Japanese Restaurant Operator Food Innovators Holdings to Raise $3.1 Million Through Catalist Listing

Economic

Summary:

Japanese restaurant operator Food Innovators Holdings plans to raise $3.1 million through listing on the Singapore Exchange (SGX) Catalist board.

The proceeds of the initial public offering will go towards introducing new Japanese brands and concepts in Singapore and Malaysia and buying the rights to operate more themed restaurants in Japan and overseas, it noted on Oct 9.

The company also hopes to ride the growing wave of popularity of Japanese culture and food in Singapore and Malaysia, said chief executive Kubota Yasuaki, through an interpreter.

Mr Yasuaki told The Straits Times: “We think that Singapore is the central hub of the Asian economy. Our plan is to operate food and beverage restaurants in Japan and also outside Japan, mainly in Asia. Singapore is a multicultural country, so we think that Singapore is a good place to be listed.”

He added that being listed here will help the company to be more well known in Asia and increase its credibility in Japan, enabling it to raise debt financing from Japanese banks.

The plan is to eventually list on the SGX mainboard in several years, he said.

Food Innovators Holdings is offering 14 million shares – 13 million placement shares and one million for public subscription at 22 cents apiece.

If all shares are fully subscribed, the group will have a market capitalisation of $24.9 million upon listing.

The company runs 10 outlets in Singapore such as tempura rice bowl restaurant Tendon Kohaku, unagi eatery Man Man, Japanese skewers bar Yatagarasu, Hokkaido barbecue joint The Hitsuji Club and beef grill The Ushi Club. These are collaborations with local Japanese restaurant operators.

It also operates four restaurants in Malaysia, a bakery cafe and a central kitchen facility.

It has 12 restaurants in Japan, including a Moomin-themed character eatery in Karuizawa, as well as a restaurant leasing and subleasing business.

The firm noted that it holds the Moomin brand licence in Japan and is looking to buy operating rights of other characters.

“Driven by the widespread popularity of anime culture in Japan, demand for anime-themed restaurants has also been on the rise,” it said in a statement.

“Looking to replicate the success (of Moomin), part of the gross proceeds will be utilised to acquire operating rights to more themed restaurants of popular anime and other characters.”

Mr Yasuaki added: “With decades of deep expertise in Japan’s food service industry, (we are) poised to enter an exciting new phase of growth.

“Our extensive experience has given us a unique understanding of market dynamics, allowing us to strategically leverage favourable trends and scale our Japanese food restaurant network both domestically and internationally.”

The group began in Japan in 2011, but was only incorporated in Singapore in 2019.

Applications for shares close at noon on Oct 14 with the stock expected to begin trading at 9 am on Oct 16.

Source: Straitstimes

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UBS

Energy

Economic

Highlights

Interest in nuclear energy has ebbed and flowed in the past few decades. We have seen several declarations of a ‘nuclear renaissance’ during this period, depending on prevailing public opinion around carbon emissions, energy security and nuclear safety, as well as country-specific issues.

Once again, sentiment for nuclear energy appears to be on the upswing. In the US, public support for nuclear is at a decade high. In Europe, the Council of EU member states and the European Parliament have officially classified nuclear as a strategic net-zero industry. Even Japan has restarted 12 nuclear reactors since the 2011 Fukushima disaster.

The recent hype around generative AI and data centers adds another facet to the nuclear debate. Amazon recently acquired a data center that is 100 percent powered by nuclear, while media reports suggest that all the tech giants are increasingly looking to use nuclear to power their next generation of data centers.

Today, renewable energy from wind, solar and energy storage simply cannot provide the same amount of uninterrupted carbon-free electricity 24/7 as nuclear to businesses such as data centers. Beyond providing electricity to homes and businesses, nuclear is also key to unlocking emerging technologies such as hydrogen production, nuclear desalination and indoor agriculture.

Nuclear has a cost problem

In their long-term forecasts, organizations, such as the International Renewable Energy Agency (IRENA) and the International Energy Agency (IEA), still show nuclear being a part of the 2050 energy mix. But the industry faces one simple but gigantic hurdle – cost. Currently, a new nuclear power plant is significantly more expensive to build and operate than other energy sources, as the industry has been plagued by cost overruns.

For example, the recently commissioned Vogtle nuclear project in the US was USD 21 billion overbudget and delayed by seven years. The UK’s Hinkley Point project will be GBP 10 billion more than expected and four years behind schedule. Uranium prices have also quadrupled in recent years after the war in Ukraine started, adding to operating costs.

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SAXO

Economic

Political

US Election Countdown: What Happens if we Get Trump 2.0?_1

This week: what happens if we get Trump 2.0?

With Trump gaining in the polls over the last week, we look at the impact of what is now the highest odds scenario according to betting markets: the odds of a “Republican sweep” in which Trump not only wins but the Republicans retain control of the House of Representatives and take back control of the Senate. Let’s call it Trump 2.0, which the betting market odds currently have at 30% probability.

Remembering the reaction to Trump’s 2016 win, the consensus is that this scenario could be very positive for the US stock market. After all, the prospect of more tax cuts and deregulation is always something to celebrate, right? But some of these positive assumptions may be slightly misplaced, at least after the initial reaction. Let’s look at why.

US Election Countdown: What Happens if we Get Trump 2.0?_2

The only real test of how the market might react to the US election outcome came over the summer when polls spiked in Trump’s favour in the wake of his assassination attempt in mid-July and his defiant fist-raising moment. The chart above looks at how both Ford and GM (indexed to 100 as of the first of May) surged as Trump’s odds of winning did likewise and then also dropped when Biden bowed out. The chart point at 1 was the day after June 28, when the Trump-Biden debate ended in a disaster for Biden. Chart point 2 is the first market day after the Trump assassination attempt of July 12. Chart point 3 is the day after the July 21 Biden announcement that he was quitting the race.

Ford seemed more sensitive than GM to the swings in Trump’s polling, perhaps as the latter produces almost twice as many cars in Mexico than Ford, with Trump tariffs a risk for the profitability of Mexican production. Still, GM sells over 80% of its cars in the US, while Ford sells about two-thirds there. Then again, earnings were also reported in late July and a very weak earnings report drove Ford’s huge drop in price. Regardless, these two companies’ stock prices will be sensitive to the election outcome.

Side note while talking US carmakers: as we looked at last week, Tesla is an incredibly tricky case study over this election. Less than half of its revenues are from the US market and CEO Elon Musk has become an ever-louder Trump supporter of late, even appearing at a rally with him at the weekend. Trump tariffs and the risk that owning a Tesla is seen as supporting Trump are a risk for the company.

Trump 2.0: Let’s start with the positives.

Most of the anticipation for a positive reaction in the event of Trump 2.0 are based on the 2016 playbook, when the market anticipated and then got big tax cuts, especially for companies. Assuming some echo of the Trump 1.0 playbook, the sectors that will likely celebrate a Republican sweep scenario:

US manufacturers with a large domestic market presence and foreign competition could do especially well in the event of a Trump win as Trump’s new tariffs would make them more competitive domestically. Do remember that supply chains are often global, however. Domestic construction for adding manufacturing capacity would likely also do well.

Big banks and fossil fuel energy companies. Besides bringing tariffs, Trump has also promised deregulation for traditional energy companies and banks/financial services companies. For banking giants in particular, the hope is that a Trump 2.0 would see the unwinding of some of the strict Dodd-Frank regulations introduced after the financial crisis in 2007-09. Like Ford and GM, banks also surged on the higher odds of a Trump win in mid-July.

Stocks in general. Trump has promised to cut corporate taxes further to 15% from the current 21%, an immediate boost to the bottom line for all companies that are profitable.

European defence companies. A Trump 2.0 administration will likely see a further weakening in confidence in the US-Europe security alliances and greater US willingness to negotiate with Russia to end the war in Ukraine. This would likely inspire massive further outlays in Europe to boost woefully inadequate European defence capabilities.

But what are the risks?

The Danish physicist once said “prediction is very difficult, especially about the future”. Predicting how a Trump 2.0 scenario would play out in the longer term is devilishly difficult, but let’s bring up some areas of concern that could quickly cap any positive market response.

Trade war risk. This was quite prominent during Trump 1.0, when the market would often swing on Trump’s latest tweet about measures against China. But Trump may go bigger and broader this time with tariffs, touching off the risk of a showdown not just with China, but with other large trading partners, from Mexico and Japan to Europe.

Strong US dollar. It is widely agreed that tariffs and stimulating tax cuts would drive a stronger US dollar. The US dollar is the global currency, and its strengthening is a risk for global growth and particularly emerging markets.

Inflation risks. US deficits are already massive for an economy that is not in recession. Further Trump tax cuts and tariffs could risk spiking prices further. Market sentiment could quickly sour if the Fed is seen having to keep interest rates at high levels.

Unsteady US debt and high US treasury yields. In reaction to the Trump win in 2016 the stock market could rally even as interest rates rose sharply because they were rising from such a low base. Trump's policies are seen as inflationary and longer yields could rise sharply again. Now, not only are rates much higher, but the US debt load is on a completely unsustainable trajectory at current interest rates even without new Trump tax cuts. What would the US Treasury and the Fed have to engineer new ways to prevent interest rates from spiralling higher? No easy answers here.

Civic unrest. The very most difficult area to predict, but if Trump follows through on threats to deport illegal immigrants, this could prove very disruptive.How a Trump 2.0 scenario will play out is unknowable but of all the scenarios, will likely bring the largest market swings in the immediate wake of the election as markets race to anticipate what new policy an activist president and Congress will bring. And it will be extremely important in the case of a Trump 2.0 outcome to watch for what materialises after a possible knee-jerk rally. The most positive scenario for markets for the medium term, on the other hand, is likely not Trump 2.0, but a Harris win with a Republican Senate – essentially the status quo. The market often likes it best when politicians can’t do much.

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Cohen

Stocks

Crypto ownership has significantly increased among retail investors since 2020, says the Board of the International Organization of Securities Commissions (IOSCO), which called for more investor education about the space.

Fifteen out of 24 surveyed jurisdictions reported up to 10% or more of retail investors owned crypto last year, while six jurisdictions reported up to 30% or more crypto ownership, according to an Oct. 9 IOSCO report.

It’s a steep increase from 2020 when half of the responding jurisdictions estimated between 1% to 5% or less of investors owned crypto.

“Since 2020, the crypto-asset space has continued to evolve,” IOSCO wrote.

“Despite volatility in the market, which experienced a major downturn during the 2022 ‘crypto winter,’ retail investors, in both advanced economies and emerging market jurisdictions, continue to invest in the crypto-asset market,” it added.

IOSCO said there are still risks and concerns over crypto market volatility, lack of investor understanding, lack of regulations, and scams and fraud.

These concerns remained similar to those identified in the 2020 report, it noted.

The report also highlighted the increased risks and challenges in the crypto market since 2020, emphasizing the need for stronger investor protection and education measures.

Over the past four years, there have been several high-profile failures and bankruptcies, a long bear market with markets plunging 73% from their previous highs, and a surge in scams, hacks, and investor losses — all alongside increased regulatory and enforcement actions in the crypto space.

Despite this, retail investors remain keen on crypto assets, IOSCO said.

“Over the last four years, numerous surveys, studies, and reports have found increasing interest by investors, particularly new investors, in crypto-assets.”

Retail investors who have bought crypto tend to be younger — typically under 40 years old — and male, the report noted.

In the United States, for example, nearly three in five investors under 35 years old considered a crypto investment, while over half had already invested.

Around 44% of the Gen Z cohort in America — 18 to 25-year-olds— started by investing in crypto, the report said.

New to the scene investors are also more likely to invest in crypto, compared to established investors, IOSCO noted.

IOSCO’s report cited the main motivations for investing in crypto as fear of missing out (FOMO) or speculation, low cost of entry, and advice from friends and social media.

Source: COINTELEGRAPH

Risk Warnings and Disclaimers

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Justin

Central Bank

The UK has just opened its long-awaited digital securities sandbox – a carefully supervised experiment where participants are able to operate new technical systems under more relaxed regulations. The sandbox is designed to test the potential of distributed ledger technology to underpin the next generation of financial market infrastructure.

If the UK is able to move swiftly, providing a regulated infrastructure for tokenised assets, the advantages for the City of London could be enormous. If the benefits of tokenisation – improved collateral mobility, removed or minimised counterparty risk, settlement on demand, enhanced functionality via smart contracts – are crystallised in the UK, then financial business will migrate here to take advantage of that. The UK does not have long to innovate before the US ploughs ahead and entrenches its advantage. The sandbox is a vital opportunity to promote this development.

The sandbox is also the UK’s answer to the European Union’s blockchain pilot regime, which launched 18 months ago. The pilot regime, though it shared the UK’s aim of evaluating DLT as the basis for settlement systems, has not been taken up to any meaningful degree. This is largely because of the €6bn cap, which many market participants felt was too low to warrant the substantial investments required to develop new infrastructure.

The Financial Conduct Authority and Bank of England hope to have learned from the EU’s experience. As second movers, they can correct some of the mistakes made across the channel and design an experiment that will prove more useful.

The idea of entirely removing the cap on activity within the sandbox is untenable. Experimenting both with new technologies and new regulations is an inherently risky process and allowing assets to migrate to new infrastructure at their own pace is something few regulators would countenance.

Instead, the DSS has a system of gates. As participants satisfy the supervisors on the robustness of their systems, limits on the volume of assets allowed in the sandbox will be raised and then removed altogether. Providing a clear roadmap to scaling sandbox activity should give potential participants more confidence that their efforts and investments will not be wasted.

Higher expectations require full buy-in

In the 18 months since the blockchain pilot regime was launched, activity in the digital assets ecosystem has been advancing at a feverish pace, with new digital bonds being issued at a steadily increasing clip.

The result is that many market participants have already put in much of the time and money required to get their digital asset market infrastructure well past the proof-of-concept stage. They are looking for regulatory approval to go to market and conduct real business.

That opportunity will come as soon as they are able to satisfy the supervisors that they have the capacity to do so safely. But, for the sandbox to deliver on its potential, the official sector must be prepared to get involved.

There are two things missing from the sandbox, at present, which will inarguably form foundational parts of the digital asset ecosystem.

Digital gilts

The first is digital gilts. Government bonds are important, not just as tools for funding government expenditure, but as structural components of financial markets. One of the key value propositions for a token-based digital asset ecosystem is that assets used as collateral could be moved more quickly and efficiently. Government bonds are frequently used as collateral so any real test of a tokenised market infrastructure should include them.

Digital gilts do not necessarily have to come directly from the UK Debt Management Office. It is possible for market participants to buy gilts, immobilise them, then issue tokens against them for their clients. This would effectively bring government bonds into the digital asset ecosystem, albeit via a potentially more complex and less transparent method.

If the government were to issue digital bonds, it would mark an indication that it believes in the aims of the sandbox and its participation might encourage commitment from the private sector.

Central bank money

The other key component of a tokenised digital asset ecosystem is a means of settling the cash leg of securities transactions. Certainly stablecoins and commercial bank money tokens for doing just this already exist, but the Bank for International Settlements’ principles for Financial Market Infrastructure state that central bank money should be used for settlement wherever possible and the Bank is unlikely to want to see settlement migrate away from central bank money.

There are a number of forms that a solution for central bank money settlement versus tokenised assets could take. The Bank of England could follow the lead of the Swiss National Bank and issue a wholesale central bank digital currency. That would create a tokenised form of central bank money that could be freely exchanged with digital assets on chain and within the same platform.

This approach is also being explored by the Banque de France as part of the European Central Bank’s central bank money trials. The Banca d’Italia and Bundesbank are exploring alternative solutions to ensure that central bank money can operate in a digital asset ecosystem. The Bank of England will certainly be keeping a close eye on these experiments and hoping to learn as much as it can before embarking on its own programme. The upgrade to the real-time gross settlement system might also provide a solution.

But the Bank may consider that its Omnibus accounts provide an opportunity for market participants to provide a synthetic wholesale CBDC. Omnibus accounts enable a payment system operator to pool funds, hold them with the central bank and then provide a payments architecture for their clients, giving them the ability to settle in an instrument wholly backed by central bank money.

Source:Lewis McLellan

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Brookings Institution

Economic

The Federal Reserve has an obligation to act

Section 4002 (d) (1) of the Expedited Funds Availability Act (EFAA) states that the Federal Reserve jointly with the Director of the CFPB:

“shall, by regulation, reduce the time periods established under subsections (b), (c) and (e) to as short a time as possible and equal to the period of time achievable under the improved check clearing system for a receiving depository institution to reasonably expect to learn of the nonpayment of most items for each category of checks.”

In effect, the EFAA requires the Fed and the CFPB to set maximum time periods that depository institutions may hold consumer funds and to make those time periods as short as possible. The EFAA requires the Fed and the CFPB to reduce time periods in correspondence to the improvement of the check clearing system, and the law is clear with the term “shall” that there is an affirmative requirement to act. This petition asks the Federal Reserve and the director of the CFPB to modernize Regulation CC in compliance with the law.

The payment and check system has significantly improved since the last time the Fed shortened holding periods under the EFAA. Much of this improvement was due to passage of the Check Clearing for the 21st Century Act (Check 21 Act), a law the Fed originally proposed to Congress. While working on the Senate Banking, Housing and Urban Affairs Committee on this legislation, I vividly remember Federal Reserve Vice Chairman Roger Ferguson testifying to Congress that adoption of the Check 21 Act would “spur the use of new technologies to improve the efficiency of the nation’s check collection system.”

Congress highlighted the importance of faster funds availability for consumers. One of the explicit purposes of the Check 21 Act was “to reduce costs, improve efficiency in check collections, and expedite funds availability for customers.” The law required the Fed to conduct a study on funds availability and the appropriateness of the time periods and amount limits applicable under the EFAA. In fulfilling this requirement, the Fed released a report in 2007 saying that it did “not believe that changes to the maximum permissible hold periods for banks are warranted at this time,” and that “much broader adoption of new technologies and processes by the banking industry must occur before check return times can decline appreciably.” However, the Fed noted in the report that the Check 21 Act “is acting as an important catalyst for potential longer-term improvements in the nation’s check-collection system.”

Broader adoption of new technologies and processes occurred quickly thereafter. According to research published by the Federal Reserve Bank of Philadelphia, almost all checks were being collected electronically by 2010. That same study found that “payment collection times and associated float fell dramatically for collecting banks.” The Federal Reserve Board acknowledged these changes, stating that “Check 21 has enabled banks to send checks electronically (rather than in paper form) to banks with which they have agreements to do so. … As a result, the nation’s interbank check-collection processes have become almost entirely electronic. … In response to the growth in electronic processing, the Reserve Banks reduced the number of their paper check-processing offices from 45 in 2003 to a single office in 2010. The consolation resulted in all checks being considered ‘local checks’ under Regulation CC.”

However, despite the rapid reduction in collection times and float that have made for a faster check clearing system, the Fed has not updated Regulation CC hold times. It is true that by reducing the number of local check processing offices to a single one, thus making all checks local, funds availability was enhanced. However, the Fed has not reduced hold times for local checks at any point since Congress enacted the Check 21 Act, nor for many years before.

The Fed must acknowledge that in the years since, the banking industry and their customers have widely adopted technologies and processes that made implementing faster payments much easier. Check truncation is one of these, but so is the shift of bank customers to electronic and mobile transactions. Moreover, real-time payment systems already exist in numerous countries and also in the United States, including The Clearing House’s Real Time Payments, Zelle, and of course the Federal Reserve’s own FedNow. Clearly, technology has improved considerably, as the Federal Reserve Bank of Philadelphia’s data show.

Delayed payments exacerbate inequality

Basic financial services suffer from a “reverse Robin Hood” problem in which lower-income Americans effectively pay tens of billions of dollars for services that middle- and upper-income Americans receive free of charge. This is especially true for underbanked Americans, who constitute about one in seven U.S. households according to the FDIC.

Many American families live consistently close to running out of money in their bank accounts. Such a shortfall of household reserves can result from an unplanned expense like a car or home repair, but it can also come about due to a shortfall in earnings or having to wait longer to get access to those earnings than expected. A JPMorgan Institute study found that about two-thirds of JPMorgan Chase customers’ families lack sufficient cash to weather a typical and simultaneous income dip and expenditure spike and that “those with the median level of volatility, on average, experienced a 36% change in income month-to-month during the prior year.” Additional research by the Center for Responsible Lending, the Financial Diaries Project, and others highlights that variance in earnings is a source of financial distress, particularly for those near the zero lower bound of their bank account who face expenses that are mostly fixed, such as for rent, mortgage, child care, and car payments.

Slow payment processing presents a particular risk to those with higher earnings variance, as it exacerbates problems whereby Americans have earned enough money to cover their needs but are unable to access some of those funds due to delays in the payments system.

The costs to consumers of reaching the zero lower bound of their bank accounts are substantial. Check cashing services cost Americans $0.7 billion, and a larger share of that is spent by people with bank accounts than many realize. My research has found that 70% of those who use check cashers have bank accounts. Why would someone with a bank account use a check casher, who charges high fees when a bank deposits a check at usually zero cost? Because the check casher provides something the bank does not: immediate funds availability.

The benefits of immediate funds are substantial to people who frequently live close to zero bank balances. Consider a person who wants to deposit their paycheck into their bank account but cannot wait up to several days to access those funds in order to pay their bills. This person could deposit the cash they receive from a check cashing outlet into their bank account and have it clear instantly. The check cashing fee may be less expensive than the overdraft fees they would otherwise incur for a check that would clear in between one and five days or even longer. Research by Professor Lisa Servon of the University of Pennsylvania said of consumers who use check cashers, “if they made one mistake at their bank, that resulted in an overdraft, it would easily be more than [what they paid in check cashing fees.]”

The reliance on paper checks and the cost of slow payments was evident during the COVID-19 pandemic when the federal government sent out paper stimulus checks to 22% of all American taxpayers. Estimates are that over 3 million checks were cashed at check cashers, incurring $66 million in total fees.

Banks understand the demand for immediate funds availability and many provide it—for a hefty fee. Multiple large banks charges 2% of the amount of a deposit for immediate funds availability. Banks provide this service because there is customer demand and because it is profitable, much like overdraft has been for many banks. A consumer paying $20 for immediate access to $1,000 deposited is logical if the alternative is to wait and incur overdraft fees at $35 per incident.

The CFPB has found that some banks have grouped transactions for customers so as to intentionally process the largest transactions first, thus maximizing the number of transactions that will trigger an overdraft fee. The harms consumers suffered because of this resulted in a large class-action legal settlement. Such a scheme would not work in a real-time payments system where transactions are processed as they happen.

In addition, banks make money on the “float” created by the delay in processing checks, money that would otherwise accrue to consumers. The Philadelphia Fed study referenced earlier calculated that as a result of the Check 21 Act, “payment collection times and associated float fell dramatically for collecting banks and payees with consequent additional savings in firm working capital costs of perhaps $1.37 billion.” That study was conducted during a period of low interest rates. While it was once possible that the float could benefit consumers, this has grown more unrealistic with widespread adoption of debit cards and mobile and online banking that allow 24x7x365 access to funds. Uncertainty about payment timing, particularly the timing of crediting of deposits, creates difficulty for consumers living paycheck-to-paycheck to manage their money. Such uncertainty should not apply to knowing how much money is in your bank account and when.

It is also important to note that the slow payments system harms non-white Americans the most. According the FDIC, 14% of Americans were underbanked in 2021. However, the underbanked rate rose to nearly 25% among those who identified as Black, Hispanic, and American Indian or Alaska Native, compared with under 10% for white Americans. The unbanked are most likely to use alternative financial services with higher fees.

The benefits of shortening hold times

Giving consumers faster access to their funds provides multiple benefits and addresses several problems lower-income Americans face when they use the financial system. Federal Reserve Chairman Jerome Powell has lamented the stagnation of income growth at lower tiers of income, going so far as to state that is holding back overall economic growth. While I applaud Chairman Powell and the Federal Reserve for their contributions to understanding the importance and the drivers of inequality and how they might integrate with monetary policy tools, the Federal Reserve has ignored a significant source of inequality rooted in the payment regulatory function assigned to it by Congress.

Implementing real-time payments is the most important policy that the Federal Reserve could use to directly reduce income inequality in America. And not only does the Federal Reserve have the authority to move the U.S. banking system to real-time payments, it has the statutory obligation to do so jointly with the director of the CFPB.

Real-time payments are the right solution

Real-time payments address these concerns in important ways. Former Vice Chair Lael Brainard made this point when she stated that instant payments “could be especially important for households on fixed incomes or living paycheck to paycheck, when waiting days for the funds to be available to pay a bill can mean overdraft fees or late fees than can compound, or reliance on costly sources of credit.”

We have seen the power of changing the timing of funds availability when many of America’s largest banks made significant changes to their overdraft policies. One of these changes was to provide a grace period, sometimes up to 48 hours or more for consumers to rectify the problem that had caused an overdraft. As I testified to Congress in 2022, “The reason people go negative in their bank account temporarily has a lot to do with the mismatch in time between when they have access to their money and when their payments are debited from their account. They are often minutes, hours, or days away from having the money necessary to cover the overage.” In that testimony I looked at PNC Bank’s new grace period and found that “63% of PNC customers who end the day with a negative balance are able to fix the problem and avoid an overdraft. The average time to cure is only 13 hours, evidence that the majority of their customers’ problems are very short-term mismatches.” These findings have been similar at other large banks that made overdraft reforms, which now cumulatively transfer $5 billion a year from bank profits to Americans who are running out of money. This addresses the problems Chairman Powell identified as income inequality and the need for greater disposable income for those on the bottom end of the wealth distribution.

As I wrote to the Federal Reserve Board in 2018, “had the United States adopted real-time payments when the United Kingdom did in [2008], middle- and lower-income Americans could have experienced cumulative savings potentially in excess of $100 billion.” And since slow payments affect lower-income and non-white people the most, people in these groups would be disproportionately likely to benefit from a real-time payment system that would better allow them to avoid the high costs charged by the non-traditional financial services I describe above.

A shift to real-time payments will also foster innovations that rely on such a platform. When lawmakers debated the Electronic Funds Transfer Act in the 1970s, they never imagined a world in which debit and credit cards would be required to use on-demand transportation services like Uber and Lyft, much less than most Americans would primarily rely on their mobile devices or computers to access banking services. Even when the Fed was promoting electronic check imaging in 2001, few contemplated that it would be feasible on a mobile phone (generally flip phones at the time) from anywhere in seven years, but it happened nonetheless.

America is a global outlier

The rest of the world has moved significantly while the Federal Reserve fails to update its regulation. The United Kingdom launched its Faster Payments System in 2008. The European Union launched its TARGET Instant Payment Settlement system in 2018 and in February 2024, the European Council adopted a regulation that will require payment service providers to offer instant euro payments to customers around the clock. In India, the UPI payment system processes three-quarters of the country’s retail digital payments, making up more than 14 billion transactions in May 2024. Brazil’s central bank introduced PIX, a real-time payment system that rapidly gained dominance, partly as a result of strong requirements and regulations from the Brazilian central bank.

The United States is losing ground to other countries in terms of payment speed despite the Fed having clear regulatory authority and a Congressional mandate that it is not using. Research has questioned whether the Fed’s failure to update payment speed is due to structural conflicts in its role as regulator of the entire payment system and operator of its own payment system. As Conti-Brown and Wishnick argued, correctly I believe, pushing “supervised entities toward faster payments could fit well within several of [the Fed’s] supervisory categories, including management, liquidity, susceptibility to market risk, and especially whether each firms’ management is staying current with advances in information technology.” In my research comparing the Federal Reserve’s payment regulatory actions with those of other countries, I concluded that “The Federal Reserve is structurally conflicted, serving multiple roles as regulator of payments, operator of a payment system, and regulator of banks. Faster payments, particularly from the private sector, threaten the Fed’s role as operator of a payment system that would lose market share. Faster payments threaten bank profitability, particularly as overdraft became a major source of revenue especially for a handful of small banks. Faster payments would help achieve the Fed’s stated goals of greater economic prosperity, reducing inequality, and enhancing efficiency.”

Conclusion

Technology has changed drastically since the EFAA was enacted in the 1980s. In fact, the speed of payments has changed substantially since Congress enacted the Check 21 Act 20 years ago. This is true for checks, which have decreased in volume but remain a substantial share of non-cash payments. According to the Fed’s own study, check payments are over $27 trillion a year, more than 20% of all noncash payments. That same study found the average check’s value to be only $2,430, meaning a immediate funds availability of the first $5,000 would cover the totality of checks draw up to roughly double the average amount of all checks. It defies logic that Amazon can ship almost anything to almost anyone’s door faster than a check deposited on August 30 (a Friday) can be made available to a consumer (particularly given Monday Sept 2 was a federal holiday). After all, Amazon is moving physical objects, banks are simply transferring electronic funds over electronic systems.

In the absence of regulatory action, legislation has been introduced in both the Senate by Senators Van Hollen and Warren and in the House by Representatives Pressley and Garcia, with others, to improve funds availability. The introduction of this legislation does not change the obligation the Federal Reserve and the director of the CFPB have to act under the law. The consequences of the Fed’s failure to act has been a massive transfer of wealth from the lowest-income Americans to high-cost financial services providers.

The question is why the Federal Reserve has not then acted to reduce hold times to better reflect current technologies and processes. Congress made its intention clear that the Federal Reserve— jointly with the Director of the CFPB—shall shorten these times as much as is possible. And for good reason because, as I have established above, implementing real-time payments will save lower-income Americans who live paycheck-to-paycheck billions of dollars per year.

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S&P Global Inc.

Economic

ECB meeting, UK inflation and employment data, China GDP in view

The week ahead sees the European Central Bank likely to cut interest rates to support the struggling eurozone economy amid cooling inflation. Economic conditions in the US and mainland China will also be tracked via industrial production and retail sales data for both, with the latter also releasing third quarter GDP numbers.

The new UK government and Bank of England will meanwhile be eager to assess the health of the UK economy via updates to inflation, retail sales and labour market statistics.

Japan's inflation rate will be under scrutiny on Friday as markets weigh up the possibility of further rate hikes by the Bank of Japan after the central bank hiked rates in March and July to 0.25%.

The week also sees policy meetings in Turkey, Indonesia, the Philippines and Thailand.

Recent survey data have shown eurozone inflationary pressures continuing to cool into September, accompanied by a drop in headline eurozone inflation below the European Central Bank's (ECB) 2% target to 1.8% (final CPI data will be released in the coming week). But the news on economic growth has been less encouraging. The PMI data hint at the eurozone economy stalling amid a likely recession in Germany. Hence the expected 25 basis point rate but by the ECB at its Thursday meeting will likely be followed by another cut at the end of the year, though ECB officials have stressed that future decisions will be made on a month-by-month basis. The ECB has already cut its main deposit rate twice so far this year, in June and September, from a high of 4.00% to 3.50%.

Clues as to whether the Bank of England (BoE) has scope to also cut interest rates, with a quarter point reduction widely anticipated in November, will meanwhile be sought from updated economic data in the coming week. The BoE has only cut rates by 25 basis points so far this year after hiking its main Bank Rate to 5.25% in August of last year, its highest since 2008, and is widely expected to follow a less aggressive rate cutting path than the Federal Open Market Committee (FOMC) and the ECB due to stickier inflation. Hence the updated consumer price inflation numbers for September, published on Wednesday, will be keenly awaited, as will wage data published on Tuesday.

Just how resilient the US economy remained in September will meanwhile be assessed form retail sales and industrial production data. Judging by recent PMI data, a soft manufacturing sector is likely to be contrasted by underlying consumer strength.

Investors in mainland China will likewise seek clues on the pace of economic growth, both from third quarter GDP numbers and monthly updates to retail sales, industrial production and investment. Our economic forecasting team expects the economy to have grown at a 5.0% annual rate in the third quarter, representing an improvement on the 4.7% pace seen in the second quarter.

What to watch in the coming week

Americas: US retail sales, industrial production, building permits data; Canada inflation

As the earnings season heat up in the US, Fed policymaker comments will be watched alongside key economic data releases including retail sales, industrial production and building permits.

A divergence in US sectoral performance was observed in the latest September S&P Global PMI data, whereby strong services activity growth contrasted with the sharpest fall in manufacturing output in 15 months. This was underscored by detailed sector figures showing varying performances within the US economy. The divergences hint at the potential for varied performance for the incoming US retail sales and industrial production data releases, which will be followed closely for clues on further Fed cuts especially after the latest payrolls surprise and hotter than expected CPI print.

In Canada, September's inflation data will be updated on Tuesday. Prices data from the latest S&P Global Canada PMI, which precedes the trend for official CPI, outlined a further easing of selling price inflation.

EMEA: ECB meeting; Eurozone inflation, industrial production, trade; German ZEW; UK inflation, employment and retail sales data

The European Central Bank (ECB) convenes for their October meeting with another rate cut on the table as the market debates the likelihood for October to be part of a plan to gradually lower rates. Arguments for an October cut have so far included an easing inflation trend in September. Additionally, weakness in the manufacturing sector has been increasingly apparent via the decline for the HCOB Eurozone Manufacturing PMI, further hinting at industrial production readings to remain soft.

Over in the UK, inflation, employment and retail sales data will all be released. According to PMI indications, the easing of service sector inflation has brought the Bank of England's target closer to view. On the labour market end, the most up-to-date KPMG / REC UK Report on Jobs, consolidated by S&P Global Market Intelligence, has meanwhile showed further signs of a softening labour market in the UK at the end of the third quarter of the year.

APAC: China GDP, retail sales, production data; Japan inflation; Australia employment; New Zealand CPI; Singapore, Malaysia GDP; BI, BSP, BoT policy meetings

Besides central bank meetings in Indonesia, Philippines and Thailand, a busy data calendar is anticipated with the focus on GDP and activity data out of mainland China. Inflation figures from Japan will also be closely followed amidst the debate on whether the Bank of Japan will shift monetary policy settings again before the end of 2024.

To stay updated on all economic events of today, please check out our Economic calendar

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