Financial Services Report

October 26, 2015

Our Take
After a week of contemplation, and speculation, Representative Paul Ryan is set to become the next Speaker of the House of Representatives and the first person from Wisconsin to hold that position.  The House Republican Conference is set to vote Wednesday, with a vote in the full House on Thursday.  Unless another bombshell occurs, John Boehner will resign from Congress at the end of the week, but it doesn’t look like the barn will be as clean for Ryan as the former Speaker had hoped.  From trying to find a path forward on the debt ceiling, (see below), to figuring out how to pay for dueling transportation authorization proposals, to moving forward on Ex-Im, Speaker Ryan will have to face down a series of challenges from Day One.  

However, in the spirit of the immortal Doctor Emmet Brown , his future remains unwritten, and despite, perhaps grudgingly, accepting the Speakership, Rep. Ryan’s future could be incredibly bright.  Tax reform, entitlement reform, etc. all could be on the agenda, especially if he is able to further neutralize the “Freedom Caucus threat”.  Only time will tell.
Looking Ahead

Near Term

  • The House is set to take the Retail Investor Protection Act, a bill that would delay the Department of Labor from moving forward with its Fiduciary Standard until the SEC issues its own final rule on the issue.  This measure passed the House last Congress, 254-166 though was ignored by the Senate. 
  • The House is also expected to take up a short term extension of the Highway Authorization bill as well as a measure to address the debt ceiling next week. 
  • The House is also expected to consider, via a discharge petition, the legislation to revive the Export-Import Bank. 
  • The Senate is going to vote on CISPA, the cyber-security bill next week
  • A Senate Banking Subcommittee is going to hold a hearing on the state of rural banking.
  • The CFPB is set to hold a SBREFA panel on Wednesday for its forthcoming rule to limit the use of arbitration provisions in contracts for consumer financial products.
  • The Fed will hold open meeting Oct. 30. Among other things on the agenda is a discussion of a proposed rule that would establish total loss-absorbing capacity and long-term debt requirements for global systemically important banking organizations

Further Out

  • Highway Authorization expires 10/29
  • Treasury says Debt Ceiling needs to be raised by November 3rd
  • Funding for Federal Government expires December 11th.

The Past Week

Legislative Branch

First Effort To Bring Debt Ceiling Legislation to the Floor Fizzles
Rumors that a bill to increase the debt ceiling may have been considered last week turned out to be nothing more than rumors.  According to reports, efforts to use a Republican Study Committee proposal that would have paired raising the debt limit by $1.5 trillion (enough to last into after the next elections) with a series of policy changes including no new government regulations until 2017, forbidding the Senate from filibustering any motion to proceed on spending legislation after October 1st and forcing the House to remain in session until it completes the appropriations process.  However, by the end of the week it was clear that there were not enough Republican votes to pass the proposal and Democrats were clearly not going to be for it.  With 190 Democrats on record for a “clean extension” both sides are trying to find an agreement that can muster enough votes.   When the debt limit was last raised in 2014, 28 Republicans (many who are no longer in Congress) voted for the extension, leaving the Republican leadership with a difficult path. 
Capital Markets Subcommittee Hears from SEC Investment Management
On Friday, the Capital Markets Subcommittee held a hearing entitled, “Oversight of the SEC's Division of Investment Management.”  David Grimm, the Director of that division of the SEC was the sole witness.  During the hearing, Grimm was questioned about the FSOC’s designation and oversight over the asset management industry as well as the SEC’s involvement and coordination with helping the Department of Labor draft its Fiduciary Rule.  In addition, many members questioned Director Grimm about the timing of the SEC’s own fiduciary rule, currently pending under section 913 of the Dodd-Frank Act.   
House Financial Services Hears about Future of Housing
On Thursday, the Housing and Insurance Subcommittee held a hearing on “The Future of Housing in America: Federal Housing Reforms that Create Housing Opportunity.”  During the hearing the witnesses, which were comprised of a cross section of the industry, offered their perspectives on a variety of topics including: public housing, rural housing, the rental market, and Marketing Service Agreements.   
House Small Business Committee hears from Retailers on EMV
On Wednesday the House Small Business Committee held its second hearing on the EMV deadline and its impact on small businesses.  While the previous hearing provided a forum for banks and payment processors, this hearing highlighted the retailers’ perspective about the ongoing transition in EMV from a “swipe-and-sign” system to “chip-and-sign.” As expected, the retailers used the hearing to highlight their concerns about the costs related to the transition, and their ongoing concern over interchange fees. Members of the Committee did not appear to have taken a firm stance on the issue, with lawmakers from both parties focused on technical questions involved with the transition. While the Committee primarily asked about the costs of the transition. 
Bipartisan Opposition to Cutting Fed Dividend
On Tuesday, a letter with 150 bipartisan signers was sent to the House Leaders urging them to refrain from using any proposal to modify dividend payments on Federal Reserve stock as a “pay-for” until there has been further study on the ramifications of the proposal.  The letter was spearheaded by Representatives Huizinga (R-MI) and Foster (D-IL) and ultimately was joined by 103 Republicans and 47 Democrats.
Senate Poised to Pass Cyber Security Legislation
On Thursday, by a vote of 83-14, the Senate passed a procedural motion that sets up a vote on final passage for the Cyber Security Information Sharing Act (CISPA) for early next week.   The legislation, which would allow companies to share information about cyber security threats and attacks, appears set to survive the inclusion of multiple amendments, including one that would sunset the bill after six years.  If the Senate passes it next week, proponents will then need to reconciled it with similar House versions, passed earlier this year.   
Brown Calls for Rejection of Riders that “Weaken” Financial Regulations from Appropriations Bill
On Thursday, in a joint statement with his counter part on the House Financial Services Committee, Banking Committee Ranking Member Sherrod Brown called on both the House and Senate Leadership to oppose the inclusion of any rider in the 2016 spending bills that would amend the Dodd-Frank Act.
Select Highlights from the Administration
Treasury Delays Auction
On Thursday, Treasury announced that it postponing an auction of two-year notes because the sale might end up breaching the debt cap, the first delay related to the ceiling in more than a decade.  While Treasury claimed that the move was not political, some observers viewed it as a threat tactic by the White House as part of negotiations over the debt ceiling. 
Consumer Financial Protection Bureau (CFPB)
Cordray Offers More Insight into Bureau’s Upcoming Arbitration Rule
On Thursday, the CFPB Consumer Advisory Board had a meeting where the first half of the meeting was led by CFPB staff and focused on new innovations for companies and government official reaching limited English speaking consumers and a quick discussion on recent trends and themes in the consumer market, including how mobile consumer transactions are expanding in a positive way.  During the second half of the meeting, Director Cordray offered an opening statement that reinforced previous remarks on the Bureau’s upcoming rule on mandatory arbitration.  In addition, it was confirmed that the SBREFA panel on the arbitration rulemaking will take place next Wednesday, October 28th.
Securities and Exchange Commission (SEC)
Two New Commissioners Nominated
On Tuesday it was reported that the White House intended, and then shortly thereafter the White House did indeed nominate Lisa Fairfax and Hester Peirce to fill two vacancies at the SEC.  Ms. Fairfax, currently a professor at George Washington University Law School was suggested by Senator Warren following the withdrawal of the expected nomination of Keir Gumbs for his work as a member of a law firm with corporate clients.  Ms Peirce, currently a Research fellow at the conservative leaning Mercatus Center, is the preferred candidate to fill the vacancy caused by the retirement of Republican Commissioner Dan Gallagher.
Next Week’s Schedule
On Wednesday, October 28th at 10:00am in 538 Dirksen, the Subcommittee on Financial Institutions and Consumer Protection will hold a hearing entitled, “The State of Rural Banking:  Challenges and Consequences”