Donald Trump’s surprise victory on November 8th shifted many of the conventional wisdom's held by pundits and the expectations for the 2017 agenda. Clearly the new administration will have a more deregulatory bend. Currently the Trump team continues to work through its transition planning – including who will be nominated for critical posts at Treasury, the SEC, CFTC, FTC and other regulators of the financial services industry – and while rumors continue to fly about who will get those coveted spots, the transition team has made clear its goal to dismantle Dodd Frank. While Democrats appear to be digging in against a broadside attack, there is a sense that some elements of Obama’s legacy in the financial services space will be either undone (or significantly modified). If the election has taught us anything it is to be wary of group-think conventional wisdom, but our take for next year’s agenda is that while consensus to overturn Dodd-Frank “whole cloth” will not materialize, there will be a concerted effort to repeal or replace significant elements of the law. One of the ultimate ironies of the 2016 election results will be that with so many interests attempting to “get through the door” the primary objective of any interested party looking for relief will be to persuade Democrats to bless the change because those bipartisan solutions may have the inside track for success.
- The House and Senate are in Recess for the Thanksgiving Break
- House Democrats are expected to hold their elections for Leader of the Caucus on November 30th. Congressman Tim Ryan (D-OH) has announced he is challenging long-time Democratic Leader Nancy Pelosi. As of this writing none of the others on the rungs of the leadership (Whip Hoyer, or Assistant Leader Clyburn) have had challengers announce against them.
- Current funding for the Federal Government runs out on December 9th.
- The House and Senate return on November 28th and race toward the (potential) final two weeks of the 114th Congress. Last week reports surfaced that the House will be pushing a short-term continuing resolution to fund the government through March 31st. According to Appropriations Chairman Hal Rodgers, the CR is not expected to completely clean, and will have many “anomalies.”
- It is unclear whether the Senate will follow or whether it will attempt to pass a broader funding measure.
- Debt Ceiling expires in March 2017
The Past Week
Following Resignation Announcement White Appears Before House Financial Services Committee
On Tuesday, the House Financial Services Committee held a hearing on oversight of the Securities and Exchange Commission (SEC) featuring remarks from SEC Chair Mary Jo White just hours after she announced that she would be stepping down from her role at the end of the Obama Administration in January. Republicans were careful to urge White to avoid completing any so-called “midnight rules” in the closing days of the Obama Administration, and White committed to only acting on the 2016 agenda that was outlined in February. That stance likely precludes action on the Commission’s pending political disclosure rules – a sore point among Democrats – and the SEC Chair ruled out any action on a fiduciary rule from the agency being completed before she steps down.
Dems Attempt to Push Finance Industry to Speak Out on Bannon Appointment
On Wednesday, leading Democrats on the House and Senate panels that oversee the financial services industry spoke called on industry trade groups to condemn the appointment of Breitbart News Executive Chairman Steve Bannon as the White House Senior Counselor to the President. President-elect Trump made the announcement on Monday, reflecting on Bannon’s key role in helping Trump win the election after a highly unconventional campaign. Democrats have criticized the involvement of Bannon in the White House over Breitbart’s connections to the “alt-right” movement and white nationalism. The letter was signed by Senate Banking Committee members Sens. Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) and House Financial Services Committee members Reps. Maxine Waters (D-CA) and Keith Ellison (D-MN).
Conway Requests CFTC To Cease Rulemakings
On Friday, House Agriculture Committee Chairman Mike Conway sent a letter to CFTC Chairman Timothy Massad requesting that the CFTC halt its work on three “controversial regulations” that the CFTC is reportedly on finalizing before the next Administration is sworn-in; including the position limits, automated trading codes and registration rules for larger derivatives businesses. Current CFTC Commission Chris Giancarlo is widely expected to be the next the CFTC Chairman and has previously raised his concerns about the position limits rule as well as new regulations for high frequency traders.
Yellen Defends Dodd-Frank in Joint Economic Committee Hearing
In her first public appearance since the election of Donald Trump as the 45th president, Federal Reserve Chair Janet Yellen testified on Thursday in a hearing of the Joint Economic Committee on the country’s economic outlook.. Members on both sides offered concerns on sluggish wage growth and productivity, while Democrats were happy to hear the Fed Chair call the regulatory protections under Dodd-Frank “important in diminishing the odds of a financial crisis.” On interest rates, Yellen said that the Federal Open Markets Committee (FOMC) had determined at its meeting last month that the case for raising rates “continued to strengthen” and that a raise in the federal funds rate could be coming “relatively soon.” The FOMC next meets in December. Finally, perhaps in light of the announcement earlier in the week that Securities and Exchange Commission Chair Mary Jo White would be stepping down in January, Yellen reaffirmed her commitment to serving as Chair for the remainder of her term, which expires in January 2018.
Brown Reaches Out to Trump on Wall Street Regs, FSOC
On Wednesday, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) released a statement directed towards President-elect Donald Trump, urging the incoming president to follow through on promises of treating Wall Street with a high degree of scrutiny. Specifically, Brown urged for President-elect Trump to protect the Financial Stability Oversight Council (FSOC) and ensure that it can “keep doing its job.” Trump spoke out against the Dodd-Frank financial reform law – which created FSOC – on the campaign trail and has the architect of a Dodd-Frank replacement plan – House Financial Services Chairman Jeb Hensarling (R-TX) – on his shortlist for Treasury Secretary in the new Administration. However, Trump has been mum on which parts of Dodd-Frank, if any, will survive next year.
Brown, Waters Warn Against Use of Spending Bills to Roll Back Dodd-Frank
On Thursday, the ranking members of both the Senate Banking and House Financial Services Committees – Sen. Sherrod Brown (D-OH) and Rep. Maxine Waters (D-CA) respectively – wrote to Congressional leadership outlining their opposition to any ideological policy riders on upcoming spending legislation that would target the Dodd-Frank financial reform law. Citing the recent Wells Fargo scandal, the lawmakers insist they “remain opposed to efforts to include any provisions that repeal, undermine, or delay consumer or investor protections, or deregulate our financial system.” Spending legislation is due by Dec. 9, when the current continuing resolution (CR) is set to expire.
Select Highlights from the Administration
Financial Stability Oversight Council
FSOC Holds Meeting Discussing Nonbank Designations, Asset Management
On Wednesday, Treasury Secretary Jack Lew presided over a meeting of the FSOC, with a presentation from the Commodity Futures Trading Commission (CFTC), reevaluation of nonbank designations, and a discussion of asset management all on the agenda. FSOC’s future remains cloudy after the election of Donald Trump, who has vowed to dismantle the Dodd-Frank regime – of which FSOC plays a prominent role. The readout of Wednesday’s meeting can be found here
FSOC Official Points to Growth of High Leverage Hedge Funds
On Thursday, a top official for FSOC told reporters that hedge funds that employ higher amounts of leverage are growing as a percentage of overall industry assets. The revelation comes as FSOC considers whether asset managers pose significant systemic stability risks. The official also noted that there appear to be meaningful connections between hedge funds and their counterparties, and that the council needs to investigate the risks of interconnectedness with those counterparties.
Minneapolis Fed Targets Too Big to Fail With Higher Capital Requirements, Tax
On Wednesday, Minneapolis Fed President Neel Kashkari released a long-awaited plan aiming to end the systemic risks posed by so-called “too big to fail” financial institutions, focusing on less concentration in the banking system while lessening the burden on community banks. The plan relies primarily on raising bank capital requirements to 23.5 percent of risk-weighted assets for all bank holding companies with more than $250 billion in assets and removing the “systemically important” tag currently assigned to such institutions by the Treasury Department. Additionally, the plan would call for nonbank financial institutions with assets greater than $50 billion to pay taxes on their debt.
Consumer Financial Protection Bureau
CFPB Launches Investigation on Consumers’ Ability to Share Financial Records
On Thursday, CFPB Director Richard Cordray announced a new inquiry on the “challenges consumers face in accessing, using, and securely sharing their financial records.” The CFPB has requested for public input into how much choice customers are given in their use of the financial records and whether they can share them securely online. The American Bankers Association has already spoken out and warned the CFPB against making any new regulation in the space, saying that new rules would stifle innovation and that banks are already moving to make the information sharing more secure.
CFPB Files Appeal in PHH Case
On Friday, lawyers for the CFPB filed their petition at the Court of Appeals for the D.C Circuit for a full court review of the PHH v. Consumer Financial Protection Bureau. This fall, a three-judge panel at the court held that the CFPB was "unconstitutionally structured" and altered the standard for removing the Director by removing the “for cause” provision set forth in Dodd-Frank. A full court review, could potentially overturn that decision.
Federal Deposit Insurance Corporation
FDIC Vice-Chair Calls for Fed to Move on Interest Rates
On Thursday, FDIC Vice Chairman Tom Hoenig voiced his opinion that financial regulators should be taking a more long-term view in developing monetary policy, specifically criticizing the role of low interest rates and capital requirements. He suggested that the Fed should set a publicly announced long-run target range for the main federal funds borrowing rate that would then be influenced by “a host of factors, including, for example, fiscal policy, demographics, and international events.” His call for normalization comes as Fed Chair Janet Yellen and the Federal Open Markets Committee (FOMC) have continued to suggest a raising of interest rates will be coming soon.
Next Week’s Schedule
The House and Senate Are in Recess for the Thanksgiving Holiday