Zohran Mamdani meets Donald Trump
Hi and welcome to the November Monthly Macro. I was thinking that this has felt like a boring month, but then compiled too long of a list of things to talk about. At least we don’t have dull news.
First off - Zohran Mamdani is mayor of NYC. Will this change anything? While there was talk and promise of affordable housing and government supermarkets, will any socialist policies (if they happen) have a tangible effect on NYC tech/fintech businesses or startups? Will people and or money flow out of the city? Will businesses decide to build elsewhere? Will this leave the city worse off? So many questions, maybe we will have some answers.
It would be unusual for firms to change plans due to a change in mayor, but there has never been a DSA mayor in the capital of capitalism before.
Second - let’s take a quick trip back to Argentina.
Last month I wrote about the Argentina Debt Plan. The $20 billion bank-led debt facility is dead, as reported by the WSJ. Instead JPMorgan Chase, Bank of America, and Citigroup will lend Argentina $5 billion through a short-term repurchase facility to provide dollars for an upcoming $4 billion debt payment in January. This is a bandaid not a solution, and makes clear that banks were not comfortable with the exposure and loose protections. This is also not a great sign for fintechs in FX, cross-border payments, or USD-linked accounts, all of which will remain volatile (for now).
Now for some longer stories
Government Shutdown Ends! (Yay)
The longest government shutdown in history ended. While this is good news, what will be the effects of a 43 day federal government shutdown?
Government workers are going to receive back pay, but government payroll processing is not super quick or clear, so when the back pay will come is a different question. 1.4 million federal government employees went without pay for 43 days - 670,000 furloughed employees and roughly 730,000 continuing to work without pay. This leads to an interesting question about who is the average US government worker - can they survive more than a month without a paycheck?
The end of the shutdown means that data is now being released, also yay! Data! The September Jobs report was released November 20th- it’s still unclear what will happen (if anything) with October data, but November reports will be released. The data challenge is two fold, not only was there a shutdown but the Bureau of Labor Statistics is not running at full capacity. While there is so much talk about data and concern with the lack of it, it is a macro issue. Without a high level picture of where the economy is at, we are operating in the dark. Since we must always talk about rate cuts in 2025, the lack of data meant the Federal Reserve had to rely on partial information, which could have affected monetary policy modeling and rate decisions.
Fintechs and banks were also affected. Mortgage lenders, SBA loan programs, and credit risk models all depend on up to date federal data. This can cause some problems but overall it seems like the impact has been really minimal. But the biggest effect is on individual families who had to survive 43 days without a paycheck. What does the financial resilience of middle class US households say about the economy? And what does the seeming lack of long term resilience mean for fintechs? The weak resilience ties back into fintech in many spaces - credit underwriting, BNPL repayment rates, demand for earned wage access, the volatility of payment flows, and even how regulators should think about consumer protection. However most pertinent to think about are consumer finance fintechs, which are built on the assumption that households have solid short term financial resilience. This shutdown showed that this assumption may be a big one, so will fintechs need to rethink how they structure, do business, and support customers?
In other government news Trump came out with a $2,000 tariff rebate check plan.
This seems unlikely to happen, which is just as well because it’s an inefficient use of money and time. The tariff money should go to the deficit, and banks should pay customers for selling their data (more on that below).
I also read that the Trump administration is going to sue states that pass laws to regulate AI. Regardless of whether that is legal itself or even a good idea or effective, my main question is will there be federal regulation instead? And will the federal regulation be able to pass in a timely manner? Would AI regulation help or hurt the fintech industry?
Most companies use AI in their daily work, if it’s not actively part of their product. Maybe regulation makes it safer and more focused? Maybe regulation slows it down?
Graphs from MarketWatch
Vought vs the CFPB
For almost a year now Russ Vought has been attempting to end the CFPB. You would think that he could do it automatically as he is the Director, or at least quicker. So maybe there are some benefits to bureaucracy and complexity of the government and their funding mechanisms.
Yet, will this be the time he succeeds?
On November 11th the CFPB notified the court that it could not “lawfully” draw funds from the Federal Reserve.
“Today, the Consumer Financial Protection Bureau filed a notice informing the court in NTEU v. Vought that the Department of Justice’s Office of Legal Counsel has determined that the Bureau may not legally request funds at this time from the Federal Reserve under Dodd-Frank."
OLC made this conclusion on the basis that the Federal Reserve System currently lacks any “combined earnings” from which the Bureau may draw funding, as required by Dodd-Frank. OLC opinions are binding upon Executive Branch agencies including the Bureau.
The Bureau anticipates having sufficient funds to continue operations until at least December 31, 2025.”
The Trump administration had previously argued that the CFPB’s Fed-based funding structure was unconstitutional, but the Supreme Court ultimately upheld it. This approach comes around the other side, the CFPB itself has determined it can’t request the funds that are lawfully the agency’s to request under the Dodd-Frank Act.
An ultimate closure of the CFPB could have interesting effects for fintech. The CFPB under Chopra was aggressive and broad. Some rulings and orders hurt fintech and stifled innovation. Closure of the CFPB could help fintechs if there are less rules and red tape.
On the other hand, the CFPB supported open banking and had published the 1033 order on it. This was rolled back and now I see headlines about JPMorgan Chase striking data-access deals with fintech aggregators. So that is not good for fintechs - it is an extra cost, nor is it guaranteed, and the data that would have been free and mandatory under Chopra’s CFPB.
What seems like the end of open banking strikes me as the biggest loss for fintechs. Does this mean other banks will be striking data-access deals? I’ve only been seeing news about JPMorgan come out but other large banks must have a lot of data that they could charge fintech aggregators to use. If the CFPB comes back to life there should be an order that Chase has to pay customers for selling their data. Why are the banks the only ones profiting from this scenario? Anyways, there is good and bad with the CFPB and fintechs - some orders help and some hurt.
Another thing to consider - we talk a lot about the attempts to shutter the CFPB, but will Vought’s efforts have a lasting impact? Will the next President move to reopen the CFPB? Does that mean any closure and policy changes would last only a few years? Is that not the problem with a lot of policy?
Federal Reserve “Skinny” Accounts
I have been seeing these “skinny” accounts pop up in the news for more than a few weeks now so I thought it might be time to give it some space. First off the Fed does more than decide if they should lower rates and oversee long, expensive renovations.
The Fed has been exploring what they are calling “skinny” master accounts, limited-purpose accounts that would allow fintechs and crypto firms to settle directly with the central bank without requiring a full banking charter. This is big news because it opens up a lot of opportunities to smaller firms and signals a policy change. Currently, most fintechs rely on partner banks for access to the payment system, which introduces operational risk, counterparty risk, and liquidity constraints. Beyond the risk and constraint it also forces fintechs to find a partner bank, they can’t operate all of their functions solo.
With skinny accounts, stablecoin issuers could hold reserves directly at the Fed, dramatically improving security and transparency. Payment rails could become more efficient, as firms would bypass traditional bank intermediaries.
Fintechs and insurers would also get more independence and be beholden to a partner bank and their policies. But these accounts raise questions about how to regulate liquidity, ensure anti-money laundering compliance, and manage systemic risk - which would have been handled by the partner bank.
I think that AML compliance will be a big piece to work out, as we already saw failure with that from crypto firm Binance.
There’s concern over blurred lines between banks and non-banks, which is likely but already started to happen (think FDIC coverage advertised when it’s not true), and that new oversight frameworks could be needed, which is true but change is not necessarily bad. If implemented, this change could accelerate innovation in payments and crypto, make fintechs and crypto issuers more efficient, and introduce more competition between banks and fintechs.
