Financial Services Report (12/16)

If all goes according to plan – and with this Congress that is far from certain – the House will pass its funding measures on Tuesday, impeach the President on Wednesday and then pass the USMCA on Thursday before heading home for a two week break. The Senate will pass the spending bill on Thursday or Friday and then also leave town. Rumored to be included in these end of year spending bills are: SECURE Act, TRIA extension, and Ex-Im re-authorization, a short term flood extension, and some tax provisions (maybe). The caveat of course is the occupant of 1600 Pennsylvania Avenue, who might not be willing to sign the two appropriations bills into law due to perceived inadequacies for wall funding. If that were to happen the best bet is that Congress would pass a short term CR – but there is a chance, albeit a small one, that the President wouldn't sign that either and the government could — once again – shut down during Christmas.

From the Campaign Trail

 

A relatively slow week in Presidential primary politics. The latest batch of RealClearPolitics average of national polls (from 11/30-12/10) has Vice President Joe Biden at 28 percent, Sen. Bernie Sanders (I-VT) at 18 percent, Sen. Elizabeth Warren (D-MA) at 16 percent, and South Bend Mayor Pete Buttigieg at 9 percent, but we all know national polls are irrelevant at this point.

 

Last Week in the House

The Floor

 

Nothing like waiting till the end to bring everything together. Last week the House focused on moving a few big ticket legislative priorities, including the Democrats signature drug pricing legislation. Additionally, the House passed a 2020 Defense Authorization bill, narrowly keeping its 50+ year record of passing the major bill related to defense (and more frequently) other policy. Including among other provisions in the NDAA was language that required a GAO study on arbitration. This study was included in the final package in lieu of two provisions that had been in the Hosue version that would have prohibited pre-dispute arbitration clauses in contacts under the Uniformed Services Employeement and Employment Rights Act (USERRA) as well as under the Servicemembers Civil Relief Act (SCRA). This version of the NDAA still prohibits class action waivers under the SCRA. Other provisions included sanctions provisions targeting Russian energy projects, North Korea, and synthetic opioid trafficking were also included in the bill.

 

Hearings and Markups

 

Financial Services Markup (12/10-12/11): On Wednesday, the Financial Services Committee held a markup where committee members advanced eight bills and handled several administrative issues, including appointing Rep. Brad Sherman (D-CA) as the new Capital Markets Subcommittee Chair and reauthorizing the Fintech and AI Taskforces. A complete recap of bills considered at the hearing can be found here.

 

Of the eight bills, two dealing with minority depository institutions (MDIs) passed unanimously. For the remaining six pieces of legislation, all passed on straight party line votes. These bills included the "Protecting Your Credit Score Act" by Representative Gottheimer, which even had a (non-committee) bipartisan cosponsor. Other measures dealt with debt collection, credit reporting of certain medical debts and student loans, and cybersecurity disclosures. During the mark-up committee Democrats praised the advancement of "commonsense bills to protect hard working Americans," while Republicans criticized the bills for focusing on "quantity rather than quality" and reaching beyond the committee's jurisdiction on topics such as student loans.

 

In addition to these Democratic bills, two pieces of legislation intended to assist minority depository institutions (MDI) cleared with unanimous support.

 

Bills Introduced

 

National Climate Bank Act (Dingell): Establishes a national climate bank to finance clean energy projects. The legislation is the House companion to Sen. Ed Markey's (D-MA) and others' Senate legislation and similar to Rep. Himes' (D-CT) Green Bank Act.

 

Grandfamily Housing Act (McGovern and Pressley): Establishes a pilot program providing housing grants to grandparents raising grandchildren.

 

Diversity Data (Beatty): Requires the Fed to collect more data on race and wealth.

 

Other Activity

 

USMCA Deal Reached. On Tuesday, the the Trump Administration and Congressional Democrats reached an agreement to pass the United States-Mexico-Canada Agreement (USMCA) through Congress. The revised version of President Trump's halmark NAFTA replacement makes several changes from the initial deal, including: (1) dropping a 10-year minimum exclusivity period for biologic drugs; (2) creating a new facility level inspection and dispute resolution regime for labor and environmental standards; and (3) eliminating "panel blocking" language.

 

Following the announcement, the deal drew the support of the AFL-CIO, while other groups such as the UAW, and CWA offered praise for the deal though stopped short of a full endorsement. Other unions, such as the International Association of Machinists and Aerospace Workers announced their opposition to the measure.

Not surprisingly, House Democratic Leadership has signaled broad support for the new agreement, as have the more moderate New Dem Coalition. The deal, and its implementing language, which will not include controversial language that would have given the USTR broad powers to set the de minimis level for US Customs, is set to pass the House this week. It is then on to the Senate, where it might face a bumpy path to passage, as conservative Senators like Pat Toomey (R-PA) feel jammed by the process, which clearly resulted in a more liberal measure than the Republican Senate would have negotiated. As of now, the Senate is expected to bring up the agreement after the likely January impeachment trial of President Trump, setting up the major trade deal for final approval early next year.

 

Last Week in the Senate

The Floor

 

The upper chamber spent its week working through the presidential nominations queue.

 

Hearings and Markups

 

Banking Nominations and SEC Oversight (12/12): On Wednesday, prior to a hearing with SEC Chairman Clayton, the Committee held a brief executive session where members approved five nominations – some uniamously and all with at least some bipartisan support.

 

The nominations of Brian Montgomery to be Deputy HUD Secretary (20-5) and David Woll to be Assistant HUD Secretary for Community Planning and Development (16-9) received some Democratic opposition after Ranking Member Sherrod Brown (D-OH) voiced criticism of their involvement in controversial HUD policy making. Additionally, three nominations advanced unanimously: (1) Mitchell Silk to be Assistant HUD Secretary for International Markets and Development; (2) John Bobbitt to be Assistant HUD Secretary for Administration (with only Senator Jon Tester asking to be recorded in opposition); and (3) Peter Coniglio to be Inspector General of the Export-Import Bank.

 

Following that, the Committee heard from Chair Clayton, where Democrats used the panel to criticize the agency's rules and rule-making of the Regulation Best Interest, proxy advisory firms and the Commission's whistle blower rules. At the same time, Chairman Republicans' broadly supported Chairman Clayton's leadership of the commission, although several raised concerns about the security of personal information stored on the Consolidated Audit Trail. The only major exception on the Republican side came from Senator Tom Cotton (R-AR), who appeared to channel his best version of Senator Warren or AOC to argue that the fallout from the WeWork IPO fiasco is why young people prefer socialism to capitalism.

 

Bills Introduced

 

Unsolicited Loan Act (Jones, Cotton, Merkley): Prohibits the mailing of loans as "live checks," which can be cashed by consumers not realizing they are taking out a loan.

 

Financial Institution Consumer Protection Act (Cruz): Prohibits banking regulators from encouraging or requiring institutions to terminate relationships with specific customers unless the agency has a material reason to do so. The legislation targeting the Obama-era Operation Chokepoint was previously introduced last Congress.

 

Eviction Crisis Act (Bennet and Portman): Establishes national database to standardize and track eviction data, provides funding for programs intended to reduce preventable evictions, and supports legal representation for tenants.

 

Other Activity

 

Brown Letter to HUD on Homelessness: On Monday, Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to HUD raising concerns about the appointment of former consultant Robert Marbut to lead the administration's Interagency Council on Homelessnes (USICH). The letter scrutinizes Marbut's "crackdown" approaches such as limiting the circumstances under which charities can provide food to the homeless and inquires into how his role at USICH could play into executive action on homelessness.

 

Warren Writes DOL about Fiduciary Rule: On Wednesday, Sen. Elizabeth Warren (D-MA) sent a letter to Labor Secretary Eugene Scalia urging him to include strong conflict of interests protections in DOL's impending rewrite of the Obama-era Fiduciary Rule. The letter warns Secretary Scalia against modeling the rewrite after the SEC's "wholly inadequate" Regulation Best Interest and includes 8 pages scrutinizing the Trump Administration's approach to broker dealer and investment adviser conflicts of interest. While Scalia is largest expected to refrain from taking any of Senator Warren's suggestions, the letter does serve to foreshadow how a Warren Administration may approach this, and other rulemakings.

 

Warren-Paul-Wyden Letter to Credit Reporting Agencies: On Thursday, Sens. Elizabeth Warren (D-MA), Rand Paul (R-KY), and Ron Wyden sent a letter to the three major credit bureaus inquiring about their practices of sharing consumer information with the FBI. The letter notes Freedom of Information Act (FOIA) request by the Electronic Frontier Foundation (EFF) from earlier in the year that disclosed how credit reporting agencies had been the recipient of National Security Letters (NSLs), which allow the FBI to request personal information about individuals. The Senators requested responses to a series of questions by December 27th.

 

Last Week in the Administration

 

US, China Officially Announce Phase One Deal

On Friday, the United States and China announced a "phase One" trade deal deescalating trade tensions between the two countries. While reports of the deal had been in the news for weeks, everything with this trade war is never final till its on paper. According to press accounts, this deal will exchange the US delaying or deescalating several upcoming announcements of tariffs (including a scheduled December 15 wave on $160 billion in Chinese imports). In return, China will increase its purchases of US goods by $200 billion and make a host of concessions dealing with intellectual property, agriculture, and financial services. While it remains to be seen if this agreement ultimately lays the groundwork for a more robust "phase 2" deal normalizing the US-China trade relationship, Friday's announcement marks a significant deescalation of the US-China trade standoff.

 

Fed Giant Volcker Passes Away at 92

Last Sunday, former Federal Reserve Chairman passed away at his home in New York at age 92. Mr. Volcker, who served as Fed Chairman for eight years under Presidents Carter and Reagan, was widely recognized for ending 1970's inflation and more recently was a key adviser to President Obama following the financial crisis—in which capacity he developed his namesake Volcker Rule. On Wednesday, the Financial Times published the aftermath of his soon-to-be-released biography in which the former Chairman criticized "nihilistic forces" in US society, as well as President Trump's standoff with current Fed Chair Jerome Powell.

 

Interest Rates Held Steady

On Wednesday, the Federal Open Market Committee voted to hold benchmark interest rates steady at 1.5-1.75%. The expected move comes as recent months' robust economic numbers have quelled fears of an impending recession that drove three consecutive rate cuts over the past year. Notably, Fed statement accompanying the vote dropped language from the previous meeting recognizing global "uncertainties" about outlook that were perceived as leaving the door open to future rate cuts—which some Fed watchers have taken to indicate that rates will stay at current levels throughout next year.

 

FDIC / OCC Announce NPRM on CRA – Democrats Immediately Pushback

On Thursday, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a notice of proposed rule-making (proposed rule; fact sheet) overhauling Community Reinvestment Act regulations. The rule-making would afford new flexibility to banks in complying with the 40-year old anti-redlining statute, including: (1) expanding the scope of activities that qualify for CRA credit with respect to Opportunity Zones; (2) clarifying and standardizing the activities that qualify for CRA credit; and (3) updating additional assessment area requirements to reflect the rise of online banking.

 

The proposal has elicited strong push-back from advocacy groups and Congressional Democrats who argued that the increased flexibility will make it easier for banks to skirt the law. Additionally, Chair Maxine Waters (D-CA) engaged in the rare step of leading a delegation of five other HFSC Democrats to attend the FDIC's board meeting when the vote was taking place so as to register their opposition in person. Further, every Democratic member of HFSC and the Senate Banking Committee joined a letter last week expressing strong concerns about the proposed rule.

 

The proposal, which was also opposed by Democratic FDIC Member (and former Chairman) Martin Gruenberg, could still face signficant changes before becoming finalized. Additionally, the Federal Reserve, which is responsible for enforcing some components of the law, has yet to announce any NPRM from their agency. During his most recent appearance before Congress, Fed Chairman Jerome Powell was lukewarm on the Fed's prospects of joining the proposal, commenting: "I don’t know whether that will be possible or not. We’ll just have to see."

 

FDIC Proposes Brokered Deposits Overhaul

On Thursday, the Federal Deposit Insurance Corporation issued a proposed rule (proposed rule; fact sheet) intended to modernize the agency's regulation of brokered deposits. The proposal would establish a standardized framework for determining what interactions qualify as brokered deposits and clarify that FDIC's "primary purpose" exemption applies when the primary purpose of a business relationship is not brokering deposits to banks.

 

First implemented following the 1980s Savings and Loan crisis, Section 29 of the Federal Deposit Insurance Act restricts the purchase of brokered deposits by poorly capitalized banks with the intention of preventing unsustainable growth fueled by purchasing deposits. That provision, however, has come under fire in recent years for its ambiguity and accusations that it applies to too broad a range of products, particularly in the Fintech age. Ahead of the proposed rule's release, FDIC Chairman Jelena McWilliams keynoted a Brookings' event echoing these sentiments and promoting the revisions as a means of encouraging innovation. She called on Congress to take these efforts one step further by replacing Section 29 with a simple limitation on asset growth by troubled banks.

 

This Week's Schedule

Mon. (12/16)

Tues. (12/17)

Wed. (12/18)

Thu. (12/19)

Fri. (12/20)