Weekly Briefing No. 101 | Bank Charters 101, Goldman’s Crypto-Flirtations, Fake Stock News

We are delighted to present our 101st edition.  Here’s what we have in the hopper for this week:

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  • Banking Charters 101 (or The Road to Utah)
  • What’s behind Goldman’s flirtation with Bitcoin?
  • Can social media rig the markets?
  • Financial services lessons from Despacito
  • Treasury issues report #2
  • Insurtech financings surge
  • Blockchain CEO calls out “tourists”
  • Company of Note: Kayrros  

Bank Charters 101 (a.k.a. The Long and Winding Road to Utah).

In honor of our 101st edition, we asked Pratin Vallabhaneni to write a primer on new bank charters (de novo charters if you want to sound fancy). Vallabhaneni, a financial services lawyer for Arnold & Porter Kaye Scholer and a former FDIC attorney, kindly obliged. So why now? Because these are interesting times for commercial entities and challenging times for some fintechs that are weighing the risks and opportunities of competing directly with banks. So how do old-fashioned bank charters fit into the mix? According to Vallabhaneni, US financial infrastructure has often been inhospitable to fintech-incumbent integration. Moreover, the OCC is in no rush to grant any special fintech charters. As a result, some firms aren’t waiting around for the fintech charter issue to settle. Other start-ups will likely follow suit, with many focusing on the industrial loan corporation. ILC charters are available in seven states, but due to a confluence of factors and some “blind-ass luck,“ Utah has become the Saudi Arabia of ILCs. For more on bank charters, including the controversial ILC charter, check out the primer below.

Wu-Tang Lloyd.

Last week, news hit that ex-Fortress head Michael Novogratz plans to start a $500-million crypto/ICO hedge fund and that IMF’s Christine Lagarde believes in the future of “virtual currencies.” This week, Blackrock CEO Larry Fink said that he was a “big believer” in cryptocurrencies. Also, a Nasdaq-listed biotech company involved in follicle-stimulating hormones for pigs changed its name from Bioptix to Riot Blockchain. It turns out, Riot bought a stake in a digital currency exchange and used that deal to announce a corporate repositioning. But Riot’s announcement was overshadowed by news that Dennis Coles (a.k.a Ghostface Killah of the Wu-Tang Clan) plans to co-launch a $30 million ICO. Amidst these truth-stranger-than-fiction happenings, Goldman Sachs gently dipped its toe into the crypto-pond by trial ballooning its possible interest in starting a Bitcoin trading service. CEO Lloyd Blankfein proceeded to fly air cover for Goldman’s flirtation by tweeting that he’s “still thinking about #Bitcoin.” So what’s he thinking? Our guess is that Blankfein basically agrees with Ray Dalio, Robert Schiller and, of course, Jamie Dimon, that Bitcoin is bubbly. However, he wants to be responsive to clients inquiring about it. Plus, contrasting opinions, regulatory uncertainty and sharp language point to one thing: volatility. And for an intermediary that knows how to risk-manage effectively, volatility can spell profits ─ earned in dollars.

Fake stock news.

It seems increasingly clear that sophisticated actors turned Facebook’s automated, no-KYC advertising platform into a potent propaganda tool. Specifically, recent reporting and assertions made by Sen. James Lankford (R.-Okla.) indicate that “troll farms” have been deployed to mislead the American public. We suspect that politicians will keep the heat on ahead of House and Senate hearings featuring “The Big Three” social media networks. But will that scrutiny extend to other realms besides the manipulation of our political discourse? More to the point, will any future rule prevent the ability of cyber-propogandists to game financial markets? That’s a concern given that capital markets pros are increasingly relying on news flow and sentiment analysis derived from social media. To be sure, there are some great start-ups working hard to filter out fake stuff. However, if bad guys decide that rigging the market is more fun (and profitable) than undermining elections, we should be wary of their ability to use social media to distort the reputation of public companies and impact their share prices.

Got a spicy financial innovation story?

Here at The FR, we regularly pay homage to Sriracha sauce, as it makes most food taste better. We also use it as inspiration for the type of content and analysis we seek to provide. Do you have a spicy message to convey on a financial innovation topic? If so, we’d like to hear from you.

IN BRIEF

Financial app insights from Despacito.

Recently, it became fairly official that the reggaetón song featuring Luis Fonsi, Daddy Yankee and Justin Bieber is the most consumed song of all time. For us, the most interesting part of this song’s success was covered in an article (see below), that discusses how the song embodies the new way music is written. In a nutshell, and to borrow from public intellectual Marshall McLuhan, the medium is the message. In other words, the song’s tempo, production and combination of artists were created with music streaming services in mind. Financial services incumbents should take note, because digital offerings that simply look to replicate traditional services on mobile are no way to create a hit. How should they then proceed? By making their apps as unobtrusive as possible, says JP Morgan’s James Ray.

US Treasury urges regulators to get more loosey goosey.

On Friday, the US Treasury released its second of four reports on financial regulatory reform. Whereas the first report covered banking rules, the second focused on “recommendations” to commissions including the SEC and CFTC on tweaks to equity, fixed income and derivative markets. And by “recommendations,” the Treasury essentially means actions that it wants to see happen that don’t require legislation. A few specific provisions of note include cutting disclosures for public companies, raising the crowdfunding limit from $1 million to $5 million and revisiting the definition of “accredited investor.”

Insurtech financings are flying high.

This week, insurtech financing announcements were flowing in conjunction with the ITC conference. Notable announcements came from start-ups including Slice, which raised $11.6 million to offer its on-demand digital insurance platform directly to carriers globally. Also, Clearsurance announced that it raised $4 million to further develop its crowdsourced review platform. Meanwhile, on the other side of the pond, PremFina, a London-based insurance premium finance start-up that offers a SaaS solution to insurance brokers, raised £27 million, and Paris-based Tinubu Square raised a huge €53 million to expand its software offerings to trade credit insurers and trade finance institutions.

Ripple’s Garlinghouse speaks truth to blockchain buzz power.

We’re always amused to see mainstream financial types lambast cryptocurrencies but then quickly offer gushing enthusiasm for blockchain tech. Privately, some will offer skeptical views on the blockchain’s ability to make everything better, even if they maintain a supportive public posture. Ripple’s Brad Garlinghouse falls into another category, given Ripple’s actual traction in applying blockchain tech to real-world-use cases. According to Garlinghouse (who offered his views during a Quora Q&A), the technology has been invaded by “blockchain tourists.” And get this: he actually had the gall to say that some use-cases caught-up in the blockchain swirl could be better addressed with a simple database. What a heretic.

Think publicly traded real estate assets offer value? Think again.

Sponsored by Fundrise

The nation’s largest publicly traded REITs have broadened the base of investors able to gain access to income-generating real estate investments. That’s a good thing. However, the costs that accompany these securities can be significant. If you aren’t aware of those costs, don’t worry, you’re not alone. They can be hard to discover, even if you have a few spare hours to read the exhaustive fine print included in quarterly financial reports. Fortunately, Fundrise has developed a suite of products that seek to offer an attractive, low-cost alternative to these publicly traded, traditional REITs.

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COMPANY OF NOTE

Kayrros.

The intersection between the hydrocarbon financial markets and fintech doesn’t get too much attention, even though Oil & Gas financial instruments represent a massive market that sees billions of dollars’ worth of notional value exchanged daily. Moreover, despite significant advancements in cleaner fuels, hydrocarbons will likely continue to provide the world’s cornerstone supply of energy in the near- to intermediate-term. That’s why we are highlighting Paris-based Kayrros, which offers predictive analytics grounded in quantitative finance, advanced mathematics and petroleum engineering principles. The company, which also has offices in New York and San Francisco, is led by a team of energy heavy hitters and currently serves physical traders, hedge funds and energy companies in their attempts to better understand market dynamics important for risk management and investing. In a recent dialogue with The FR’s Gregg Schoenberg, the firm’s president and founder Antoine Rostand underscored the need for Kayrros’s solutions: “More and better data is going to revolutionize the world’s energy markets,” he said. “We expect to play a significant part in accelerating the development of this important trend.”

QUOTE OF THE WEEK

“Protesting is never a disturbance of the peace. Corruption, injustice, war and intimidation are disturbances of the peace.”

~ Bryant McGill