Wall Street Journal

Bonus rewards

American Airlines “said it would raise $7.5 billion backed by its AAdvantage frequent-flier program to repay a loan that the carrier took out from the federal government after the coronavirus pandemic decimated air travel. Both Delta Air Lines and United Airlines also have tapped their respective frequent-flier programs to land financing.”

“Carriers have found the relatively stable cash flows that their frequent-flier programs bring in to be a rich source of collateral for financing. Airlines mainly earn money from frequent-flier programs by selling miles to banks and retailers that then award them to customers who sign up for credit cards and make purchases. That means airlines stand to benefit from every swipe of a co-branded card, whether customers are buying plane tickets or clothing. Airlines have said this revenue has held up better than ticket sales as travel demand dried up last year.”

Safety first

The Fed’s “seeming willingness to provide inexhaustible financing of U.S. government debt” is driving banks away from lending to private sector companies for the safety of buying government securities, former Fed nominee Judy Shelton writes in a Wall Street Journal op-ed. “Banking institutions have traditionally provided the pipeline that routes loanable capital to businesses and households. Yet commercial banks are increasingly opting to reduce the share of total assets devoted to loans while expanding their holdings of Treasury debt and government-backed mortgage securities,” she writes. “The Fed’s killing-with-kindness approach risks permanent scarring of banking relationships by curtailing access to credit. No wonder the movement to democratize finance is being pursued increasingly through nonbank institutions.”

Financial Times

Easy money?

It’s not yet clear what Walmart plans to do with its fintech partnership with venture firm Ribbit Capital. “But one thing is almost certain: Walmart is betting that the regulatory environment has changed,” an FT op-ed says. “In 2007, amid a frenzy of lobbying from banks, U.S. regulators made it clear that the world’s largest retailer would not be allowed to slip through a loophole by applying for an industrial loan company charter and Walmart withdrew its application. Today, though, politicians prefer to paint big tech companies as the key threat to competition. And the banking world has changed, too. There is an array of fintechs shaking things up, so the banks may now see Walmart as one threat among many.”

“I think Walmart means to go big. They are not going to offer services as a way to encourage loyalty to their core retail business. They mean to make profits here, and that means gathering capital and lending it. All of this will, sooner or later, bring Walmart into the orbit of U.S. banking regulators. But if it gets a pass from regulators — not a forgone conclusion even now — the question remains whether it can make the business work. Banking is a cyclical business where it is tempting to overextend at the top and to quit altogether at the bottom. The profits can be good, but it is never easy money.”

Emergency expiring

The Federal Reserve said it “is ending the bulk of the remaining emergency facilities it rolled out last year to support financial markets through the coronavirus crisis, in the latest sign that the economic recovery is gathering momentum.” The Fed said it would allow three lending programs—the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility—”to expire as scheduled at the end of the month, citing low usage.”

The programs “were launched in March last year to combat turbulent trading conditions that engulfed markets when investors scrambled to hold cash. The facilities were part of a larger effort by the Fed to stabilize the financial system — resulting in the central bank expanding the scope and scale of its reach in an unprecedented way.”

The Fed also said it was extending by three months, until June 30, the liquidity facility behind the Paycheck Protection Program, American Banker reported.

New York Times

Climate enemy?

Investing in bitcoin may be all the rage in some circles, “but depending on which study you read, the annual carbon emissions from the electricity required to mine Bitcoin and process its transactions are equal to the amount emitted by all of New Zealand. Or Argentina.”

“Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing,” according to Bill Gates.

Quotable

This is the best day of my Senate life. We passed so many big things.” — Ohio Sen. Sherrod Brown, following passage of the $1.9 trillion Covid-19 stimulus package.