The Economist: July 8th – 14th, 2017

The great unbanking

“Correspondent banks” are international banks that clear the foreign currency transactions of smaller banks through big financial centers.  Such banks are dropping customers in places or sectors deemed to pose a high risk of money-laundering, sanctions evasion or terrorist financing.

Based on data from the Financial Stability Board, The Economist writes:

the number of correspondent-banking relationships fell in all regions between 2011 and 2016… Worst-hit was eastern Europe, which saw a decline of more than 20%

According to The Economist, smaller firms that handle remittances are suffering too:

Some have given up their independence and become agents of giants such as Western Union and Money-Gram, for whom international clearing is not a problem.

An American payments firm goes online and buys British

“Merchant acquirers” are companies that have contracts with sellers of goods and services and also licenses from credit- and debit-card companies to accept and process card payments.

On July 5th, Worldpay – a British payments processor – said it had accepted a cash-and-shares bid from an American payments firm – Vantiv – worth 7.7 billion pounds ($10 billion USD).

Until a few years ago, acquirers in both America and Europe had to have banking licenses.  In fact, Vantiv was spun off from an American bank (Fifth Third) in 2009, and the Royal Bank of Scotland was forced to sell Worldpay in 2010 as a condition of its bail-out by the British state.

According to The Economist:

The deal marks a further step towards the industry’s consolidation.

Last year, Global Payments bought Heartland.  TSYS bought TransFirst.  Vantiv bought Moneris USA.  On July 3rd,  Nordic payments company, Nets, said it had been approached about a takeover.

Bond markets fret about a change in central-bank policy

Since 2009 central banks have been incredibly supportive of the financial markets – keeping short-term interest rates at historic lows and buying trillions of dollars worth of bonds.  But in recent weeks, several of them have been hinting at reducing their largesse…

Central banks will have to tread very carefully.  Global debt is higher as a proportion of GDP than it was before the financial crisis started in 2007…

It is a lot easier to begin monetary stimulus than to end it… central banks cannot always arrange a happy ending.