This week, a quarterly report released by the New York Federal Reserve indicated that since the peak in household debt in the third quarter of 2008, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion. Meantime, two Fed officials said the Fed should not move to ease monetary policy any further, despite dim prospects that unemployment will fall sharply any time soon.
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Conversation Starter
New York Fed Quarterly Report Shows Student Loan Debt Continues to Grow
NEW YORK – In its latest Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York today announced that student loan debt reported on consumer credit reports reached $904 billion in the first quarter of 2012, a $30 billion increase from the previous quarter. In addition, consumer deleveraging continued to advance as overall indebtedness declined to $11.44 trillion, about $100 billion (0.9 percent) less than in the fourth quarter of 2011. Since the peak in household debt in the third quarter of 2008, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion.
The New York Fed also released historical student loans figures, by quarter, dating back to the first quarter of 20031 as part of this quarter’s report. These data show that student loan debt has substantially increased since 2003, growing $663 billion. Outstanding student loan debt surpassed credit card debt as the second highest form of consumer debt in the second quarter of 2010.
“Student loan debt continues to grow even as consumers reduce mortgage debt and credit card balances,” said Donghoon Lee, senior economist at the New York Fed. “It remains the only form of consumer debt to substantially increase since the peak of household debt in late 2008.”
Additionally, 90+ day delinquency rates for student loans steadily increased from 6.13 percent in the first quarter of 2003 to its current level of 8.69 percent. They remain higher than that of mortgages, auto loans and home equity lines of credit (HELOC).2 90+ day student loan delinquencies were at their peak during the third quarter of 2010 at 9.17 percent and are the only form of those delinquencies to increase this quarter (by 0.24 percent).
The New York Fed’s latest Quarterly Report on Household Debt and Credit also includes data on mortgages, credit cards, auto loans and delinquencies.
Other highlights from the report include:
Mortgage balances shown on consumer credit reports fell again ($81 billion or 1.0 percent) during the quarter.
Mortgage originations, which we measure as appearances of new mortgages on consumer credit reports, rose to $412 billion and are 17.4 percent below their first quarter 2011 level.
Credit card balances, at $679 billion, were 21.6 percent below their fourth quarter 2008 peak of $866 billion.
The number of credit inquiries within six months–an indicator of consumer credit demand–declined slightly, 0.5 percent, and is now 15.5 percent above its first quarter 2010 trough.
Auto loan originations rose 2.1 percent in the quarter, to $72 billion, and are 43.6 percent above their trough level in quarter one of 2009.
About $1.06 trillion of consumer debt is currently delinquent, with $796 billion seriously delinquent (at least 90 days late or “severely derogatory”).
See the full New York Fed quarterly report and related graphs here:
http://jlne.ws/LJWYG6
More Student Loans Are Past Due
WSJ.com
More Americans are taking out student loans, and more borrowers are falling behind on paying them back on them. Americans owed $904 billion in student loans at the end of March, nearly 8% higher than a year ago, the New York Fed said in its quarterly report on consumer credit.
http://jlne.ws/LJXEeC
Student Loan interest rates set to double without action
The Kentucky Kernel
By Amelia Orwick Senate Republicans have blocked a Democratic bill that would have preserved low-interest rates for Federal Stafford loans, leaving many students concerned about their financial futures. The vote (52-45) fell eight short of the 60 needed to proceed, resulting in a stalemate. It is expected that a compromise will be reached before July
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MSRB SEEKS COMMENT ON DISCLOSURE OF PAYMENTS IN CONNECTION
WITH NEW ISSUES OF MUNICIPAL SECURITIES
Concept Release Requests Public Input on whether Dealers and Advisors Should Disclose on EMMA
Any Financial Incentives Given or Received
Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today published a concept release seeking comment on a possible proposal to require underwriters and municipal advisors to disclose whether they have made or received certain payments in connection with new issues of municipal securities.
In the wake of Jefferson County, Alabama, and other situations involving undisclosed financial relationships, concerns have arisen regarding potential conflicts of interest that can impair the ability of municipal market professionals to act fairly and objectively.
The MSRB is considering whether it should require disclosure through the MSRB’s Electronic Municipal Market Access (EMMA) website of financial incentives received by underwriters or municipal advisors that may influence their recommendations, as well as payments made by underwriters or municipal advisors to incentivize third parties, including incentives for third parties to steer business toward the underwriter or advisor. The concept proposal is intended to elicit input from the public on potential benefits and burdens of requiring public disclosures of these financial incentives, as well as on potential alternatives, to assist the MSRB in determining whether to publish for further comment a specific rule proposal that would establish such a requirement.
“The MSRB would appreciate feedback from market participants about whether and how we should take steps to address potential conflicts of interest stemming from undisclosed financial relationships among dealers, advisors and third parties,” said MSRB Executive Director Lynnette Kelly. “This comes at a time when the MSRB is focused on our expanded mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act to protect state and local government issuers.”
http://jlne.ws/Kh4Pzt
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Lead Stories
Two top Fed officials cool to more easing
International Business Times
The Federal Reserve should not move to ease monetary policy any further, despite dim prospects that unemployment will fall sharply any time soon, two top Fed officials said on Wednesday.
http://jlne.ws/JU5i6Q
Fed to consider Basel III rules next week
Reuters via Yahoo! News
WASHINGTON (Reuters) – The Federal Reserve is scheduled to vote next week on a highly anticipated proposal for implementing an international agreement on higher capital standards for banks, known as Basel III. The Fed announced the June 7 meeting, which will be open to the public, on its website on Wednesday. The U.S. central bank is expected to put the proposal out for public comment.
http://jlne.ws/LJZwU4
Economist Stein takes seat on Fed board
Reuters via Yahoo! Finance
Harvard University economist Jeremy Stein was sworn in as a governor on the Federal Reserve board on Wednesday, the Fed said. Stein fills the seat vacated by Kevin Warsh.
http://jlne.ws/KhqRlTedit
Q&A: World Banks Zoellick on the Global Economy, Euro-Zone Crisis and U.S. Fiscal Cliff
Wall Street Journal Blogs
World Bank President Robert Zoellick in an interview discussed the euro-zone crisis, risks to developing nations, the U.S. fiscal cliff and his work at the bank.
http://jlne.ws/LNMR6y
How to play it – A debt ceiling sequel?
Reuters via Yahoo! Finance
Another showdown between Republicans in Congress and President Barack Obama over debt could be in the making, and some investors are already taking steps to prepare for it.
http://jlne.ws/JUauYk
Japan’s bond girls
New York Post
Maybe Ben Bernanke can take a page from Japan’s central bank and book a reunion tour of Destiny’s Child to help sell some of Uncle Sam’s debt?
http://jlne.ws/KYohiN
Woman Who Couldn’t Be Intimidated by Citigroup Wins $31 Million
Bloomberg
Sherry Hunt never expected to be a senior manager at a Wall Street bank. She was a country girl, raised in rural Michigan by a dad who taught her to fish and a mom who showed her how to find wild mushrooms. She listened to Marty Robbins and Buck Owens on the radio and came to believe that God has a bigger plan, that everything happens for a reason.
http://jlne.ws/LJZw6y
BOJ Governor Shirakawa says watching yen moves carefully
Reuters via Yahoo! Finance
Bank of Japan Governor Masaaki Shirakawa said on Thursday the central bank does not directly target asset prices in guiding monetary policy but is watching currency moves carefully.
http://jlne.ws/KLxvy3
UK Recession Will Not Last Long: Bank of England
CNBC
The UK economy will recover somewhat this year and the next, but the situation in the euro zone has big effects on it, Spencer Dale, a member of the Monetary Policy Committee and chief economist at the Bank of England, told CNBC in an interview on Wednesday.
http://jlne.ws/L07PdJ
Draghi calls for EU-wide bank oversight
By Claire Jones, Economics Reporter – Financial Times
Mario Draghi, ECB president, has criticised the Spanish government for underestimating the scale of Bankia’s woes and called for the regulation of Europe’s most important banks to be taken out of the hands of national supervisors.
http://jlne.ws/LJZA6e
Fears over Europe push 10-year rate to 66-year low
WFMJ Youngstown
A key borrowing rate is sinking to a 66-year low as fear over Europe roils global markets.
http://jlne.ws/JC8Z4t
Investors rush into haven bonds
By Michael Mackenzie in New York and Robin Wigglesworth in London – Financial Times
The once unthinkable is stalking global investors. And record low yields on haven government bonds such as US Treasuries, UK gilts and German Bunds are proving no deterrent to buyers.
http://jlne.ws/LJZBqT
Facing Down the Bankers
By ANNIE LOWREY – NY Times
Sitting in a corner office high above K Street here, Dennis M. Kelleher, one of the most powerful lobbyists on financial regulatory reform, looks every bit the corporate lawyer and high-ranking Senate aide he formerly was: tailored suit, quick smile, assertive tone. Dennis M. Kelleher, a former lawyer at Skadden, Arps, runs Better Markets, a nonprofit group focused on the regulatory overhaul of the financial industry. But Mr. Kelleher does not work for banks. He works against them.
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Worries About Spain Weigh on Euro Zone
New York Times
Washington has dispatched a top Treasury aide to Europe as Spanish borrowing costs continued to rise.
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We need a stronger Glass-Steagall Act to regulate financial firms
Los Angeles Times
The 1933 law, which in effect barred commercial banks from owning investment banks, was repealed in 1999. A former Treasury Department official proposes an updated version. “Bring back Glass-Steagall!” That’s the cry you hear most often for restoring regulatory stringency to our misbehaving financial sector.
http://jlne.ws/LLIvZD
Dimon $2 Billion Blunder Shows Capital Safer Than Swaps
Bloomberg via Yahoo! Finance
JPMorgan Chase & Co. (JPM) Chief ExecutiveOfficer Jamie Dimon railed against higher capital requirementslast year at the same time his bank was using derivatives tohedge more than $1 trillion of loans
http://jlne.ws/N12qcN
After JPMorgan Loss, U.S. Regulator Ponders Tighter Volcker Rule
Bloomberg
The main U.S. derivatives regulator will discuss whether to tighten exemptions to a proposed ban on proprietary trading after JPMorgan Chase & Co. (JPM) announced at least $2 billion in credit-derivatives trading losses.
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Events
2012 Central Bank Forum
June 13-15, 2012, Chicago
http://jlne.ws/JVCTjs
Bond China Congress
September 4-5, 2012, Shanghai, China
http://jlne.ws/KXsmS0
Firms & Banks
PIMCO Dynamic Income Fund Announces Closing of its Initial Public Offering
Business Wire
NEW YORK–(BUSINESS WIRE)–PIMCO Dynamic Income Fund (the “Fund”) today announced it has completed the closing of its initial public offering. The Fund raised $1,015,000,000 in its initial public offering of 40,600,000 common shares (before deduction of the sales load and offering expenses and exclusive of the underwriters’ option to purchase additional common shares).
http://jlne.ws/McePLH
Citigroup’s Pandit: Not Planning To Sell Polish Unit – Report
Dow Jones
Citigroup Inc. (C) isn’t planning to sell its Polish unit, Bank Handlowy w Warszawie SA, and is pleased with how it has performed in recent years, Citigroup Chief Executive Vikram Pandit was quoted as saying in Polish daily Rzeczpospolita Thursday.
http://jlne.ws/LJZH1J
Citigroup Selling Fund for Japan’s Local Banks to Hedge JGB Risk
Bloomberg
Citigroup Inc. (C) started selling a fund for Japanese regional banks to hedge against the risk of a decline in the value of their government bond holdings as the world’s biggest public debt swells.
http://jlne.ws/LJZJXm
RBS says CEO needs “freedom” to carry out turnaround
Reuters via Yahoo! News
Royal Bank of Scotland’s chief executive and management team need to be given the freedom to complete their five-year turnaround plan without excessive interference, the British bank’s chairman said.
http://jlne.ws/LJZHP9
JPMorgan CIO Swaps Pricing Said to Differ From Investment Bank
Matthew Leising, Mary Childs and Shannon D. Harrington – Bloomberg News
The JPMorgan Chase & Co. unit responsible for at least $2 billion in losses on credit derivatives was valuing some of its trades at prices that differed from those of its investment bank, according to people familiar with the matter.
http://jlne.ws/LJZwTX
Regulators
Fed’s Bullard says more quantitative easing unlikely for now, warns on Europe
Reuters via Yahoo! News
TOKYO (Reuters) – The Federal Reserve could resort to more quantitative easing if the economy deteriorates, but this situation is unlikely as it is on track for a moderate recovery, an official of the central bank said on Thursday. Europe is a potential risk to the global economy and it is up to European governments to follow a plan that reassures financial markets they can repay their debt.
http://jlne.ws/Khm9Va
Volcker Urges Global Monetary System Overhaul
Bloomberg
May 31 (Bloomberg) — Former Federal Reserve Chairman Paul Volcker talks about supervision of the global monetary system and the outlook for his namesake rule designed to rein in banks’ proprietary trading.
http://jlne.ws/L9LYCR
Fed’s Rosengren: further easing “appropriate, necessary”
Reuters via Yahoo! News
WORCESTER, Massachusetts (Reuters) – The Federal Reserve should move to boost weak economic growth and trim overly high unemployment by pushing down borrowing costs still further, a top Fed official said on Wednesday. “I believe further monetary policy accommodation is both appropriate and necessary,” Boston Fed President Eric Rosengren said in remarks prepared for delivery.
http://jlne.ws/LiUbE
Fed’s Fisher Says Europe Drives U.S. Interest Rates Down
Bloomberg
Federal Reserve Bank of Dallas President Richard Fisher said Europe’s debt crisis has done more to lower U.S. interest rates than the Fed’s maturity-extension program, known as Operation Twist.
http://jlne.ws/Kv1awJ
Fed’s Dudley Sees Economy Continuing to Grow at Moderate Pace
Bloomberg
Federal Reserve Bank of New York President William C. Dudley said the U.S. expansion will probably continue at a “moderate” pace and that additional stimulus likely won’t be needed unless the economy falters.
http://jlne.ws/M0IB3e
Why the Minneapolis Fed’s Kocherlakota wants interest rates to rise
MinnPost
Narayana Kocherlakota Federal Reserve Bank of Minneapolis President Narayana Kocherlakota recently delivered a speech titled “Monetary Policy Transparency: Changes and Challenges.” In his talk, Kocherlakota emphasized is that the Federal Reserve is now trying to be open about “principles regarding its longer-run goals and monetary policy strategy.
http://jlne.ws/N15cPk
Global News
Indian growth slides to 9-year low
CNN
India’s economic growth fell to a nine-year low in the first three months of 2012, a clear sign that the country’s slowdown is deepening and affecting all sectors of the economy.
http://jlne.ws/M11nYi
Brazil Cuts Rate to Record-Low 8.5% as Euro Crisis Deepens
Bloomberg
Brazil cut its benchmark interest rate to a record low after Europe’s debt crisis roiled global financial markets, threatening to further hobble growth in Latin America’s biggest economy.
http://jlne.ws/JTZHgU
Bankia Vortex Risks Dragging Spain Toward Bailout as Costs Mount
Bloomberg
Bankia group risks dragging the rest of Spain into its vortex.
http://jlne.ws/LKrhMU
Greek Banks Regain Access to European Central Bank Loans
By JACK EWING – NY Times
Greece’s four largest banks have regained access to normal credit lines from the European Central Bank after they received fresh capital from the European Union, Mario Draghi, the E.C.B. president, said Thursday.
http://jlne.ws/LJZyvh
Irish Vote on Fiscal Pact
By EAMON QUINN – WSJ
Irish voters deliver their verdict Thursday on a European Union treaty designed to bring financial stability to the euro zone by binding countries to tougher rules on balancing their budgets.
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Italy Central Bank expects 1.5 pct GDP contraction
Associated Press via Yahoo! News
Bank of Italy chief Ignazio Visco says the country’s economic contraction can be contained to 1.5 percent this year.
http://jlne.ws/JChtIG
S. African Central Bank Mandate Brings ‘Challenges,’ Marcus Says
Bloomberg
South Africa’s new central bank mandate brings “difficult challenges,” Governor Gill Marcus said.
http://jlne.ws/L67ETV
Spanish Central Bank Chief to Leave Early as Crisis Gathers
New York Times
Miguel Ãngel Fernández Ordóñez said Tuesday that he would quit his job just days after watching Spain’s banking sector sink deeper into crisis.
http://jlne.ws/JwIHMaedit
