically enough, be creating more, according to an op-ed in The Hill. Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, is advocating a plan to create dependency on imported natural gas alongside Wall Street-friendly policies that would essentially, according to the commentary, leave the island suffocating under a mountain of debt. Two years ago, Bishop shepherded through his committee the controversial PROMESA statute (Puerto Rico Oversight, Management, and Economic Stability Act), which established the federal Financial Oversight and Management Board (FOMB), a body impaneled to forge a fiscally sound path out of bankruptcy. After the enactment of PROMESA, the job of Congress was to merely step back as the resulting budget process unfolded and to support a transition to solvency. However, Puerto Rico’s path under the PROMESA board’s guidance has been rough, in part because of congressional meddling, according to the op-ed. Gov. Ricardo Rosselló, the FOMB and Puerto Rico’s power authority (PREPA) had decided that renewable energy must replace PREPA’s reliance on imported oil, as it would help the island save from $400 to $500 million per year. That fragile high-level consensus has been thrown into doubt now by a PREPA privatization strategy that would lead to more fossil fuel dependency rather than less, and that would discourage investment in renewable energy, according to the op-ed.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Foreclosure Starts Fall to 17-Year Low

There was a further drop in foreclosure starts in June with the lowest single-month total in more than 17 years, according to a report by Mortgage Professional America. The 3.1 percent month-over-month decline to 43,500 was 23.01 percent below the number recorded in June 2017, according to “first look” data from Black Knight Financial of its loan-level database representing most of the national mortgage market. Active foreclosures continued to decline too, falling below 300,000 for the first time in nearly 12 years, and the inventory of loans in active foreclosure has fallen 30 percent (-119k) over the past 12 months. The total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.74 percent, or 1,925,000 mortgages: up 2.71 percent month-over-month (58,000), but down 1.59 percent year-over-year (7,000).
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