Financial Services Report

September 21, 2015

Looking Ahead

Near Term

  • This is a short, but critically important week if the Government is not going to shut down when the current funding bill expires on September 30th.  Both Houses will postpone votes until Thursday and Friday because of the Yom Kippur holiday and the visit from the Pope, but we may see the public release of a CR by the end of the week.   

Further Out

  • Funding for the Government runs on next week.
  • Congress is expected to pass a CR that runs until December 11th or 18th setting up a potential “kitchen sink” event to deal with extenders, the highway bill, raising the debt ceiling and keeping the government funded into calendar year 2016.
  • CFPB Director Cordray is expected to testify at the HFSC Committee next week. 

The Past Week

Legislative Branch

HFSC Holds 3rd and Final Hearing to Examine Five-Year Legacy of Dodd-Frank
On Thursday the House Financial Services Committee held a hearing entitled, “The Dodd-Frank Act Five Years Later: Are We More Free?”  This hearing focused on alleged problems with the law, notably the accountability of the CFPB, the effect on community banks, and the controversial enforcement initiative led by the Department of Justice (DOJ) known as Operation Choke Point.
Regarding the CFPB, as expected, Republicans voiced their displeasure with the Bureau, particularly attacking its structure and asserting that an agency led by a five-member commission and subject to Congressional appropriations would be more appropriate for consumer protection.  Democrats defended the agency and contended that both a single Director and a separate funding stream help the CFPB avoid partisan struggles that can often plague regulatory agencies. This dichotomy defined the hearing, but there was some common ground over the actions of the DOJ in Operation Choke Point with Democratic members Reps. Brad Sherman (D-CA) and David Scott (D-GA) joining their Republican colleagues in voicing concerns on the controversial DOJ initiative.
Monetary Policy and Trade Subcommittee Examines Turbulence in Global Economy
On Thursday afternoon the MP&T Subcommittee held a hearing entitled, “Strengthening U.S. Leadership in a Turbulent Global Economy.”  The sole witness was Treasury Under Secretary for International Affairs and during the hearing a diverse set of issues, including negotiations on TPP, Ex-IM, the Iran Deal, and international insurance agreements. 
Banking Committee Holds Nominations Hearing
On September 17th the Senate Banking Committee held a hearing to consider the nomination of Adam J. Szubin, to be Treasury Under Secretary for Terrorism and Financial Crimes.  While Mr. Szubin’s nomination appeared to have broad, bipartisan support, Democrats used the hearing as a stage to criticize Chairman Shelby for not holding more hearings to deal with the backlog of nominations for the various regulatory bodies under the Committees jurisdiction.
Democrats Announce Opposition to “Controversial Riders” in Continuing Resolution
Last week, several Democratic members of the Senate Banking Committee along with Treasury Deputy Secretary Sarah Bloom Raskin held a press event to announce their opposition to efforts to include “deregulation” provisions through the appropriations process.  While the extent of which riders Senate Democrats and the White House will be able to beat back is a work in progress, the announcement specifically targeted a few proposals including Banking Committee Chairman Shelby’s regulatory reform bill, as well as efforts to transition the CFPB from a Director to a 5-person Commission. 
Select Highlights from the Administration
Lew Suggests Congressional Action Necessary to Resolve Puerto Rico Bond Crisis
On Thursday, after a meeting with National Economic Council Director Jeffrey Zients and Puerto Rico Gov. Alejandro Garcia Padilla, U.S. Treasury Secretary Lew suggested that congressional action will be needed to address the territory’s financial liabilities.  The focus of the meeting was on the projection that Puerto Rico would exhaust its liquidity later this year, and the three discussed the role of the federal government in assisting Puerto Rico. Lew and Zients stressed the need for Congress to act immediately in order to provide Puerto Rico with access to a restructuring regime, and further suggested that without federal legislation, a resolution concerning Puerto Rico’s financial liability would be “difficult, protracted, and costly.” The Treasury Department emphasized that the Obama administration would continue to ensure that federal agencies will “bring their full capabilities to bear” to foster Puerto Rico’s economic recovery.
The Federal Reserve Board (Fed)
Fed Leaves Benchmark Rate Unchanged
On Thursday, the Federal Reserve opted against a much-anticipated rate hike, leaving interest rates unchanged between zero and 0.25%, where they have been since December 2008. Fed Chairwoman Janet Yellen explained that while the economy has continued to improve moderately, concerns abroad, combined with a slight slowdown in inflation growth, have kept the central bank from raising rates this month. Updated predictions from Fed officials show the vast majority of members of the Federal Open Market Committee (FOMC) still anticipate a rate hike sometime between now and January. Thirteen FOMC members still predict a 2015 hike, while just four expect the first increase to come in 2016 or 2017.  Economic projections released by the Fed Thursday saw the institution upgrade its outlook for economic growth in 2015, while trimming expectations for the years to follow.
In advance of the Fed's decision, Rep. John Conyers (D-MI) introduced the “Full Employment Federal Reserve Act of 2015,” which would require the Fed to target a 4% unemployment rate before it can raise rates.  Conyers was joined by a handful of members in introducing the legislation – all fellow Democrats.
Consumer Financial Protection Agency (CFPB)
CFPB Announces New Members to Advisory Boards
On Friday, the CFPB announced the appointment of new members to its Consumer Advisory Board, Community Bank Advisory Board and Credit Union Advisory Board.  Of the twelve new members named many were from the usual suspects of pro-consumer groups, such as Chris Kukla from the Center of Responsible Lending.  Interestingly the CFPB also reached out to Silicon Valley and members of the emerging “fintech” sector, by including Tim Chen, Executive Director of NerdWallet and Max Levchin, Co-Founder and Executive Director of Affirm as well.
Commission Again Delays Compliance Date for Security Swaps – Angers Aguilar
On Tuesday, the SEC announced the 10th extension for the deadline for security-based swap participants to comply with certain Dodd-Frank Act regulations.  According to Dodd-Frank any of the rules adopted by the SEC under Title VII can't take effect until all the rules of under that title are finalized, and the extension issued on September 15th lasts at least until the registration compliance date for other Title VII rules.  The extension drew the ire of retiring SEC Commissioner Luis Aguilar who issued a written statement expressing his frustration with the delay.