Bank stocks were mixed on Thursday as regulators continue their efforts to quell financial uncertainty. Treasury Secretary Janet Yellen plans to call for tougher banking rules in a speech at the National Association for Business Economics on Thursday. Meanwhile, Morgan Stanley downgraded the broker Karl Schwab (BLACK), sending SCHW stock lower early Thursday.
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Yellen calls for stricter banking rules
Yellen wants to call for stricter banking rules to ensure financial stability, according to a statement prepared for NABE. She says the recent bank failures underscore the need for further efforts to protect the financial system.
“These events remind us of the urgent need to do unfinished business: to finalize post-crisis reforms, examine whether deregulation has gone too far, and mend the cracks in the regulatory perimeter that recent shocks have exposed,” said Yellen.
The Federal Reserve is improving stress tests and considering tighter capital and liquidity requirements. That would apply to mid-sized banks with assets ranging from $100 billion to $250 billion.
The White House also plans to introduce its own recommendations for tighter banking regulations, the Wall Street Journal reported. That could happen as early as this week, the Journal says.
“Regulatory requirements have been relaxed in recent years. I believe it is appropriate to assess the impact of these deregulation decisions and take any necessary action in response,” said Yellen.
Post-financial crisis reforms and “significant” government intervention following the recent banking turmoil and the Covid pandemic have eased the pressure on the financial system. But it means more work, says Yellen.
Yellen wants to address potential risks for non-banks. Money market funds, hedge funds, and cryptocurrency stablecoins all have potential “fire sale” risks, she says. The Financial Stability Oversight Council will change its rules on the oversight of such institutions.
crypto regulation
Yellen recommended that Congress create a regulatory framework for stablecoin issuers that includes federal oversight, coverage, capital and liquidity requirements. She also called for the application of existing consumer and investor protection standards in traditional finance to crypto assets.
The treasury department is working to address certain risks in digital assets. This includes the vertical integration of crypto trading platforms. It also examines the lack of operational transparency between the subsidiaries.
Yellen also said the Treasury Department is “exploring broader policy issues surrounding the future of money and digital payments — including the possibility of a central bank digital currency.”
SCHW stock downgraded
MorganStanley (MS) Charles Schwab downgraded to equal weight from overweight early Thursday and lowered its price target to 68 from 99. In a research note, analyst Michael Cyprys wrote that “a number of variables have limited visibility.”
Meanwhile, the stock is down 30% month-to-date. The investment thesis for Schwab was extended. In addition, the company is less confident about the timing of an improvement, Cyprys wrote.
On Wednesday, City (C) lowered its price target on Schwab shares from 75 to 65, but maintained its Buy rating on shares. Analyst Christopher Allen said he reduced estimates to reflect more conservative funding assumptions.
He added that it’s still too early to tell where deposit levels will head. However, Allen still believes current entry levels will be attractive to investors with longer-term horizons.
SCHW stock slipped 1.6% early Thursday following the downgrade.
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