Financial Services Report (11/23)

Last week, President-elect Joe Biden announced several of his key White House senior staff appointees. His team also announced that they would be making more announcements this week. In the interim, we await his choice for Treasury Secretary, which he has said should satisfy both moderate and progressive wings of the Democratic Party.

As of now, his appointees stand as follows:

• Ron Klain, chief of staff to the President.
• Anthony Bernal, senior advisor to Dr. Jill Biden. 
• Mike Donilon, senior advisor to the President.
• Jen O’Malley Dillon, deputy chief of staff. 
• Dana Remus, counsel to the president. 
• Julissa Reynoso Pantaleon, chief of staff to Dr. Jill Biden. 
• Steve Ricchetti, counselor to the president. 
• Cedric Richmond, senior advisor to the president and director of the White House Office of Public Engagement.
• Julie Rodriguez, director of the White House Office of Intergovernmental Affairs.
• Annie Tomasini, director of Oval Office operations.
• Mala Adiga, policy director to Dr. Jill Biden.
• Carlos Elizondo, White House social secretary.
• Cathy Russel, director of the White House Office of Presidential Personnel.
• Louisa Terrell, director of the White House Office of Legislative Affairs.

Last Week in the House

Democratic Caucus

Last week, Democrats held their Caucus Organization Meeting , first re-electing Speaker of the House Nancy Pelosi, Majority Leader Hoyer, Majority Whip Clyburn and Caucus Chairman Jeffries all acclamation. Then in two contested races, they elected Rep. Katherine Clark (D-MA) to the Assistant Speaker position, while also electing Pete Aguilar (D-CA) for the Vice Chair role. The move potentially highlights the next generation of Democratic leadership, as Speaker Pelosi also confirmed that this would be her last term as Speaker of the House.

The Floor

The House passed a series of measures on the Suspension Calendar during week, including the USA Telecommunications Act (H.R. 6624) on Tuesday by voice, though it is not excepted to be taken up by a Republican Senate due to White House opposition. Additionally the House passed the National Apprenticeship Act, reauthorizing the roughly $4 billion dollar program for another five years.

Hearings

HFSC Pandemic Risk Insurance Hearing (11/19): On Thursday, the House Financial Services Subcommittee on Housing, Community Development, and Insurance held a hearing to discuss proposals for future pandemic risk insurance programs. In particular, the discussion centered around Rep. Carolyn Maloney’s (D-NY) Pandemic Risk Insurance Act (PRIA) bill, which is modeled after the Terrorism Risk Insurance Act (TRIA) that Congress passed in response to the 9/11 terrorist attacks, to provide specific insurance in the event of a terrorist attack effecting businesses. While all Members and witnesses expressed the need for a clear path forward in terms of businesses safeguards in the event of a future pandemic, there was debate over whether an insurance-based approach is both practical and efficient. Several Members suggested that another way to support small businesses through public health emergencies would be through a program that’s modeled after the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).

Bills Introduced

H.R. 8760 (Cleaver): A bill to require the Board of Governors of the Federal Reserve System and the Securities and Exchange Commission to issue an annual report to the Congress projecting and accounting for the economic costs directly and indirectly caused by the impacts of climate change, and to require the Federal Retirement Thrift Investment Board to establish a Federal Advisory Panel on the Economics of Climate Change, and for other purposes.

H.R. 8761 (Gianforte): A bill to reduce premiums under the National Flood Insurance Program for certain properties, and for other purposes.

Other Activity

Financial Services Issues Inclusion in NDAA: On Thursday, House Financial Services Committee Chairwoman Maxine Waters (D-CA) issued a press release praising an agreement to included beneficial ownership reporting and anti-money laundering language in the NDAA that is being finalized. While highlighting this apparent deal, the press release also requested the inclusion of three other financial services related issues still being negotiated in the NDAA including:

• language by Representative Gregory Meeks offered to promote diversity throughout the economy by requiring public companies to disclose the racial, ethnic and gender compositions of their boards and c-suites;
• a section sponsored by Representative Juan Vargas, to increase oversight and transparency of U.S. government efforts under the Defense Production Act and other authorities to provide essential medical supplies and equipment; and,
• A provision by Representative Brad Sherman, to require Chinese companies that have shares listed on U.S. exchanges and other trading platforms to be subject to the same audit standards as U.S. companies.

Last Week in the Senate

The Floor

Due to the absence of two Republican Senators, Chuck Grassley and Rick Scott, due to COVID-19 quarantining, the Senate failed to advance the nomination of Judy Shelton to the Federal Reserve Board of Governors. Leader McConnell changed his vote to “no” for procedural reasons that allow him to call the nomination again. It is unclear when the Senate will take up this controversial nomination again. Complicating matters is the impending swearing-in of newly-elected Senator Mark Kelly (D-AZ), which could occur shortly after the Senate returns from its Thanksgiving Holiday break.

Hearings

SEC Oversight Hearing (11/17): On Tuesday, the Senate Banking Committee held an oversight hearing of the Securities and Exchange Commission (SEC), featuring testimony from Chairman Jay Clayton. Senators largely praised Chair Clayton and the SEC for its work to support market stability amid the COVID-19 pandemic. In light of Chairman Clayton stepping down at year-end, the discussion largely focused on the work the SEC has undertaken during his chairmanship, as well as the outstanding work to be done under the next Chair. While many senators used their time to thank the Chairman for his service, others called for greater accountability-focused regulation on corporations — particularly in terms of climate risk.

Bills Introduced

S. 4903 (Hassan): A bill to amend the Higher Education Act of 1965 to encourage entrepreneurship by providing loan deferment and loan cancellation for founders and employees of small business startups, and for other purposes.

Last Week in the Administration

Mnuchin Requests Roll Back of Fed Lending Facilities

On Thursday, Treasury Secretary Steven Mnuchin wrote a letter to the Federal Reserve asking the central bank to return more than $400 billion in funding for five CARES Act lending facilities. This includes the: (1) Primary (PMCCF) and Secondary Market Corporate Credit Facilities (SMCCF); (2) Municipal Lending Facility (MFL); (3) Main Street Lending Program (MSLP); and (4) TALF. The move put the Trump administration temporarily at odds with Fed Chairman Jerome Powell, who had expressed support for continuing these programs. “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.” However, by Friday, Powell had agreed to return the funds at the end of the year as requested.

Regulators Announce Relief for Banks

On Friday, the banking regulators (FDIC, Fed Board of Governors, and the OCC) announced a joint rule to provide relief from certain asset based threshold rules to banks who have grown as a result of COVID-19. Primarily caused by the PPP lending program, but also due to other factors such as increased deposits as the savings rate has increased, many banks were finding themselves nearing ,or above certain asset based threshold levels that determine regulatory applicability. This interim final rule will allow banks to use their asset levels as of December 31, 2019 to apply for their determination of the applicability of asset based thresholds until the end of 2021. While this relief applies to many, if not most, of the rules, it does not apply to the Volcker rule, though the Fed did note that any “banking entity” that crossed the $10b threshold to be subject to Volcker would have two years to come into compliance.

FHFA New Capital Rule

On Wednesday, the Federal Housing Finance Agency released a new capital framework on the Enterprises, Fannie Mae and Freddie Mac. The new rule from the Federal Housing Finance Agency places bank-like capital requirements on the pair and is seen as a key step in preparing the two to eventually return to private operation. It establishes new capital and leverage requirements, as well as buffers that would allow the enterprises to continue guaranteeing mortgages even in an economic downturn.