Financial Services Report

Looking Ahead

Near Term

  • The House is taking up a series of bills designed combat the continuing opioid epidemic. 
  • The House Financial Services Committee will hold two hearings, including one Comptroller Otting this week.   The Committee is also scheduled to hold another mark-up on Thursday.
  • The House Appropriations Committee is scheduled to mark-up the Financial Services and General Government (FSGG) bill this week. 
  • The Senate will continue its debate over the National Defense Authorization Act (NDAA) including potentially debating amendments increasing the Committee on Foreign Investment in the United States (CFIUS) power to clamp down on foreign investment in the U.S. by China and others that could pose national security risks, and to restore the Commerce Department’s penalties on the Chinese telecommunications firm ZTE for violating U.S. sanctions against Iran and North Korea.
  • The Senate Banking Committee is also slated to hear from Comptroller Otting as well as vote on two nominees to the Federal Reserve Board.
  • The Federal Reserve Board is expected to announce the results of its stress tests this week.
  • The FSOC is meeting on June 15th and will review the designation of Prudential, as well as hear about an application to get out Dodd-Frank’s “Hotel California” provision.  

Further Out

  • SEC Chairman Clayton is scheduled to appear before the House Financial Services Committee on June 21st as part of an incredibly busy June at the Committee.
  • The House may take up an immigration bill – either by design or by forced action via a discharge petition if the discharge petition gets 218 signatures before Wednesday.

The Past Week

Legislative Branch
House
Financial Services Committee Starts Month of Mark-ups by Approving Six Bills
On Thursday, the House Financial Services Committee held the first of its series of mark-ups to take place this month as the committee works on their capital markets package of legislation.   Thursday’s mark-up included six different pieces of legislation, with the most controversial component of the day being H.R. 3861, the Federal Office Reform Act, sponsored by Representative Duffy and Representative Heck.   The legislation, which split the insurance industry also appeared to draw concerns from members about its data-collection provisions and the unintended impact on Treasury’s ability to implement Terrorism Risk Insurance Program (TRIA).  Ultimately, the bill passed on a 36-21 vote with only Democratic Representatives Heck, Sinema, and Sherman voting in favor, and Representative Royce as the lone Republican no vote.  Other bills considered included:

  • HR 4557, in a 53-3 vote, that would overhaul how disaster funds can be distributed through the Community Development Block Grant Disaster Recovery program;
  • HR 5783, in a 55-0 vote, that would shield banks from regulatory penalties when they keep suspicious accounts open at the request of law enforcement;
  • HR 5877, in a 56-0 vote, that would allow for the creation of so-called venture exchanges;
  • HR 5054, in a 32-23 vote, that would allow "Emerging Growth Companies" and other firms with less than $250 million in annual revenue to escape SEC requirements that they file financial statements in the XBRL data format;
  • HR 5756, in a 34-22 vote, that would make it easier for public companies to avoid shareholder proposals.

 House Financial Services Subcommittee Examines Recommendations to Improve CFPB
The House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing last week entitled “Improving Transparency and Accountability at the Bureau of Consumer Financial Protection.” The focus of the hearing was on recommendations made by Acting Consumer Financial Protection Bureau (CFPB) Director Mick Mulvaney in the bureau’s Semi-Annual Report to the President and Congress.  Specifically, Acting Director Mulvaney requested that Congress enact four structural changes to the Bureau, including: (1) funding CFPB through Congressional appropriations; (2) requiring legislative approval of major CFPB rules; (3) ensuring that the CFPB director answers to the president in the exercise of executive authority; and (4) creating an independent Inspector General (IG) for the CFPB.
 
Members engaged the panel — which consisted of five representatives from various stakeholder organizations — with questions on the regarding the CFPB’s proposed reforms, as well as how the current structure and operations of the CFPB impacts consumers and businesses. While Republicans were eager to see these changes implemented within CFPB, Democrats remained fiercely opposed to the reforms, criticizing Acting Director Mulvaney and the Trump administration for putting minority groups and overall consumer well-being at risk.
 
New Democrat Coalition Issues New Report on Housing Crisis
Last Wednesday, the New Democrat Coalition’s Housing Task Force — which includes Reps. Denny Heck (D-WA), Stephanie Murphy (D-FL), Scott Peters (D-CA), Juan Vargas (D-CA), and Jim Himes (D-CT) — released a preliminary finding report on America’s housing crisis. The report notes that housing is increasingly unaffordable because prices and rents are rising faster than wages, and that construction is not keeping up with demand. The Task Force plans to release a second report with policy recommendations to address the lack of affordable housing options later this year.
 
Senate
Senate Appropriations FSGG Subcommittee Examines Budget Requests for SEC and CFTC
Last week, the Senate Appropriations Subcommittee on Financial Services and General Government (FSGG) held a hearing to examine the FY 2019 budget requests for the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo both appeared before the Subcommittee to justify the requested funding levels for their respective agencies. The SEC has requested $1.658 billion for FY2019, while the CFTC has requested $281.5 million for its activities next year. In discussing their respective budget requests, the Chairmen also fielded inquiries from Senators on the Volcker Rule, new rulemaking on investment advice standards, cryptocurrency regulation, and cybersecurity.   Speaking later in the week on CNBC SEC Chairman Jay Clayton said that his agency will evaluate cryptocurrencies on a case-by-case basis as to whether they constitute securities, and that the SEC does not plan to change its definition of a security to fit digital assets.
 
Senators Introduce Bill to Rein in Trump’s Tariff Authority
A bipartisan group of Senators — led by Sen. Bob Corker (R-TN) has introduced a bill that would require President Trump to get Congressional approval for tariffs implemented for national security purposes. The bill is a byproduct of increasing frustrations from Republicans on President Trump's trade policies after the president slapped steep tariffs on steel and aluminum imports from the European Union, Canada and Mexico ending an exemption for the key trading partners. Sen Corker said that he is hoping to add his bill as an amendment to the National Defense Authorization Act (NDAA). However, GOP leaders are hoping to tamp down support for Sen. Bob Corker's proposal, eager to avoid a standoff with the president five months ahead of the midterms.
 
Select Highlights from the Administration
White House
Next Commissioner of SEC Expected to be Announced
Last week, the White House announced that it was going to nominate Elad Roisman, currently serving as Senate Banking Committee Chairman Crapo’s chief counsel, to replace SEC Commissioner Michael Piwowar.   Piwowar had previously indicated his intention to the Commission by July.   It is possible that there could be an opportunity to pair Roisman’s nomination with a Democratic nominee if Commissioner Stein, whose term has already expired but who, by law, can stay on until the end of the calendar year, also vacates her seat.  
 
Department of Treasury
Medicare Trust Fund to be Depleted Earlier than Expected
Last Tuesday, the Social Security and Medicare Boards of Trustees issued their annual financial review of the programs. The projections indicate that Medicare's trust fund will be depleted in 2026, three years earlier than last year's report found. The report also projects that income is sufficient to pay full scheduled benefits until 2032 for Social Security’s Disability Insurance program, and until 2034 for Social Security’s Old Age and Survivors Insurance program. Treasury Secretary Steven Mnuchin said in a statement that both Medicare and Social Security "remain secure," though he noted long-term challenges. He also argued that the administration’s tax cuts and regulatory reforms will lead to the growth needed to secure the solvency of the programs.
 
Consumer Financial Protection Bureau (CFPB)
Mulvaney Disbands Consumer Advisory Panel
On Wednesday, Acting CFPB Director Mick Mulvaney announced that he was disbanding the agency’s 25-member advisory board and would be reconstituting a new advisory panel in the fall.  By law the CFPB’s advisory panel is required to be composed of at least six members and meet at least twice a year.  The announcement came on the heels of a Monday news conference where 11 members of the group criticized Mulvaney for, among other things, canceling legally required meetings with the group.  Not surprisingly, the announcement drew the ire of Sen. Sherrod Brown (D-OH), who criticized the acting director for prioritizing the interests of payday lenders and industry insiders over the interests of consumers.
 
Bureau to Drop Case Against PHH
On Thursday, the CFPB announced that it was dismissing its case against mortgage lender PHH Corp.  The case, which had stemmed from a challenge to former CFPB Director Cordray’s decision to fine the company $109 million dollars, had also included a challenge to the constitutionality of the CFPB’s sole director structure.   This past January, an appeals court struck down the challenge to the Constitutionality, but had left the determination about other elements of the case to the CFPB. 
 
Federal Deposit Insurance Corporation (FDIC)
Jelena McWilliams Sworn in as FDIC Chairman
Last Tuesday, Jelena McWilliams was sworn in as the 21st Chairman of the FDIC, succeeding outgoing Chairman Martin Gruenberg. Prior to joining the FDIC Board, Ms. McWilliams was executive vice president, chief legal officer, and corporate secretary for Fifth Third Bank in Cincinnati, Ohio. She has worked with the Senate Committee on Banking, Housing, and Urban Affairs as chief counsel and deputy staff director and served as assistant chief counsel with the Senate Small Business and Entrepreneurship Committee. McWilliams’ confirmation puts a Trump-appointed official in charge of every federal bank regulator amid the agencies’ push to rewrite Dodd-Frank Act regulations.
 
Federal Reserve
Stress Tests Results to Be Announced By the end of the Month
On Thursday, the Federal Reserve announced that it will release the results of its annual stress tests, mandated by the 2010 Dodd-Frank Act, on June 21 and the results of its more consequential stress tests on June 28. 
Both tests measure how bank capital would fare during an economic downturn. But unlike the Dodd Frank-mandated stress tests, the Comprehensive Capital Analysis and Review factors in the lenders’ future planned capital distributions, which the Fed can reject if a bank fails.
 
Securities and Exchange Commission (SEC)
SEC Approves its Changes to Volcker Rule
On Tuesday, the SEC approved its proposed changes to Volcker rule, on a 3-2 partisan vote.   The SEC’s action made it the fifth and final agency to propose revisions to the rule, which is expected to be completed by the end of the year.  SEC Democratic Commissioner Kara Stein, whose term has expired and who is expected to leave the Commission before the end of the year vociferously expressed her objections to the proposal, saying it “cleverly and carefully euthanizes the Volcker rule.”   The proposal will be open for public comment for sixty days, commencing once it is published in the Federal Register.
 
SEC Approves e-delivery for Mutual Funds
On Tuesday, the SEC also approved a new rule on a 4-1 vote to allow mutual fund companies to provide their shareholder reports on a website unless their investors choose to have the documents mailed directly to them.  The switch to e-delivery represented a major victory for the fund industry and a significant loss to the paper industry who had fought hard to prevent this change for years.  The rule will not go into effect until Jan. 1, 2021, an unusually long transition period.