By David Morgan

WASHINGTON (Reuters) -A conservative Republican and a progressive Democrat in the U.S. Senate are introducing legislation on Wednesday to replace the Federal Reserve’s internal watchdog with one appointed by the president, aiming to tighten bank supervision following the failures of Silicon Valley Bank and Signature Bank.

Republican Rick Scott and Democrat Elizabeth Warren blamed the collapse of the two banks on regulatory failures at the U.S. central bank, which has operated up to now with an internal inspector general who reports to the Fed board.

“Our legislation fixes that by establishing a presidentially-appointed, Senate-confirmed inspector general at the Fed, like every other major government agency,” Scott said in a joint release with Warren.

Warren said this month’s banking upheavals “have underscored the urgent need for a truly independent inspector general to hold Fed officials accountable for any lapses or wrongdoing.”

The Federal Reserve had no comment on the measure.

The legislation, introduced on Wednesday, would replace the Fed’s inspector general with an independent IG who would oversee the Federal Reserve and the Consumer Financial Protection Bureau.

The CFPB, responsible for consumer protection within the financial sector, is technically housed within the Fed system but operates entirely on its own, save for one key factor: It is funded by transfers from the Fed.

Warren played a key role in setting up the CFPB under Democratic President Barack Obama following the 2007-2008 financial crisis. The U.S. Supreme Court last month agreed to hear a case challenging the CFPB’s funding structure, which some conservatives argue violates the U.S. Constitution,

The cooperation between Scott and Warren, who usually inhabit opposite poles of the political spectrum, could be the start of a new bipartisan push on banking.

Warren is a leading voice on financial matters. She sits on both the Senate Banking Committee and the Senate Finance Committee, and chairs subcommittees of both panels.

Scott, a former Florida governor, is a hardline conservative who has positioned himself as a leading fiscal hawk.

The show of bipartisanship poses a stark contrast with the partisan standoff between Republicans and Democratic President Joe Biden over the nation’s $31.4 trillion debt ceiling, which has raised concerns in the financial markets about a prolonged debate that could damage the U.S. economy.

Both Republicans and Democrats have pledged tighter oversight of banking regulators following the collapses of Silicon Valley Bank and Signature Bank, which were followed by billions of dollars in losses for financial stocks.

“We may end up in one of these strange-bedfellows situations,” said Chris Brown, a banking lobbyist and former staffer on the House of Representatives’ Financial Services Committee, which oversees the banking industry.

“I do think there’s overarching concern about what happened here,” he said.

House Financial Services Committee Chairman Patrick McHenry, a North Carolina Republican, and the panel’s top Democrat, Maxine Waters, have jointly scheduled a March 29 hearing on the banking system that will present testimony from officials with the Fed and the Federal Deposit Insurance Corporation (FDIC).

(Reporting by David Morgan and Heather Timmons; Editing by Scott Malone, Jonathan Oatis and Nick Zieminski)

By Valerie Insinna

WASHINGTON (Reuters) -Boeing Co. will take additional charges to the KC-46 tanker program due to a supplier quality issue with the center fuel tank, the company’s finance chief said Wednesday.

Boeing Chief Financial Officer Brian West did not disclose the precise value of the additional charges, which will be announced as part of the company’s first quarter earnings, but margins at Boeing’s defense business would be negative as a result.

While 767 freighter deliveries “will recover in the second quarter,” tanker deliveries will take longer “but we will recover the year,” West said at the Bank of America Global Industrials Conference, adding that the issue would not impact Boeing’s annual cash flow target of $3 billion to $5 billion in 2023.

West also acknowledged a slight schedule slip for Boeing’s 737 MAX 10, which will “likely” be certified and delivered next year. Boeing Commercial Airplanes head Stan Deal had predicted in December that MAX 10 certification could occur in late 2023 or early 2024.

MAX 7 certification and delivery is still expected to occur in 2023, and “we are working very, very closely with Southwest to make sure that we can help them with their fleet management,” West said.

Earlier this month, Boeing confirmed that deliveries of the Boeing 767 freighter and KC-46 tanker were delayed as a supplier had not completed processes related to cleaning and paint adhesion on the center fuel tanks. The primer inside the fuel tank must be removed and repainted before Boeing can deliver the aircraft.

“We know how to fix this,” West said. “But now we have to go implement the fix both on production airplanes and some airplanes that are in the fleet.”

On tankers, Boeing is locked into a fixed-price development contract where it is responsible for paying all expenses above the award’s $4.9 billion cost ceiling. The company has taken $6.8 billion in charges since the U.S. Air Force awarded the contract in 2011.

On the commercial side of the business, Boeing remains confident it can meet its delivery guidance for the year, West said.

Deliveries of the company’s bestselling 737 MAX will be higher in March than the 24 aircraft delivered in February, said West, who stood by the company’s target of delivering 400-450 737 MAXs this year.

Boeing executives also “see a path” for the company to recover from a 787 Dreamliner delivery pause and meet twin goals of ramping up production to five 787s a month and delivering at least 70 Dreamliners this year. Boeing delivered its first 787 since late February on March 16.

(Reporting by Valerie Insinna in Washington; Editing by Toby Chopra, Bernadette Baum and Chizu Nomiyama)

By Alexandra Alper and David Shepardson

WASHINGTON (Reuters) – The Biden administration is under pressure to ban popular Chinese-owned social media app TikTok, but any such move likely hinges on passage of a new law that bolsters the government’s authority to regulate speech, experts said.

Pressure is mounting from lawmakers and national security hawks to ban TikTok, which is owned by China’s ByteDance, over fears the app could censure content, influence users, and pass Americans’ personal data to Beijing, allegations the company denies.

Courts blocked a prior bid by the Trump administration to ban the app in part on the grounds that such a move violated free speech protections.

That means any move to block the app likely depends on passage of legislation like the RESTRICT ACT, a bipartisan bill introduced by Senators this month granting the Commerce Department new power to ban foreign technology that poses a national security risk. That would circumvent the speech protections embedded in existing law, lawyers and China watchers said.

“RESTRICT is really helpful because it gives this completely new, from scratch, legal authority that doesn’t have any of those complications” under other laws, said Emily Kilcrease, a senior fellow at the Center for a New American Security and former deputy assistant U.S. Trade Representative. “It’s a much stronger, cleaner legal authority.”

TikTok previously criticized the RESTRICT act, saying “the Biden Administration does not need additional authority from Congress to address national security concerns about TikTok: it can approve the deal negotiated with (the Biden administration) over two years that it has spent the last six months reviewing.”

TikTok chief executive officer, Shou Zi Chew, will testify Thursday before the House Energy and Commerce Committee and face tough questions from those lawmakers who want to ban the app.

TikTok, which FBI director Christopher Wray said in November could be used to “control software on millions of devices,” has been in the crosshairs of the U.S. government for years, since powerful Republican Senator Marco Rubio called for its review in 2019.

Courts struck down former President Donald Trump’s bid to block TikTok in 2020 with an executive order that granted the Commerce Department similar authorities as the RESTRICT act.

In that instance, the executive order relied on by Trump had a major hurdle: it derived its power from the International Emergency Economic Powers Act, which carves out the import or export of “informational materials,” and “personal communication” through the Berman amendment, which sought to protect speech.

Meanwhile, a move by the Committee on Foreign Investment in the United States, a powerful body that scrutinizes foreign investments for national security risks, to force Bytedance to divest its U.S. TikTok business remains mired in negotiations two and a half years later.

White House national security adviser Jake Sullivan endorsed the RESTRICT Act on March 7 saying it “would strengthen our ability to address discrete risks posed by individual transactions, and systemic risks posed by certain classes of transactions involving countries of concern in sensitive technology sectors.”

But the bill will likely provide no immediate solutions for those calling for a ban on the app. While the legislation enjoys bipartisan support, no companion bill has yet been introduced in the House. It’s also not yet clear when Congress might take it up — and some think it might be attached to a year-end defense measure.

Some experts said using the new legal tools to ban TikTok could still invite First Amendment challenges.

“Realistically, I don’t see this tool coming into play until 2024,” said CFIUS lawyer Nicholas Klein with DLA Piper. “And there will most likely be a legal challenge if its used to ban TikTok.”  

(Writing by Alexandra Alper and David Shepardson; Editing by Chris Sanders and Anna Driver)

By Francesco Canepa and Balazs Koranyi

FRANKFURT (Reuters) -The European Central Bank is watching for signs of stress in the banking sector from the ongoing financial turmoil but a full-blown crisis is unlikely for now, the ECB’s top brass said on Wednesday.

Investors are pondering whether the ECB will be able to continue raising rates to fight inflation given turmoil in the banking sector that has seen two U.S. lenders go under and Swiss giant Credit Suisse need a last-minute rescue.

The ECB’s chief economist Philip Lane said market jitters may turn out to be “a non-event” for monetary policy, or could affect it at the margins, but the odds on a crisis that completely rewrites the outlook remained long.

“We always run scenarios about… what happens when we get accelerator effects or things amplify each other. But that’s pretty much a tail scenario at this point in time,” Lane told a conference on Wednesday.

Pierre Wunsch, Belgium’s central bank chief, took a similarly relaxed view, arguing that strong supervision has kept the bloc’s banks healthy.

“We’ve been torturing the data in all directions and honestly, what we see is no problem,” Wunsch said. “Even if banks would have to sell all of their obligations and take the losses, they would still have enough capital.”

MAGNIFIED

Speaking at the same event, ECB President Christine Lagarde said the ECB’s interest rate hikes may be magnified if banks become more risk averse and start demanding higher rates when lending, likely implying the central bank would need to do less.

“If, for example, banks start to apply a larger ‘intermediation wedge’ – meaning that at any level of the base rate they demand a higher compensation for the perceived risk they are taking on when lending – then pass-through will become stronger,” Lagarde said.

Her remarks were later echoed by ECB board member Fabio Panetta, who said he expected banks to pass on the ECB’s rate hikes more forcefully.

The ECB has increased the rate it pays on bank deposits by a record-breaking 350 basis points to 3% since July and financial markets expect a further increase to 3.5% later this year.

The central bank for the 20 countries that share the euro raised rates last week but removed from its policy message an expectation that it would increase rates again at upcoming meetings in light of the recent financial jitters.

Panetta, a long-time critic of rapid rate hikes, cautioned that demand is showing signs of weakness, a potential argument against further tightening.

“At times like this, abrupt policy moves are not necessary,” Panetta said. “This requires a data-dependent approach that does not prejudge future policy decisions and that reflects the risks on both sides.”

Ignazio Visco, governor of the Bank of Italy, said the ECB should pursue a “very prudent” monetary policy as it was “crucial” to avoid a credit crunch.

Lagarde reaffirmed the ECB’s determination to bring inflation in the euro zone to 2%, from 8.5% last month, and noted past hikes were only just starting to be passed onto the economy.

“For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction,” she said. “And that process is only starting to take effect now.”

The problem facing the central bank is that, while headline inflation is falling rapidly, underlying price growth is proving stubbornly high, suggesting that inflation may remain stubborn.

Still, Lane said he expected core prices to ease over time as lower fuel costs filter through to other sectors.

“There are reasons to believe, by looking at the indirect effect of energy on core, by looking at the pipeline (pressures), that there are data points to suggest that underlying inflation measures will ease over time,” Lane said.

He cautioned, however, that this expectation was predicated on growth in wages peaking this year.

(Reporting By Francesco Canepa and Balazs Koranyi; Editing by Toby Chopra, Christina Fincher and Bernadette Baum)

By Manya Saini and Jaiveer Shekhawat

(Reuters) – Pacific Western Bank has raised $1.4 billion from investment firm Atlas SP Partners, the lender said on Wednesday, as the crisis-hit sector scrambles to limit the damage from the recent collapse of two mid-sized lenders.    

Shares of the bank were down 10% in morning trading, even as the lender tried to allay investor worries by saying it had more than $11.4 billion in cash as of March 20.

Los Angeles-based PacWest also said it had explored the idea of raising new capital, but decided against the move due to a rout in bank stocks.    “Any time that you know a bank talks about having considered a capital raise, especially in this environment where there’s so much skittishness from the markets, it’s bound to have a negative impact of the stock,” said Gary Tenner, analyst at brokerage D.A. Davidson & Co. 

Reuters first reported last week that PacWest was in talks with investment firms including Atlas SP Partners for ways to boost its liquidity.

The bank said deposits insured by the Federal Deposit Insurance Corp, including accounts eligible for pass-through insurance, exceeded 65% of its total deposits, as of March 20.

Total deposits at the bank fell 20% to $27.1 billion from $33.9 billion as of Dec. 31.

“The update that put out today versus the update that put out last Friday, the read on it is a little bit more negative,” Tenner said.

Regional banks, whose stocks have been battered since the collapse of two mid-sized U.S. lenders this month, have tried to assure customers their deposits are secure after the recent bank runs whipsawed the global financial ecosystem.

Graphic: PacWest shares plummet in the aftermath of bank runs – https://www.reuters.com/graphics/GLOBAL-BANKS/egpbyjjgavq/chart_eikon.jpg

“We will continue to see flows away from regionals and into systemically important banks that are too big to fail,” said Thomas Hayes, chairman and managing member of Great Hill Capital.

(Reporting by Jaiveer Shekhawat and Manya Saini in Bengaluru and David French in New York; Editing by Pooja Desai and Anil D’Silva)

By Deborah Mary Sophia

(Reuters) – Tighter budgets may not be a constraint for Americans looking to get back into shape, keeping gym operators financially fit, even as inflation pinches other consumer-focused sectors.

Some of the major players in the fitness sector have pushed the envelope on membership rates after the pandemic scare, helping them beef up earnings, when most other industries are under stress from the impact of a cautious consumer.

“In-person fitness is something consumers missed during the pandemic. Consumers feel a close connection to their gym community, which explains in part why spending in this sector is strong despite inflation,” said Tanya Moryoussef, manager at Kearney Consumer Institute, a part of consulting firm Kearney.

Boutique gym group Xponential Fitness Inc added about 15,000 new members in the fourth quarter and had more than 600,000 members as of January, a more than 70% jump from 2019 pre-pandemic levels.

Larger rival Planet Fitness Inc added 400,000 members in the fourth quarter, taking the total to about 17 million in 2022.

(Graphic: Planet Fitness memberships jump exiting the pandemic – https://www.reuters.com/graphics/USA-FITNESS/lgpdkjkagvo/chart.png)

(Graphic: Xponential Fitness membership growth – https://www.reuters.com/graphics/USA-FITNESS/zjvqjnjobpx/chart.png)

“We have more members today than we’ve ever had, paying more than they ever have,” Xponential CEO Anthony Geisler told Reuters in an interview.

Visits to fitness chains jumped 30.6% for the week starting Feb. 27, compared with 2019 levels, according to data from location analytics firm Placer.ai, which covers thousands of U.S. gym locations across more than 20 national and regional brands.

Its data also showed a 17.2% weekly jump in visits for the same period, compared with 2020.

“People that are working out, are working out slightly more than they did in the past … So even with the recessionary talks and layoffs you see, cancellations are just slightly better,” Planet Fitness CEO Chris Rondeau said at a JPMorgan conference last week.

Gen-Z’s focus on fitness after being locked indoors during the COVID-19 crisis has also been a major driver.

A Planet Fitness executive said Gen Z represented 25% of the company’s total membership.

“We’re seeing lots of positive indications of consumer interest in living healthy and active lifestyles, and we see that especially in younger demographics,” Baird analyst Jonathan Komp said.

Gen-Zs are generally much more aware of the food and nutrition they consume and the activities they need to engage in to be physically and mentally healthier, Komp added.

(Reporting by Deborah Sophia in Bengaluru; Editing by Anil D’Silva)