Financial Services Report (12/14)

As of Sunday evening, it was reported that House and Senate negotiators were closing in on a COVID relief deal – albeit one that spun the two most contentious issues of liability protections and funding for state and local governments into a separate bill. Whether or how this all comes together as Congress races to pass a longer year-end spending bill before the end of the week remains to be seen. Please note, that even if the House and Senate pass these measures before funding runs out on Friday, they are likely to stay in session until January 2nd or 3rd in order to prevent a pocket veto situation on the NDAA as well as these measures.

This week, in state Capitols around the country, the electoral college is set to certify that Joe Biden has won the election. This will set up the next marker for those Republicans channeling their inner Hiroo Onoda, when those results are counted in Congress on January 6th.

Hopefully it will be a productive week that would make this the penultimate edition of this newsletter. As always, if you have any questions or if our team at Thorn Run can be of any additional assistance, please just reach out.

Have a great (and safe) week!

Transition Snapshot

President-elect Joe Biden has continued filling out his Cabinet over the last several weeks, with his economic team beginning to take real shape. Of note, his selection for Secretary of Commerce, as well as several key regulator heads, remain outstanding. Click here to view TRP’s full running list of officials named to President-elect Joe Biden’s team.

As of now, his financial services-related appointees stand as follows:

  • Janet Yellen, Treasury Secretary
  • Adewale Adeyemo, Deputy Treasury Secretary
  • Brian Deese, Director of the National Economic Council
  • Cecilia Rouse, Chair of the Council of Economic Advisers
  • Jared Bernstein, Member of the Council of Economic Advisers
  • Heather Boushey, Member of the Council of Economic Advisers
  • Neera Tanden, Director of the Office of Management and Budget
  • Katherine Tai, U.S. Trade Representative

Last Week in the House

The Floor

On Tuesday, the House passed the sweeping defense bill by a vote of 335-78, sending it over to the Senate for passage on Friday.

The House of Representatives approved a one-week extension of funding for the federal government on Wednesday, in a 343-67 vote.

Bills Introduced

H.R. 8946 (Omar): To provide emergency relief assistance under a modified Community Development Block Grant program for communities facing economic damage from civil and social crises, and for other purposes.

H.R. 8896 (Gohmert): To repeal section 230 of the Communications Act of 1934 (commonly referred to as the Communications Decency Act) to stop censorship, and for other purposes.

H.R. 5929 (Foster): This bill requires an issuer of securities to disclose information related to expenditures for political activities.

H.R. 1731 (Himes): This bill directs the Securities and Exchange Commission to issue final rules requiring a registered issuer to disclose in its mandatory annual report or annual proxy statement whether any member of its governing body has expertise or experience in cybersecurity.

H.R. 4328 (Waters): This bill prohibits credit reporting agencies from including on a credit report certain adverse information regarding certain employees affected by a government shutdown.

Other Activity

House Republicans Urge Fed To Limit Climate Risk In Stress Tests: Dozens of House Republicans are urging Federal Reserve Chair Jerome Powell not to proceed with climate risk regulations for the financial system. In a letter on Wednesday to Powell and Fed Vice Chair for Supervision Randal Quarles, the 47 GOP lawmakers discouraged the central bank from imposing stress tests on lenders to measure their vulnerability to climate change. Arguing that it could spur banks to cut ties with oil, gas, and coal industries, Rep. Andy Barr (R-KY) — the organizer of the letter — stated “this is less about predicting financial stress and more about creating financial stress for politically incorrect, disfavored industries.”

Bipartisan Letter on Digital Securities: On Wednesday, nine congressman, led by Rep. Tom Emmer (R-MN), sent a letter to SEC Chairman Jay Clayton to encourage the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to address the issue of broker-dealer custody of digital securities. They urged the regulators to follow the OCC’s lead issued — when it clarified this July that national banks may provide custody services for cryptographic assets — by developing requirements necessary to custody digital securities and enable FINRA to approve broker dealer applications that meet these requirements. They argued that “adoption of innovative technologies, including the issuance of securities via distributed ledgers, would improve the functioning of securities markets by making them more efficient, accessible, and transparent.”

Last Week in the Senate

The Floor

On Friday, the Senate approved the National Defense Authorization Act by a wide 84-13 margin — well beyond the two-thirds majority needed to override a veto. The bill now moves to President Trump’s desk, where he has pledged to veto it for not including his last-minute demand for Section 230 reforms. However, given the margin of the vote, the Senate appears well-positioned to maintain the two-thirds majority needed to override a potential veto.

While Sens. Josh Hawley (R-MO) and Bernie Sanders (I-VT) threatened to block unanimous consent of the continuing resolution (CR) unless it is amended to include direct economic impact payments, the Senate managed to pass it on Friday by voice vote, pushing the government funding deadline to Dec. 18.

Hearings

Retirement Access (12/09): On Wednesday, the Senate Finance Subcommittee on Social Security, Pensions, and Family Policy held a hearing to discuss the challenges facing retirement security in the U.S., particularly in light of the COVID-19 pandemic. Senators called for bipartisan, bicameral efforts to pass meaningful retirement reform legislation, with a particular focus on the provisions included in the introduced Retirement Security and Savings Act of 2019 (S.1431), referred to often as the “Portman-Cardin Bill.” Key provisions in the bill include: (1) increasing the Required Minimum Distributions (RMDs) age to begin at 75; (2) raising the “catch-up” contribution limits for those over 60, (3) extending the tax credit for employers that offer safe harbor automatic enrollment plans to start at six percent; (4) implementing automatic-enrollment plans; and, (5) making the Saver’s Credit refundable. The discussion centered around the potential benefits of these provisions, among several others, to increase the enrollment and contributions of all Americans to retirement savings plans —notably low-income workers and those with nontraditional jobs.

Paycheck Protection Program (12/10): On Thursday, the Senate Small Business Committee held a hearing to discuss the Small Business Administration’s (SBA) Paycheck Protection Program. With witness on both the lender and borrower side, the discussion centered around the successes and failures of the initial PPP in an effort to consider the necessary changes and additions to any future iteration or reauthorization of the program. In particular, these changes included: (1) efforts to more effectively reach underserved communities and minority-owned businesses: (2) streamline and clarify the forgives process, narrow the scope of eligible borrowers; and (3) expand flexibilities on the use of loans. Members overwhelmingly agreed that more small business aid is needed, and that reauthorizing the program is critical to see the country through the remainder of the pandemic. Witnesses called for future legislation to ensure PPP business expenses are tax-deductible, and to eliminate the deduction of EDIL loan advances from businesses’ PPP forgiveness amounts.

Bills Introduced

S.5004 (Schatz): A bill to authorize the Secretary of Housing and Urban Development to provide funding to public housing agencies for the purpose of providing tenant-based assistance to individuals experiencing an economic crisis or natural disaster, and for other purposes.

S.5009 (Moran): A bill to amend the Small Business Act to address the eligibility for certain small businesses and organizations to receive loans under the Paycheck Protection Program.

S. 4981 (Cortez Masto): A bill to support research on privacy enhancing technologies and promote responsible data use, and for other purposes.

S. 4969 (Cortez Masto): A bill to authorize funds to prevent housing discrimination through the use of nationwide testing, to increase funds for the Fair Housing Initiatives Program, and for other purposes.

Other Activity

Senate Dems Rule Change: Senate Democrats on Wednesday made some of the most significant rules changes for their caucus in years, including a sweeping revision that will upend the traditional seniority structure. The new rule states that the top Democrats on any of the “A” committees can’t also be subcommittee chairpersons or ranking members until more junior members of that panel get a chance to claim a subcommittee, in order of their seniority within the broader Democratic Caucus. The impact will be immediately felt on on the Appropriations Committee, where multiple subcommittee’s are currently lead by Democrats who are ranking member of another full Committee.

The rule change caps off weeks of debate among Senate Democrats after Senator Durbin announced he would seek the top Democratic post on Judiciary after Dianne Feinstein (D-CA) said she would step aside. While an effort to limit members of the Democratic Leadership team from serving as the leader of any committee, failed, thus allowing Durbin, who is the Whip, to seek to claim the top spot on the Judiciary, which would be his first time being the top Democrat on a committee even though he has been in the Senate for over 20 years.

Last Week in the Administration

CFPB Qualified Mortgage Final Rules

On Thursday, the Consumer Financial Protection Bureau finalized two rules relaxing mortgage-lending requirements regarding a borrower’s ability to repay, in a bid to boost the range of products available to lower-income, riskier customers. The changes from the Bureau are part of a broader push by President Trump’s administration to boost affordable mortgage products by reducing lenders’ liability and compliance risk, although some consumer advocates say the changes could hurt vulnerable borrowers. Under the General QM Final Rule, a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. Meanwhile, the Seasoned QM Final Rule was created for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements, according to the CFPB.

SEC Finalizes Market Data Rules

On Wednesday the SEC announced it was adopting new rules to “modernize the infrastructure for the collection, consolidation and dissemination of market data for exchange-listed national market stocks (“NMS market data”).” These rules will impact the data feeds that traders utilize, and will now include supply and demand figures for stocks. The move was criticized by the exchanges who argued that the increased information flows would be confusing to retail investors.

SEC Commissioner Crenshaw Speaks at the Consumer Federation of America

In a keynote address at the Consumer Federation of America’s (CFA) Virtual Financial Services Conference, SEC Commissioner Caroline Crenshaw spoke about the SEC’s role in boosting economic resilience by making it more fair, inclusive, and equitable for all. She cited board diversity as a key way for the SEC to move quickly on ” undoing the injustice and racial inequality in our financial system.” Looking forward, Com. Crenshaw spoke of the need for the SEC to seek input on the role it can serve in promoting diversity representation, improving access to funding, and facilitating greater inclusivity of women and minorities in markets. She hopes the SEC will take a “hard look” at its approach to ESG disclosures, particularly with a focus on climate risk and human capital. In regard to Reg BI, she expects further guidance, at a minimum, to clearly define best interest and decide what appropriate conflict mitigation should look like. Broadly, she expressed her interest in ensuring the commission is using data effectively and is focusing greater attention on public markets than private

Looking Ahead

Tues. (12/15)

  • Hearing: Senate Commerce Committee on Live Entertainment During the Pandemic — 10:00 AM — The Senate Commerce Subcommittee on Manufacturing, Trade, and Consumer Protection will hold a hearing entitled “Examining the Impact of COVID-19 on the Live Event Entertainment Industry.” Details here.
  • Hearing: Senate Commerce Sub. on Entrepreneurship — 2:30 PM — The Senate Commerce, Science and Transportation Communications, Technology, Innovation and the Internet Subcommittee will hold a hearing entitled “Betting on the Rest: Expanding American Entrepreneurship Outside Traditional Hubs.” Details here.
  • Hearing: Senate Judiciary Sub. on Online Piracy — 2:30 PM — The Senate Judiciary Subcommittee on Intellectual Property will hold a hearing entitled “The Role of Private Agreements and Existing Technology in Curbing Online Piracy.” Details here.

Wed. (12/16)

  • Hearing: Senate Banking Committee on U.S.-China Relations — 9:30 AM — The Senate Banking Subcommittee on Economic Policy will hold a hearing entitled “US-China: Winning the Economic Competition, Part II.” Details here.