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The Federal Reserve and other top U.S. regulators are moving forward with their plan to increase capital requirements for big banks, despite calls to scrap it. Officials have decided to make adjustments to the original proposal rather than starting over, with some aiming to finalize it by August. The plan, released in July, has faced criticism from lawmakers and regulators who have raised concerns. The proposed changes to the plan may focus on how capital rules assess risk related to trading, wealth management, and investment banking activities. The plan is part of the Basel III international agreement and aims to address issues exposed by the failures of Silicon Valley Bank and Signature Bank. However, banks argue that they are already well-capitalized and the changes would harm consumers. The decision to proceed with the plan could reduce the impact of the November elections on the banking industry. Fed Governors Michelle Bowman and Christopher Waller have expressed concerns about the original plan's assessment of risks at banks.

 

Bloomberg

Treasury Secretary Janet Yellen appeared before the House Ways and Means Committee on Tuesday, in a four-and-a-half hour hearing which saw her insist that President Joe Biden would keep his promise to not raise taxes on Americans who earn less than $400,000 a year if he wins a second term. “The president has been very clear that no family earning less than $400,000 will face a tax hike,” Ms. Yellen said. “He has not proposed such a thing since he took office, and he’s not proposing to allow that to happen when parts of the Tax Cuts and Jobs Act expire." Asked by Representative Michelle Fischbach (R-MN) how Mr. Biden would find a way to keep the tax cuts from expiring, Ms. Yellen said the president would work to let the cuts for the rich lapse while preserving the rest. “There will be a negotiation over what to do when these tax cuts expire and the president, as he does in many other situations, will negotiate with Congress,” she added. During the hearing, Ms. Yellen also defended a global corporate tax deal against accusations that it would siphon away U.S. revenues and said she was working to carve out an allowance for the U.S. R&D tax credit. The so-called Pillar 2 agreement for a 15% global minimum tax is aimed at halting a downward spiral of competitive corporate tax cuts by countries to attract investment and the shifting of profits to their jurisdictions by multinational firms. She argued that U.S. firms "did just fine" when the U.S. had the sole global minimum tax of 10.5% and other countries had none.

 

New York Times

Reuters

A series of FT reports considers how banks moving into the cloud prompts forecasts of security risk, and why cyber risk managers need to fight AI with AI, among other issues.

 

Financial Times

A staffing company that performed COVID-19 contact tracing for Pennsylvania and exposed the private medical information of about 72,000 residents will pay $2.7m in a settlement with the U.S. Justice Department and a whistleblower. The Pennsylvania Department of Health paid Atlanta-based Insight Global tens of millions of dollars to administer the state's contact tracing program. Insight Global used unauthorized Google accounts to store sensitive information, violating its contract with the state. The company was fired after the data breach came to light. A whistleblower lawsuit alleged that Insight Global knew about its lack of secure computer systems. The whistleblower, a former contractor, complained to the company but was ignored. Maureen R. Dixon, from the U.S. Department of Health and Human Services, stated that contractors which fail to safeguard personal health information will be held accountable. The whistleblower is set to receive nearly $500,000 from the settlement. Insight Global has acknowledged its mishandling of sensitive information and apologized. The company has about 70 offices in the U.S., Canada, and the U.K.

 

U.S. News

A U.S. appeals court has upheld a Biden administration rule requiring government contractors to pay seasonal recreational workers at least $15 an hour. The ruling has sparked controversy, with a dissenting judge arguing that Congress has given the president too much power to regulate federal contracting. The court stated that the president's authority to dictate wages extends to workers who do not directly provide services to the government. However, a judge claimed that this broad discretion violates the U.S. Constitution. The rule, implemented by the U.S. Department of Labor, eliminates an exemption for seasonal recreational employers. The court found that higher wages would improve worker absenteeism and turnover, as well as the quality of services provided. The decision is seen as giving the president unlimited power to impose conditions on federal permit holders. The case may have broader implications for minimum wage regulations in the U.S. contracting industry.

 

Reuters

The National Labor Relations Board (NLRB) is urging a U.S. appeals court to uphold its ruling that common provisions in employee severance agreements violate federal labor law. The NLRB argues that overly broad confidentiality and non-disparagement provisions in severance agreements interfere with workers' rights to advocate for better working conditions. The ruling overturned previous Trump-era decisions that stated severance agreements only violate the National Labor Relations Act if employers engage in separate unlawful conduct. The NLRB's decision is being challenged by Michigan hospital operator McLaren Macomb. The case raises concerns about the impact on workers' rights and the reasoning behind the NLRB's ruling. The outcome of the case could have implications for companies that routinely ask terminated workers to sign agreements in exchange for severance pay.

 

Reuters

Domenick Nardone, the CFO of Raymond of New Jersey, an industrial equipment manufacturer, appeared in federal court in Oakland, California, facing serious charges including conspiracy, wire fraud, and money laundering. The allegations involve Nardone and Eric Marsiglia, a former executive at Williams Sonoma, orchestrating a fraudulent scheme where Nardone allegedly directed millions to a shell company owned by Marsiglia, REM Group LLC, in exchange for lucrative contracts. This case unfolds with Marsiglia, previously responsible for commercial real estate opportunities at Williams Sonoma, using his position to divert broker fees and kickbacks from contracts to REM Group, totaling nearly $20m between 2018 and 2022.

 

CFO

Union Pacific managers have been accused by federal regulators of undermining safety assessments at the railroad. The Federal Railroad Administration (FRA) claims that managers coached employees on how to respond to safety culture interviews and has suggested that they might face disciplinary action. The FRA's chief safety officer, Karl Alexy, said the meddling was so widespread that the agency had to suspend its safety assessment of Union Pacific. The railroad company has responded by saying that the issue was limited to one department and that it did not intend to influence or impede the assessment. The FRA launched safety assessments of major railroads in the U.S. following high-profile derailments. Critics argue that many employees are afraid to speak out about safety concerns, potentially increasing the risk of another major derailment. Union Pacific says it plans to conduct an internal safety assessment with the assistance of the FRA.

 

U.S. News

Stellantis is recruiting a majority of its engineering workforce in lower-cost countries such as Morocco, India, and Brazil to contend with cheaper Chinese electric vehicles and slower demand. The carmaker is cutting costs to make more affordable vehicles and is seeking savings by hiring engineers in countries where the cost per employee is significantly lower than in hubs like Paris and Detroit, and it aims to have roughly two-thirds of its engineers in lower-cost countries in the long term. Western carmakers, including premium automakers like BMW, are also adding white-collar jobs in countries like India to tap local talent. The strategy is expected to add expertise in areas such as software, artificial intelligence, and battery-cell chemistries. However, the push to hire engineers in lower-cost countries has caused some development problems, requiring engineers from France and Italy to fix local issues.

 

Bloomberg

U.S. factory activity contracted in April on declining demand, according to the Institute for Supply Management (ISM), while input prices rose at the fastest pace since inflation peaked in 2022. The ISM Manufacturing PMI fell 1.1 points to 49.2, below both the 50-mark separating expansion from contraction and the median estimate in a Bloomberg survey of economists. Seven industries contracted in April, including machinery, furniture and wood products, while nine reported expansion. Among commodities noted in the report, producers reported paying higher prices for crude, gasoline, aluminum, copper, corrugated boxes, plastic resins and steel. “Demand remains at the early stages of recovery, with continuing signs of improving conditions,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Suppliers continue to have capacity but work to improve lead times, due to their raw material supply chain disruptions.”

 

Bloomberg

Market Watch

U.S. President Joe Biden has claimed that "xenophobia" is hindering the economic growth of China, Japan, and India, while he emphasized the positive impact of immigration on the U.S. economy. Speaking at a fundraising event in Washington, Biden stated that countries like China and Japan are struggling economically because they do not welcome immigrants. The International Monetary Fund has forecasted a deceleration in growth for these countries, while the U.S. is expected to grow at a slightly brisker rate due to migrants expanding the local labor force. Biden's remarks come as concerns about irregular migration become a prominent issue ahead of the U.S. presidential election. He has been working to strengthen economic and political relations with countries like Japan and India to counter global powers such as China and Russia.

 

U.S. News

The Commerce Department reports that U.S. construction spending was down 0.2% in March to $2.08tn, after being unchanged in February. Economists polled by Reuters had forecast construction spending gaining 0.3%. Construction spending increased 9.6% year-on-year in March. Private construction spending was down 0.5%, while investment in residential projects dropped 0.7%. State and local government spending rose 0.6% and outlays on federal government projects surged 3.6%.

 

Market Watch

Reuters

RTT News

McDonald's reported on Tuesday that budget-conscious consumers are cutting back on restaurant meals and the Middle East conflict weighed on the burger chain's international sales. First-quarter revenue rose 5% to $6.17bn, in line with analyst expectations, helping it achieve net income of $1.9bn, a 7% increase. Earnings per share were $2.70 when adjusting for one-time items, just below the $2.72 expected among analysts polled by FactSet. Global comparable sales growth slid to 1.9%, with the company saying consumers turned "more discriminating with every dollar they spend". It also noted the impact of boycotts in the Middle East and Muslim-majority countries such as Malaysia and Indonesia over its perceived support of Israel. Comparable sales in the company's International Developmental Licensed Markets segment declined 0.2%, offsetting positive trends from Japan, Latin America, and Europe. Same-store sales grew 2.5% in the United States, sharply lower than last year.

 

Wall Street Journal

The FT reports on how the ongoing conflict between Russia and Ukraine will leave global banks vulnerable to the risks around economic sanctions and export controls for the foreseeable future.

 

Financial Times