Insights

Financial Services Report

February 29, 2016

Looking Ahead

Near Term

  • Senate is scheduled to take up legislation to tackle the growing opioid abuse issue.  In addition, it may return the complete consideration of the Energy bill now that a deal to resolve the Flint water crisis has been reached.
  • The House will debate a pair of bills related to Medicaid providers and brick kiln emissions, while the Financial Services Committee will host another marathon mark-up on Wednesday.
  • Financial Stability Oversight Council will meet on Wednesday and is expected to discuss a variety of topics including the annual report, the re-evaluation of a non-bank SIFI designation and the Council’s continued work on the asset management industry.   Details here.


The Past Week

Legislative Branch

House
House Subcommittee Holds Second Hearing on International Insurance Regulations
On Thursday, the House Financial Services Subcommittee on Housing and Insurance held a hearing entitled, “The Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers: Part II,” with a focus on the negotiations of the International Association of Insurance Supervisors (IAIS) on the development of an international capital standard for insurance companies. During the hearing Republicans expressed concerns about the impact of these negotiations on the traditional state based system of insurance regulation in the United States, while Democrats seemed concerned that that any legislative effort, such as the draft proposal floated by the Subcommittee Chair, could adversely impact international financial stability.   At the end of the hearing, Chair Luetkemeyer said he hoped to have a bill put together “in the next couple of months.”
 
Two Hearings Held on Puerto Rico Bond Crisis
This past week the continuing bond crisis in Puerto Rico received two separate hearings in the House of Representatives.  First, at the Natural Resources Committee, where Antonio Weiss, Counselor to Treasury Secretary Lew was the sole witness, then next at the Financial Services Oversight and Investigations Subcommittee, where a panel of private sector experts testified.    In his testimony, and subsequent response to questions from members of the Committee, Mr. Weiss made it clear that the administration remains committed to a solution that combines restructuring with some type of oversight control board.  According to Mr. Weiss, Puerto Rico needs a “territorial restructuring framework” that would consist of: (1) a temporary stay on litigation to protect the provision of vital public services and allow time for voluntary negotiations; (2) a voting mechanism to prevent a few hold-outs from blocking a reasonable compromise; and (3) if negotiations fail, a court-supervised structure to assure an orderly resolution, though it was clear that Republican members of Congress continue to view any option for the Island that allows for bankruptcy to be tantamount to a bailout. 
 
This skepticism was also apparent during the Financial Services Subcommittee, where Republicans questioned whether providing Puerto Rico restructuring authority, whether via Title 9 or some other method was fully necessary and Democrats alternative clamoring for the need for restructuring the debts. 
 
Capital Markets Subcommittee Holds Hearing on Fixed Income Market Securitizations
On Wednesday, the Financial Services Capital Markets Subcommittee held a hearing entitled, “The Impact of the Dodd-Frank Act and Basel III on the Fixed Income Market and Securitizations.”   During the hearing the subcommittee examined two bills, H.R. 4166, that would reduce the rule for collateralized loan obligations and an unreleased draft of a bill that would exempt some commercial real estate loans from the rule.  The subcommittee also debated a third measure, H.R. 4096, a bipartisan bill that would essentially remove a “Volcker Rule” restriction barring associated investment advisers and private equity funds from having the same name.
 
Ways and Means Holds Hearing on International Tax Reform
On Wednesday, the House Ways and Means Committee held a hearing entitled, “Global Tax Environment in 2016 and Implications for International Tax Reform.”  Witnesses included, Michelle Hanlon; Raymond Wiacek Itai Grinberg; and Edward D. Kleinbard.  Following the hearing, Rep. Charles Boustany (R-LA) indicated that his subcommittee plans to have a draft bill by the end of March. 
 
Levin, Van Hollen Introduce Bill to Curtail Inversions
On Tuesday, in advance of the hearing on international tax reform in the Ways and Means Committee on the following day, Reps. Sander Levin (D-MI) and Chris Van Hollen (D-MD) – ranking members on the Ways and Means and Budget Committees, respectively – introduced a measure to limit certain tax deductions and block a company’s ability to use interest from debt payments by its American operations to its foreign parent company to offset taxes. The bill would apply to inversions that happened after May 8, 2014 and attempts to build on rules issued by the Treasury Department in November targeted at blocking inversions.  Committee Chairman Kevin Brady (R-TX) said that the bill reflects a common proposal to address inversions, but he wouldn’t commit to incorporating into his international tax reform proposal. 
 
Senate
Senate Committee Report Condemns DOL Process – Perez Says Final Rule Coming in ‘Weeks,’ 
On Wednesday, the Senate Homeland published a report on the alleged faults in the DOL’s rulemaking process. Specifically, the report highlights apparent divisions between the DOL and Securities and Exchange Commission (SEC) on the details of the rule and alleges that the DOL did not properly collaborate with their SEC colleagues.  The publication came two days after Speaker Paul Ryan (R-WI) tweeted that he was “determined to do everything possible” to stop the Department of Labor (DOL) from implementing its proposed fiduciary rule, and the same day that Secretary of Labor Tom Perez told congressional Democrats that the DOL expects to issue a final fiduciary rule within the coming weeks. In his remarks before the Democratic Caucus Perez told lawmakers that the DOL “considered” concerns on the structure of the rule that would govern conflicts of interest for retirement advisers.
 
Tester Tells Senate Leaders He Will Not Vote for Internet Sales Tax Bill
On Thursday, Senator Jon Tester (D-MT) sent a letter to Leader McConnell and Minority Leader Reid outlining his objections and stating he would not vote for an internet sales tax bill.  The loss of one of the members of the Democratic leadership is not surprising, as he represents a non-sales tax state, but the letter outlines some of the issues that proponents of the proposal to tax online sales purchases need to overcome if they are able to move the incredibly controversial legislation this year.
 
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Holds Consumer Advisory Board Meeting
On Thursday, the Consumer Financial Protection Bureau (CFPB) held a meeting of its Consumer Advisory Board (CAB) to outline the agency’s strategic goals for the next two years and define the . The meeting featured remarks from Director Richard Cordray, who noted his agency’s “intensive effort” to prioritize resources in certain areas. Based on those remarks, as well as subsequent materials provided, those areas are:  arbitration; consumer reporting; debt collection; demand-side consumer behavior; household balance sheet; mortgages; open-use credit; small business lending; and student loans.  In addition, Cordray noted that this list was not exhaustive of the Bureau’s pending agenda and he specifically mentioning fair lending oversight of indirect auto lenders and rulemaking on prepaid cards as “well-established and ongoing” work that will continue.   
 
Next Week’s Schedule

Tues. (3/1)

  • Hearing: House Ways and Means Subcommittee on Welfare and Jobs – 10:00 AM – The House Ways and Means Subcommittee on Human Resources will hold a hearing entitled, “Getting Incentives Right: Connecting Low-Income Individuals with Jobs.” Details here.
  • Hearing: House Financial Services Task Force on Terror Finance – 2:00 PM – The House Financial Services Committee’s Task Force to Investigate Terrorism Financing will hold a hearing entitled, “Helping the Developing World Fight Terror Finance.” Details here.
  • Hearing: Senate Finance Committee on Multiemployer Pensions – 10:00 AM – The Senate Housing Committee will hold a hearing entitled, “The Multiemployer Pension Plan System: Recent Reforms and Current Challenges.” Details here.

Wed. (3/2)

  • Hearing: Joint Economic Committee on Economic Report of the President – The Joint Economic Committee will hold a hearing entitled “The Economic Report of the President.” Details here.
  • Hearing: House Small Business on Research Funding Programs – 11:00 AM – The House Small Business Committee will hold a hearing entitled, “Commercializing on Innovation:  Reauthorizing the Small Business Innovation Research and Small Business Technology Transfer Programs.” Details here.
  • Mark-up:  House Financial Services Committee – 10:00AM – The House Financial Services Committee will mark up a series of bills including: HR 2121, the “SAFE Transitional Licensing Act of 2015”; HR 2896, the “Taking Account of Institutions with Low Operation Risk Act of 2015”; HR 2901, the “Flood Insurance Market Parity and Modernization Act"; HR 3798, the “Due Process Restoration Act of 2015”; HR 4096, the “Investor Clarity and Bank Parity Act”; HR 4139, the “Fostering Innovation Act of 2015”; HR 4166, the “Expanding Proven Financing for American Employers Act”; HR 4498, the “Helping Angels Lead Our Startups Act”; HR 4620, the “Preserving Access to CRE Capital Act of 2016”; and HR 4638, the “Main Street Growth Act”

Thurs. (3/3)

  • Hearing: Senate Finance Committee on Free Trade Agreement Implementation – 10:00 AM – The Senate Finance Committee will hold a hearing entitled “Free Trade Agreement Implementation: Lessons from the Past.” Details here.
  • Hearing: Senate Banking Committee on Equity Market Regulatory Reforms – 10:00 AM – The Senate Banking Committee will hold a hearing entitled, “Regulatory Reforms to Improve Equity Market Structure,” featuring witnesses from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Details here.