Insights

Financial Services Report

February 8, 2017

Looking Ahead

Near Term

  • A relatively tame week could be on tap as the Senate continues to slog through the nominations process, while the House continues to push through a series of Congressional Review Act resolutions.  
  • The House Financial Services Committee is scheduled to meet to approve the Committees’ oversight plan for the coming year.   Following last week’s contentious organizing meeting, it likely that Democrats will not concur with the Majority’s view for the coming year.

Further Out

  • February 14th and 15th will have Fed Chair Yellen before the House and Senate for her semi-annual appearance
  • President Donald Trump has been invited to present a joint address to Congress on February 28th.
  • According to House Republicans, these are the following goal posts for the House to hit in 2017

    • FY2017 Reconciliation – March
    • Border Defense Supplemental – March / April
    • FY 2018 Budget – April
    • FY 2017 Funding Expires – April 28
    • FY 2018 Reconciliation bill – May / June
    • FDA User Fees – June
    • FY 2018 NDAA – June
    • CHIP Reauthorization – July
    • Debt Ceiling – July / September
    • FAA Reauthorization – September 30th
    • Flood Insurance – September 30th
    • FY 2018 Appropriations – September 30th
    • FISA Section 702 – December 31st

The Past Week

Legislative Branch
House
Bipartisan Group Introduce New Glass-Steagall Bill
On Wednesday, Rep. Marcy Kaptur (D-OH) led a bipartisan group of 27 lawmakers in introducing a measure that would reinstate some of the regulatory structure of the repealed Glass-Steagall Act. Glass-Steagall – which was repealed during the Clinton Administration – prevented banks from engaging in both commercial and investment banking. The bill may also have the support of the Trump Administration as calls for a revival of the bill were included in the 2016 Republican Party platform and Trump’s pick for Treasury Secretary, Steven Mnuchin, said he was open to a “21st Century Glass-Steagall” during his confirmation hearing.  
 
Kind Introduces Bill to Boost Economic Growth in Rural Areas
On Friday, Rep. Ron Kind (D-WI) – the Chair Emeritus of the New Democrat Coalition – reintroduced a bipartisan bill aiming to improve economic growth in rural and underserved areas. The bill also has a Senate version – sponsored by Sens. Tim Scott (R-SC) and Cory Booker – and was originally introduced last year. Specifically, the legislation allows investors to temporarily defer capital gains recognition if they invest in certain “Opportunity Zones” and creates a new category of investment funds geared to supporting such areas.
 
Dems Press for Diverse Candidates to Head Richmond Fed
On Tuesday, twenty-four Democrats, led by Financial Services Committee Ranking Member Maxine Waters (D-CA), wrote a letter to Fed Chair Janet Yellen and Richmond Fed Chair Margaret Lewis on how the institution plans to ensure that diverse candidates are considered to serve as the next president of the Richmond Fed. The letter asks what specific steps the search committee is taking to bring in “qualified candidates from diverse personal, academic, and professional backgrounds” to replace the Richmond Fed’s current president, Jeffrey Lacker, after he steps down on Oct. 1 of this year. The lawmakers requested that Yellen have answers ready when she appears before the Financial Services Committee on Feb. 15.
 
House’s McHenry Says Fed Should Stop International Negotiations
On Tuesday, Rep. Patrick McHenry (R-NC) penned a letter to Federal Reserve Chair Janet Yellen criticizing its participation in international negotiations that may be at odds with White House. “The Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests,” wrote Rep. McHenry. The Congressman also criticized the Fed’s continued participation in negotiations at the Financial Stability Board and Basel Committee on Banking Supervision, saying it’s “unacceptable” and done without authority. A Fed spokesperson said the agency has received the letter and is currently reviewing it.
 
Staff Director, Dem Subcommittee Assignments Announced for House Financial Services Committee
Last week, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced that Kirsten Mork would take over as staff director for the departing Shannon McGahn. Mork has served as the committee’s deputy staff director since 2013. In a separate development, Democrats announced that Rep. Daniel Kildee (D-MI) would be Vice Ranking Member and set their subcommittee assignments for the upcoming session. Ranking members on the various subcommittees are:

  • Capital Markets, Securities, and Investments

    • Carolyn B. Maloney (D-NY), Ranking Member
  • Financial Institutions and Consumer Credit

    • Wm. “Lacy” Clay (D-MO), Ranking Member
  • Housing and Insurance

    • Emanuel Cleaver (D-MO), Ranking Member
  • Monetary Policy and Trade

    • Gwen Moore (WI-04), Ranking Member
  • Terrorism and Illicit Finance

    • Ed Perlmutter (CO-07), Ranking Member
  • Oversight and Investigations

    • Al Green (TX-09), Ranking Member

New Democrat Coalition Launches Policy Task Forces
On Thursday, the New Democrat Coalition launched seven policy task forces designed to assess and develop policy positions for the coalition. “By revamping our task forces we can help members of our coalition focus specifically on issues where we might see Democratic priorities move forward in this Congress,” said Rep. Derek Kilmer (D-WA). “Our ideas are part of giving people hope that good paying jobs, quality education, and a secure retirement will remain within reach.” The new task forces will cover infrastructure, healthcare, cybersecurity, future of work, global competitiveness and trade, tax reform and fiscal responsibility, and housing.  
 
Senate
After Committee Chaos, Mnuchin, Price Set for Floor Vote
On Tuesday, Democrats on the Senate Finance Committee took the unusual step of boycotting a confirmation vote for Treasury Secretary nominee Steven Mnuchin and Health and Human Services Secretary nominee Rep. Tom Price over concerns that both gave misleading statements to the Committee. The move forced Finance Committee Chairman Orrin Hatch (R-UT) to postpone the vote, and when Democrats again boycotted, the Committee changed its rules to allow for the nominees to proceed without Democrats being present. On Thursday, Senate Majority Leader Mitch McConnell (R-KY) teed up floor votes on both nominations. Neither selection is considered to be in danger of failing, although Mnuchin has been heavily criticized for the foreclosure practices at his bank OneWest and Price has faced questions over the ethics of his stock purchases.
 
Senate Sends Resolution Repealing SEC Resource Extraction Rule to White House
Last week, both chambers of Congress passed a resolution (H.J. Res. 41) that would reverse a Securities and Exchange Commission (SEC) rule requiring energy companies to disclose their payments to local and foreign governments in order to extract natural resources. It passed the House on a 235-187 margin and the Senate 52-48, both largely along party lines. President Trump is expected to sign the resolution, which nullifies the rule and stipulates that similar rules cannot be resubmitted by agencies without Congressional approval under the authority granted by the Congressional Review Act (CRA).  
 
Warren Releases Report Touting DOL Fiduciary Rule
On Friday, Sen. Elizabeth Warren (D-MA) fired back at President Trump’s presidential memorandum targeting the fiduciary rule (see our story below) by releasing a report touting the benefits of the Labor Department’s beleaguered rule. The report says the fiduciary rule would block “kickbacks”  and high fees associated with retirement advice, though it appears to cite some of the smallest market participants as examples.
 
Hatch Says Senate Tax Reform Plan to Differ from House Version Due to Border Tax
On Wednesday, Senate Finance Committee Chairman Orrin Hatch (R-UT) told the U.S. Chamber of Commerce that the Senate will work on its own tax reform package rather than waiting for the House to present their version. Of particular concern to the Chairman was the House’s plans on border adjustability, although he fell short of condemning the idea.
 
Budget Panel Approves Mulvaney Nomination to Be OMB Director
On Thursday, the Senate Budget Committee approved the nomination of Rep. Mick Mulvaney (R-SC) to be President Donald Trump’s Budget Director on a 12-1 vote. The South Carolina Republican’s nomination to lead the Office of Management and Budget (OMB) was also approved along partisan lines in separate votes by the Homeland Security and Governmental Affairs Committee.
 
Fischer Introduces Bill to Change CFPB Structure
On Tuesday, Sen. Deb Fischer (R-NE) introduced a bill (S. 105) that would modify the Consumer Financial Protection Bureau (CFPB) to be directed by a five-member commission rather than a single director as currently iterated. The bill changes language in the CFPB’s authorizing statute to require the agency be run by a bipartisan commission that would require Senate confirmation.
 
Puzder Confirmation Hearing Delayed for Fourth Time
On Wednesday, the Senate Health, Education, Labor, and Pensions (HELP) Committee announced that the confirmation hearing for Labor Secretary nominee Andy Puzder was delayed, marking the fourth time the hearing has been postponed since Trump’s inauguration. The nominee has allegedly failed to complete the necessary paperwork that would detail his conflicts of interest. A new hearing date has not yet been announced.
 
Perdue Introduces Resolution to Undo CFPB Prepaid Card Rule Via CRA
On Thursday, Sen. David Perdue (R-GA) introduced a resolution (S.J. Res. 19) that would disapprove of the Consumer Financial Protection Bureau’s recently finalized rule governing prepaid spending cards. The rule, which is set to take effect in October, would limit consumer liability on lost or stolen cards and sets standards for firms to disclose their usage fees. The resolution, if approved, would reverse the rule through the authority of the Congressional Review Act (CRA), which allows Congress to undo certain rules finalized within the final 60 legislative days of the previous session. While this legislation marks the first use of a CRA resolution on a rule published by the CFPB, but it does not appear to have unanimous industry support as some find the rule workable, and others would prefer to wait until for the CFPB’s arbitration rule. 
 
Select Highlights from the Administration
The White House
Trump Signs Sweeping Dodd-Frank Executive Order
On Friday, President Trump issued a new executive order targeting the rules and regulations published under the authority of the 2010 Dodd-Frank financial reform law. The order, which falls short of directly undermining the law, directs the Treasury Secretary to review all Dodd-Frank regulations and to submit recommendations to revise the law. White House National Economic Council Director Gary Cohn called the order a “table setter” for future action in reworking the regulatory scheme currently governing American financial firms.
 
White House Issues Memorandum to Review ‘Fiduciary Rule’
In other significant executive action on Friday, President Trump signed a presidential memorandum telling the Labor Department to halt implementation of its controversial fiduciary rule, which was slated to go into effect on April 10. The memorandum asks the Labor Department to decide whether the rule – which is designed to force retirement advisers to act in their clients’ best interest – should be revised or rescinded entirely. Democrats are sure to fight the White House on the issue and Sen. Elizabeth Warren (D-MA) issued a report on the same day touting the benefits of the rule (see our story above).
 
Trump Signs ‘One-In, Two-Out’ Executive Order on Regs
On Monday, President Trump followed through with a campaign promise to limit federal regulations by signing an executive order requiring that for every new federal regulation implemented, two must be rescinded. The order also requires agencies to control the costs of all new rules within their budget and prohibits them from imposing an new costs in finalizing a rule for the remainder of 2017, unless the cost of that move is offset by the repeal of other regulations. The President also reiterated his pledge to cut 75 percent of all federal regulations and promised to do a “big number” on the Dodd-Frank financial reform law.
 
Federal Reserve
FOMC Leaves Rates Unchanged, Sees ‘Steady’ Economic Progress
On Wednesday, the Federal Open Markets Committee (FOMC) announced that they would leave the federal funds rate unchanged as expected by financial analysts. According to the Fed, the economy has seen improvements, but most analysts believe it is “wait-and-see mode” to determine what the fiscal policy of the Trump Administration will be. The committee will next meet in March.
 
Fed Publishes 2017 Stress Test Guidelines
On Friday, the Federal Reserve released guidelines for its annual stress testing of large banks, including the hypothetical scenarios under which they will have to measure their capital levels. The central bank provided specific guidance for the different categories of banks, including updated rules reflecting an easing of the standards mandated for regional banks (see our story below). The federal regulator also published a routine update of adjustments to the way it will calculate capital levels post-stress. Thirteen banks will still be subject to the qualitative portion of the stress tests, which gauges firms' risk-management systems, and 21 will not. "For the 2017 cycle, the severely adverse scenario is characterized by a severe global recession in which the U.S. unemployment rate rises by about 5.25 percentage points to 10 percent, accompanied by a period of heightened stress in corporate loan markets and commercial real estate markets," the Fed said in a press release.
 
Fed Finalizes Rule to Ease Stress Test Requirements for Regional Banks
On Monday, the Federal Reserve finalized a rule easing the requirements placed on regional banks when completing the qualitative portion of its annual stress test. The new rule – which applies to banks with more than $50 billion in assets, but less than $250 billion – stipulates that the Fed will no longer consider certain banks’ risk management systems as a part of the tests. As an independent agency, the Fed is not subject to the regulatory restrictions enacted under President Trump’s recent executive order.
 
Department of Labor
U.S. Adds Beats Expectations in January, Adds 227,000 Jobs
On Friday, the Department of Labor announced U.S. employers added 227,000 jobs in January, squashing economic predictions of 147,000 jobs and marking the biggest single-month gain since September 2016. The unemployment rate ticked up from 4.7% to 4.8% due to an increase in the share of Americans working or actively looking for work. Additionally, the job report offered signs that the labor market may not be as tight as experts suggested, with hourly earnings of private-sector workers climbing only 0.12% from the prior month.
 
Consumer Financial Protection Bureau (CFPB)
CFPB Fines MasterCard, UniRush for Prepaid Card Failure; Senate Dems Praise Action
On Wednesday, the CFPB announced it would be charging MasterCard and UniRush to pay 13 million in fines and restitution after their technology failed and prevented thousands of prepaid-card customers from using their funds. Regulators said that the companies failed to provide adequate customer service for the October 2015 event that saw 50,000 customers lose access to their prepaid RushCards. Two senators from the Senate Banking Committee, Ranking Member Sen. Sherrod Brown (D-OH) and Bob Menendez (D-NJ) praised the move, saying that it was “another reminder of why a strong, independent CFPB is so important.”
 
National Economic Council
Gary Cohn Says ’We Don’t Think Nonbanks Should Be SIFIs’
The Trump Administration is planning two more specific reviews in addition to Friday’s executive order as it continues to deliberate on its stance towards the Dodd-Frank financial reform law. Gary Cohn, Director of the White House National Economic Council, suggested that the administration will review the Financial Stability Oversight Council (FSOC) and the Orderly Liquidation Authority specified by Dodd-Frank. In those remarks, Cohn suggested that the administration will consider telling regulators on the FSOC to stop designating nonbank financial firms as systemically important financial institutions (SIFIs).
 
Judicial Branch
Texas Judge Announces  Decision on Fiduciary Rule Case by Feb. 10
Last week, U.S. District Court Judge Barbara Lynn announced that she expects to rule on the validity of a suit against the Labor Department over its issuing of the fiduciary rule by Friday. The case pits industry groups, including the U.S. Chamber of Commerce and the Financial Services Institute, against the Labor Department’s regulators over the implementation timeline of the controversial rule. The court action may be irrelevant should President Trump direct the Labor Department to revoke its rule, as suggested in his comments made last week (see piece above).
 
Appeals Court Rejects Bid by AGs, Lawmakers to Aid CFPB Defense
A U.S. Appeals Court on Thursday rejected separate bids by 17 state attorney generals that were seeking to defend the Consumer Financial Protection Bureau (CFPB) with a full appellate court review of an October ruling that determined the CFPB was unconstitutional without the ability for the president to fire its director. In the brief order, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied the states’ request. The court also rejected similar motions filed by nonprofit consumer groups and two lawmakers.