Banking: Mixing and matching regional Fed board members
It’s time to get bankers off the boards of regional Federal Reserve banks and increase diversity, according to a statement to the Washington Post on Thursday by Democratic presidential front-runner Hillary Clinton. The Federal Reserve Act requires that stockholding banks get three seats on each regional Fed’s 9-member board. Congress would have to amend the Act to change board composition. Clinton joins Democratic challenger Bernie Sanders and presumptive Republican nominee Donald Trump in calling for change at the Fed. (Bloomberg, Milepost).
Markets: Treasury spotlight on marketplace lending
Limited transparency, little regulation, minimal disclosure and uncertain funding. Those are the concerns highlighted by the US Treasury in a paper released Wednesday on marketplace lenders. The Treasury released the paper as the number of marketplace lenders has grown in recent years to roughly 400 platforms. It came in the wake of LendingClub CEO Renaud Laplanche’s resignation after the company had to buy back $22 million of loans from Jeffries because of data errors. (Milepost).
Markets: central banks and illiquid markets have come together
Fixed income markets have lost liquidity as the role of central banks has grown around the world, according to Milepost Capital Management CIO Brian Egnatz, although the link may be as much coincidence as cause. Egnatz made the comments at PwC’s annual Financial Markets Insight conference in New York on Tuesday. The challenge is disentangling the central bank role from the rise in regulation. “Any trade that flows onto a dealer balance sheet flows right back out,” Egnatz said. The conference, with more than 250 attendees, also featured panels on financial innovation and disruption and on bank regulation. (Milepost).
Markets: Mixing and matching CLO managers
Real value in collateralized loan obligations may depend on investing with different CLO managers, according to analysis put out Wednesday by Deutsche Bank. Since CLOs amount to pools of actively managed corporate loans, a big part of their value comes through diversification. Roughly 23% of any randomly chosen CLO will have the same credit exposure as any other random CLO, analyst Bjarni Torfason writes, but that exposure averages 66% if the CLO has the same manager. CLO managers apparently stick with favorite names. Investors that want broadly diversified exposure to leverage loans clearly need to mix their managers. (Deutsche Bank).
Economy: A broad lift in home prices
The median existing single-family home price increased in 87% of the 178 metropolitan statistical areas (MSAs) analyzed in the National Association of Realtors’ report on the first quarter of this year, according to S&P. Of the areas analyzed, 16% saw double-digit jumps, down from the 30% in 4Q15 and 28% in 1Q15. The price on the median US home jumped 6.3% YoY to $217,000. (S&P).