Bank stocks were mixed Thursday as regulators continue efforts to quell financial uncertainty. Treasury Secretary Janet Yellen plans to call for stricter banking rules at a speech at the National Association for Business Economics Thursday. Meanwhile, Morgan Stanley downgraded broker Charles Schwab (SCHW), sending SCHW stock lower early Thursday.
Yellen To Call For Tighter Bank Rules
Yellen plans to call for stricter banking rules to ensure financial stability, according to prepared remarks for the NABE. She says the recent bank collapses point out the need for more efforts to protect the financial system.
“These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed,” Yellen said.
The Federal Reserve is improving stress tests and considering stricter capital and liquidity requirements. That would apply to midsize banks with $100 billion to $250 billion in assets.
The White House also plans to roll out its own recommendations for tighter banking regulations, the Wall Street Journal reported. That could happen as soon as this week, the Journal said.
“Regulatory requirements have been loosened in recent years. I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response,” Yellen said.
Post-financial crisis reform and “substantial” government interventions following the recent banking turmoil and Covid pandemic eased pressure on the financial system. But it means more work, Yellen says.
Yellen wants to address potential risks to nonbank institutions. Money-market funds, hedge funds and cryptocurrency stablecoins all pose potential “fire sale” risks, she says. The Financial Stability Oversight Council will change its rules to supervise such institutions.
Yellen recommended Congress establish a regulatory framework for stablecoin issuers that includes federal supervision, backing, capital and liquidity requirements. She also called for existing consumer and investor protection standards in traditional finance to apply to crypto assets.
The Treasury Department is working to address specific digital-asset risks. That includes the vertical integration of crypto trading platforms. It also is examining the lack of operational transparency among subsidiaries.
Yellen also said the Treasury Department is “exploring broader policy issues around the future of money and digital payments — including the possibility of a central bank digital currency.”
SCHW Stock Downgraded
Morgan Stanley (MS) downgraded Charles Schwab to equal weight from overweight early Thursday and slashed its price target to 68 from 99. In a research note, analyst Michael Cyprys wrote that there remains “limited visibility on multiple variables.”
Meanwhile, the stock is down 30% month-to-date. The investment thesis for Schwab has been extended. Further, the firm is less confident around the timing of an improvement, Cyprys wrote.
On Wednesday, Citi (C) lowered its price target on Schwab stock to 65 from 75 but maintained its buy rating on shares. Analyst Christopher Allen said he reduced estimates to reflect more conservative financing assumptions.
He added that it’s still too early to tell where deposit levels will settle. However, Allen still believes current entry levels will be attractive for investors with longer-term horizons.
SCHW stock slipped 1.6% early Thursday following the downgrade.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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