TRP Financial Services Report

It seems clear that we are now clearly in the world of “Veto Politics” and despite Republican majorities in both Houses of Congress, the Democratic minority has real power to negotiate with Republicans if both sides want to get anything done.   With the respective flanks of both sides appearing willing to sacrifice the perfect for the good – only time will tell if the so-called adults in the room will be able to find enough moderates to pass substantive legislation by veto proof margins.

Looking Ahead 

Near Term 

• House is scheduled to take up two bills this week, and the Financial Services Committee will mark-up its Oversight Agenda for the 114th Congress.
• The Senate Banking Committee to hold a hearing, and then mark-up legislation to impose additional sanctions on Iran.  The legislation received a veto threat last week, so it will be interesting to see how Democrats engage on the issue.  Additionally, it will present the first opportunity to witness the Shelby – Brown dynamic.  The President will deliver the State of the Union on Tuesday.  Having already previewed many of the issues he intends to raise, many White House watchers took to social media to praise the return of “Big Block of Cheese Day.”

With so much of Congressional actions being driven by calendar deadlines – we thought it might be useful to use this space to highlight those events, as well as any other significant developments worth noting – such as the announcement that Pope Francis will address a joint session of Congress in September .

• Feb. 27: DHS Funding Expires
• March 15:  Technical End for the Debt Limit
• March 31: “Doc Fix”
• May 31: Surface Transportation
• June 1: USA PATRIOT Act
• June 30: Export-Import Bank
• Sept. 30: CHIP Funding
• Sept. 30: Child Nutrition & WIC
• Sept. 30: FAA Authorization

Legislative Branch

House

House Approves Dodd-Frank Changes

On Wednesday, by a vote of 271-154 the House approved H.R. 37, a series of reforms to the Dodd-Frank Act.  The bill, which received a veto threat from President Obama, mainly because of the Volcker Rule changes, received six less democrats than when the measure come before the House the week before on the suspension calendar.  The bill now goes over to the Senate, where it is not expected to pass with a veto proof majority.   Interestingly, later in the week, it was reported that during a meeting of US and EU regulators, the European Union participants raised concerns about the application of the Volcker rule to foreign funds.

Financial Services Committee Organized – Chairman Receives Broad Subpoena Power

On Wednesday, the House Financial Services Committee held its organizing meeting.  In addition to formally approving the committee leadership as well as the subcommittee assignments of the majority, the committee also adopted its rules for the 114th Congress, which among other things, included an expansion of Chairman Hensarling’s subpoena powers.  Under these new rules, the Chairman will have unilateral authority to issue subpoenas, though he will have to notify the ranking member 48 hours in advance, except under “exigent circumstances.” 

Waters Urges Department of Labor to Deny Waiver

On Thursday, Ranking Member Waters urged the Department of Labor to deny a waiver to Credit Suisse that would allow the bank to continue its asset management work for U.S pension funds.  The Department of Labor was holding a rare hearing to assess whether the bank should lose its “qualified professional asset manager” status in light of the fact that another unit within the bank pleaded guilty to conspiring to help American’s evade taxes.  Companies that break criminal laws or commit fraud are generally banned from activities such as conducting private offerings or managing pension plans, and until recently, regulators, including the DOL and the U.S. Securities and Exchange Commission, have typically granted waivers or exemptions that allow them to continue operating as usual with little fanfare.  However, in response to public outcry from the financial crisis, as well as concerns about “too big to bar” advocates are pushing regulators to take a closer look at the issue.

Goodlatte & Chaffetz Issue Dueling Internet Sales Tax Bills

This past week saw two Republican Chairmen offer dueling perspectives on how to tax purchases made online.  On one hand, Judiciary Chairman Goodlatte issued a proposal that would base sales taxes on the location of the seller, not the buyer, using something known as origin sourcing.  The proposal is an attempt to resolve a decades-long dispute among states, online retailers and brick-and-mortar stores.  Later in the week, it was leaked that Oversight and Government Reform Chairman Chaffetz was also working on an internet sales tax bill that used a similar framework to legislation that passed the Senate last year but stalled in the House.

Senate

Hatch Creates Working Groups for Tax Reform

On Tuesday, Senate Finance Committee Chairman Hatch announced that he was creating a number of bipartisan working groups in order to come up with a comprehensive series of recommendations by the end of May.  Similar efforts were undertaken by Chairman Camp as well as by Banking Committee Chairman Dodd prior to undertaking financial reform.  Hatch announced five groups: Individual income tax, co-chaired by Sens. Chuck Grassley, Mike Enzi and Debbie Stabenow; business income tax, co-chaired by Sens. John Thune and Ben Cardin; savings and investment, co-chaired by Sens. Mike Crapo and Sherrod Brown; international tax, co-chaired by Sens. Rob Portman and Chuck Schumer; and community development and infrastructure, co-chaired by Sens. Dean Heller and Michael Bennet.

Whitehouse Introduces Bill Aimed at Offshore Tax Abuse

On Tuesday, Senator Whitehouse (D-RI), along with Rep. Lloyd Doggett (D-TX) introduced legislation aimed to curb overseas tax havens.  The bill, known as the “Stop Tax Haven Abuse Act” aims to discourage inversions by deeming the product of a merger between a U.S. company and a smaller foreign company to be a U.S. taxpayer, no matter where the new company is based, and also strengthens disclosure rules under FATCA by ensuring that checking accounts and derivative holdings are also disclosed under FACTA.  The measure is unlikely to advance in the Republican Congress.

Warner Urges Regulators to Adopt Stronger Protections for Credit and Debit Cards

On Monday, Senator Mark Warner sent a letter to the four major federal banking regulators urging them to adopt “meaningful improvements in the card payments space.”  Citing recent security breaches at banks and retailers alike, Warner indicated his concern that regulators were not doing enough to spur further development of chip and pin rather than continued reliance on chip and signature cards.  He continued the letter with a series of 12 questions, and asked the regulators for a response by February 12th.

 Select Highlights from the Administration

White House

Obama Unveils Tax Proposals for SOTU – Immediately Panned by the Right

On Saturday evening, the President unveiled a tax proposal that included a variety of proposals aimed at reducing the tax burden for middle class workers and families.  The proposal would be primarily paid for by an increase in the capital gains tax as well as by imposing new fees on banks and other financial institutions.  The move was immediatelypraised by the left and attacked by the right.  While elements of the President’s proposal – including the “big bank tax” were included in former Ways and Means Chairman Camps proposal, both current Chairmen of the congressional tax writing committees dismissed the President’s proposal.  Interestingly, the bank tax threshold level – $50 billion dollars – which is also the current level for SIFI designation is one area where there has beenbipartisan support so it will be interesting to see how the President’s proposal impacts any future change to that provision of Dodd-Frank. 
 

Treasury

Weiss Withdraws – Warren Claims a Scalp

On Monday, Antonio Weiss, President Obama’s nominee for Treasury Undersecretary of Finance withdrew his name from consideration.  Opposition to Weiss was led by Senator Elizabeth Warren, and her staff was quoted as saying that the withdrawal “shows we have the power to bring someone down.”  Ironically, Weiss will serve as Counselor to Treasury Secretary Lew, a similar role to one that Warren once had when putting together the CFPB, as she was unable to achieve Senate confirmation either.  

MetLife to Sue FSOC about Designation

On Tuesday, MetLife announced it would be the first company to sue the Financial Stability Oversight Council (FSOC) over the decision to classify the insurer as a systemically significant institution.   MetLife was the third not bank “SIFI” designated by FSOC, though neither AIG nor Prudential opted to challenge the FSOC decision.   

The following day FSOC announced that its next meeting would be on January 21st.   On the agenda items for the open session portion of the meeting are potential changes for consideration of non-bank SIFIs, including how to bring more transparency to that process.  FSOC will also hold a closed session where it is expected to discuss leveraged lending and its 2015 annual report. 
 

Federal Reserve Board

Regulators Announce Next EGRPRA Hearing to take place Feb 4th

On Wednesday, the Federal Reserve, along with the OCC and the FDIC announced that the next meeting of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) would take place February 4th at the Federal Reserve Bank of Dallas.  Comptroller Curry, FDIC Chair Gruenberg, and Fed Governor Jerome Powell, are all expected to attend. Additional meetings are currently scheduled for Boston, Massachusetts, on May 4, 2015; Chicago, Illinois, on October 19, 2015; and Washington, D.C. on December 2, 2015.

Securities and Exchange Commission (SEC)

Commission Passes Swap Rules

On Wednesday, the SEC, by a series of 3-2 votes, approved a package of rules for derivative swaps. The rule mandates security based swap trades are publicly reported. The change will affect swap data repositories, companies that store information about the swaps. The rules will be effective within 60 days once published in the Federal Register and companies will be required to comply with the rules within a year. The agency also approved a proposal to draft an additional set of swap rules. Republicans on the commission believe the rules will “add unnecessary burdens for businesses” and voted against them.

SEC Announces New Members of Market Structure Advisory Panel

On Tuesday, the SEC announced the members of a new Equity Market Structure Advisory Committee, which will focus on the structure and operations of the U.S. equities markets.  Among the 17 members of the committee are former Senator Ted Kaufman and Brad Katsuyama, President and CEO, IEX Group Inc., one of the heroes of the book Flash Boys that drew so much attention to these issues last year.
 

Consumer Financial Protection Bureau (CFPB)

Cordray Rolls Out New Consumer Tool to Aid in Mortgage Shopping 

On Tuesday, at an event at the Brookings Institution, CFPB Director Richard Cordray announced the released an interactive, online toolkit designed to help consumers shop for a mortgage. As part of the CFPB’s “Know Before You Owe” initiative, the “Owning a Home” toolkit is intended to give consumers simplified information and provide confidence to those who may be “intimidated” by the complicated process of applying for a loan.  This toolkit was released in conjunction with a new report finding that almost half of consumers do not shop around for a mortgage when purchasing a home.  Also during the event, Cordray indicated that the much awaited CFPB report on arbitration was coming “in the near future.”

CFPB Continues its Focus on University – Banks Relationship

On Wednesday, the CFPB announced it was seeking comment on a series of questionsthat will create a “Safe Student Account Scorecard” to help colleges evaluate prospective financial institution partners.  More than 850 schools with around 10 million financial-aid recipients have negotiated banking arrangements, according to a February 2014 study from the Government Accountability Office that called for more protections for students. According to a WSJ report, the CFPB says 40% of college students attend schools that have signed pacts for debit or prepaid cards.  The CFPB will be accepting comments on this proposal through mid-March. 

On Tuesday, January 20th at 10:00am in 538 Dirksen the Senate Banking Committee will hold a hearing entitled, “Perspectives on the Strategic Necessity of Iran Sanctions.

On Wednesday, January 21st at 2:00pm in HVC-210, the House Financial Services Committee will mark-up and adopt its Oversight Plan for the 114th Congress.

On Thursday, January 22nd at 10:00am in 215 Dirksen, the Senate Finance Committee will hold a hearing entitled, Jobs and a Healthy Economy.

On Thursday, January 22nd at 10:00am in 538 Dirksen, the Senate Banking Committee will meet in Executive Session to mark-up legislation entitled the “Nuclear Weapon Free Iran Act of 2015.”