Financial Services Report (2/11)

February 11, 2019

Our Take

A legend of Congress and of American history, John Dingell passed away at the age of 92 last Thursday.   He served in Congress for nearly 60 years, and was involved in, and saw a lot of legislative sausage being made.   He served as Chairman of the House Energy and Commerce Committee from 1981 to 1994 and then again from 2008-2010.   At the height of his power the Committee had such a broad jurisdiction that half of the bills that congress considered emanated out of his Committee.   They don’t make members like John Dingell anymore, and if you didn’t know him, this clip from the waning hours of the debate on the Gramm-Leach-Bliley bill from 1999 is a pretty good summation.  


Looking Ahead

Near Term

  • People are wondering whether negotiators will be able to reach an agreement to prevent a second government shut down when the current stop gap measure runs out on Friday.  
  • The House Financial Services Committee will hold a hearing on pot banking and is expected to mark up legislation on the issue as soon as the Committee’s March mark-up.
  • The Senate Banking Committee will hold a nominations hearing on Thursday that will include Mark Calabaria to be Director of the FHFA, among others.   

Further Out

  • The annual Humphrey-Hawkins hearing where Fed Chairman Powell testifies before both the Financial Services and Senate Banking Committee is set for Feb. 26 and 27, with the Chairman appearing before the Senate first. 
  • The issue of data privacy will also be on top of the agenda at the end of the month, as the House Financial Services Committee will hold a hearing on Credit Bureaus on Feb. 26 and the Senate Commerce Committee will hold a hearing entitled "Policy Principles for a Federal Data Privacy Framework in the United States" on Feb. 27.
  • The suspension of the Federal Debt Ceiling is set to expire on March 2nd though extraordinary measures likely mean that Government can continue to operate without breaching the ceiling until early-to-mid summer.


The Past Week

Legislative Branch
Bipartisan Retirement Savings Bill Reintroduced in the House
On Wednesday, Reps. Ron Kind (D-WI) and Mike Kelly (R-PA) reintroduced the Retirement Enhancement and Savings Act (RESA) (text) on the heels of a Ways and Means Committee hearing on retirement security (see below).   Kind and Kelly’s bill includes numerous provisions intended to help workers save for retirement including: (1) expanding eligibility for small employers to participate in multiple employer plans (MEPs); (2) repealing the maximum age for traditional IRA contributions; (3) increasing the portability of lifetime income options for employees who change jobs; and (4) instituting a fiduciary safe harbor for lifetime income provider selection.  While the bill had tremendous bipartisan support in last Congress, it could never quite get over the finish line.  Chairman Neal has indicated it is a priority.  As a New Englander it is possible that he will not only shepherd the bill into law but also ensure that supporters cease mispronouncing he legislation’s acronym. 
MEPS, Social Security 2100 Bill Headline Ways and Means Retirement Security Debate
On Wednesday, the House Committee on Ways and Means held a hearing entitled “Improving Retirement Security for America’s Workers.” During the hearing, significant bipartisan support continued for automatic enrollment and increased availability of multiple employer plans (MEPs)—two tenets of the Retirement Enhancement and Savings Act (RESA). Additionally, Chairman Richard Neal (D-MA) expressed interest in finding a resolution to the insolvency of distressed multiple employer pension plans and appeared willing to utilize government-issued loans. Other topics, such as the solvency of Social Security brought out more bipartisan rhetoric, especially with regard to Rep. John Larson’s (D-CT) proposed legislation to increase Social Security payroll taxes by 2.4%. Throughout the hearing, Democrats also emphasized the challenges faced by low-income workers, women, and minorities, with several participants arguing that an increase to the retirement age would unfairly impact those forced to retire early.
Waters and Green Seek Information on CFPB Settlements
On Thursday, Chair Waters and Oversight and Investigations Chairman Al Green sent a letter to CFPB Director Kathy Kraniger seeking information about a series of recent settlements that the CFPB had entered into with various companies alleged to have conducted unlawful activities but where the settlement only resulted in a civil penalty paid to the CFPB but not restitution to the consumers alleged to have been harmed.   According to the letter the Bureau has until March 5th to provide the information sought. 
Ways and Hearing Foreshadows Trump Tax Return Fight
Following a, relatively bipartisan hearing on retirement security earlier in the week (see above), the next day the House Ways and Means Subcommittee on Oversight held a hearing on “Legislative Proposals and Tax Law Related to Presidential and Vice-Presidential Tax Returns” that as expected, had each side quickly retreating to their partisan positions.   As Chairman Richard Neal (D-MA) is expected to request President Trump’s tax returns from the IRS in the coming weeks, Committee Democrats used the hearing to frame the issue around public disclosure so American voters could better understand potential economic incentives of Presidential candidates.  For example, in his opening statement, Rep. John Lewis (D-GA) drew comparisons to Richard Nixon’s refusal to release his own tax returns. Committee Republicans, in contrast, framed the issue in terms of privacy, with Rep. Mike Kelly (R-PA) declaring that “every single American has the right to privacy” and Rep. Darin LaHood (R-IL) accusing Democrats of “weaponizing the tax code.”
Waters Calls for Serious Scrutiny of Proposed Bank Merger
On Thursday, regional bank BB&T announced its plan to acquire rival SunTrust for $28 billion in stock—the largest bank merger since the 2008 financial crisis. If finalized, the yet-to-be-named combined company would be the 6th largest bank in the United States with $442 billion in assets. With several industry analysts remarking that the deal may put pressure on other regional banks to consider mergers, the announcement drew scrutiny from some Congressional Democrats—including House Financial Services Committee Chairwoman Maxine Waters (D-CA) who said that the merger “deserves serious scrutiny from banking regulators” and attributed the deal to last year’s banking regulatory relief bill.  In addition, Senator Warren (D-MA) sent a letter to the Fed immediately following the announcement, questioning the regulators past approval of M&As and seeking guidance from the Fed on how it intends to consider this merger.
News Reports Indicate Investigation into Deutsche Bank Are Moving Forward
On Thursday, reports emerged that the House Financial Services Committee is hiring veteran Senate investigator Bob Roach to help manage the Committee’s upcoming investigation into Deutsche Bank’s relationship with President Donald Trump. While Roach has more than two decades of experience investigating major financial institutions—including Goldman Sachs, Credit Suisse, HSBC, Citi, and JPMorgan—colleagues on both sides of the aisle have praised his thoroughness and acknowledged his tendency to keep a “level playing field.”
Also Thursday, Sens. Elizabeth Warren (D-MA) and Chris Van Hollen (D-MD) sent a letter to Senate Banking Chairman Mike Crapo (R-ID) urging the Banking Committee to open its own investigation into the DB’s relationship with President Trump, as well as alleged money laundering.
McHenry Letter Probes Ex-Im “Fraud and Corruption”
On Friday, House Financial Services Committee Ranking Member Patrick McHenry (R-NC) sent a letter to Acting Export-Import Bank President Jeffrey Garrish inquiring about the Bank’s progress on addressing fraud risk following a July Government Accountability Office (GAO) report on the subject. As the letter references, GAO called the Bank’s process for assessing fraud risk “reactive and episodic.” While Bank managers told GAO that they would implement its recommendations and conduct a risk assessment by December of last year, McHenry’s letter notes that such an assessment has not been released and asks for an update by February 21. The letter also references Congressional examination of “numerous instances of fraud and corruption involving the Bank” when the institution’s charter was last reauthorized in 2015. Besides currently lacking a board quorum needed to approve transactions above $10 million, the Ex-Im Bank’s charter is due to expire at the end of the fiscal—a topic likely to be addressed by the Financial Services Committee this year.
Finance Committee Advances Desmond, Faulkender Nominations
On Tuesday, the Senate Finance Committee held an open executive session where it approved committee rules for the 116th Congress and voted to advance several executive nominations. Among the four nominations advanced were tax attorney Michael Desmond to be Chief Counsel of the Internal Revenue Service and University of Maryland professor Michael Faulkender to be Assistant Secretary of the Treasury for Economic Policy. After having already passed the Committee last Congress, both nominees received bipartisan support with only two Democrats voting against.
Comptroller General Dodaro Discusses Retirement at Aging Committee Hearing
On Wednesday, the Senate Special Committee on Aging held a hearing on financial security in retirement. Among the hearing’s witnesses was US Comptroller General Gene L. Dodaro, who urged lawmakers to convene a special commission to examine retirement in America in light of mounting threats to retirement security. Throughout the hearing, Members and the witnesses agreed that employer-based retirement plans are the most robust leg of the American retirement system and searched for ways to expand their ability and participation, including by expanding auto-enrollment and the proliferation of multiple employer plans (MEPs).
Portman 232 Tariffs Bill Reintroduced
On Wednesday, a bipartisan, bicameral group of legislators led by Sen. Rob Portman (R-OH) and Rep. Ron Kind (D-WI) reintroduced the Trade Security Act (text) legislation intended to rein in the President’s power to impose Section 232 national security tariffs. The bill would require national security-driven tariffs to be based on a determination by the Department of Defense and increase Congressional oversight of the tariff process by allowing Congress to pass a resolution of disapproval. The legislation is one of a handful of bills introduced in response to the President’s imposition of Section 232 tariffs on steel and aluminum last year and would potentially impede the imposition of automobile tariffs that have been floated by the White House.
Select Highlights from the Administration
The White House
Trump Highlights Tax Cuts and Implores Congress to Pass USMCA in SOTU
On Tuesday, President Trump delivered his State of the Union Address where, among other things, he emphasized his administration’s accomplishments including low unemployment and the First Step Act criminal justice reform legislation, played off of themes of “American pride” associated with World War II, and floated potential topics of bipartisan cooperation, most notably infrastructure. Other sections—including extended criticisms of undocumented immigration and his threat that “if there is going to be peace and legislation, there cannot be war and investigation”—received a chilly response from Democrats.
The speech also dedicated significant attention to tax and trade. Towards the beginning of the speech, the President attributed record-low unemployment levels to GOP tax reform, specifically citing the Tax Cuts and Jobs Act’s doubling of the child tax credit and rollback of the estate tax. On the trade front, the President said that the tariffs imposed on $250 billion in Chinese have paved the way for a new trade deal with the country, calling for Congressional approval of the United States-Mexico-Canada Agreement (USMCA), and urging Congress to pass the United States Reciprocal Trade Act (HR 764) which would expand his discretionary tariff power.
Trump “Open” to SALT Cap Change; Grassley Not Interested
On Wednesday, President Trump told reporters that he is “open to talking about” revisions to the $10,000 cap on the state and local tax (SALT) deduction. However, the next day a spokesman for Senate Finance Committee Chairman Chuck Grassley said that the Committee “won’t be revisiting” that issue.  President Trump indicated that his comments came following conversations with New York residents who—in addition to residents of other high tax states like New Jersey and California—are among the hardest hit by the cap. During tax reform, Republican tax-writers capped the federal SALT deduction arguing that it was a subsidy to high-tax states—much to the consternation of Congressional Republicans from those states at the time, many of whom lost their elections in November. 
Treasury Under Secretary – Noted Worold Bank Skeptic — Tapped to Lead World Bank
On Wednesday, President Donald Trump announced his intent to nominate Under Secretary of the Treasury for International Affairs David Malpass to serve as the President of the World Bank Group. The head of the development finance institution has traditionally been nominated by the United States as the Bank’s largest shareholder, although observers have raised the possibility of a contentious process to replace former President Jim Yong Kim in light of grievances from developing country’s that they lack sufficient input into the Bank’s development work. Currently responsible for the Treasury Department’s interface with international financial institutions and broad array of other international financial issues, Under Secretary Malpass has a history of criticizing the World Bank, in particular its loans to China. House Speaker Nancy Pelosi (D-CA) criticized the nomination, saying that Malpass “threatens to undermine the institution’s mission.”
Trump-Xi Meeting Not Expected This Month
On Thursday, President Trump told reporters at the White House that he does not expect to meet with Chinese President Xi Jinping this month as the two leaders attempt to resolve trade tensions between their two countries. With Treasury Secretary Seven Mnuchin and US Trade Representative Robert Lighthizer headed to China for negotiations this week, observers had speculated that the two Presidents might meet at the end of this month, potentially tied in with the President’s planned trip to Vietnam to meet with North Korean leader Kim Jong Un. Trump and Xi now have just a few weeks to come to a solution on a plethora of trade issues before the March 1 escalation—from 10% to 25%—of tariffs on $250 billion in Chinese goods.
The Dow dropped by 220 points over what was seen as a negative sign for the timely resolution of the trade dispute. President Trump this month is also expected to sign an executive order banning Chinese telecom equipment from US wireless networks over cyber-security concerns. Additionally, a bipartisan group of Senators led by Sens. Marco Rubio (R-FL) and Chris Van Hollen (D-MD) reintroduced the ZERO Act, which would reimpose sanctions on Chinese telecommunications giant ZTE after President Trump lifted them in July.
Federal Reserve
White House Dinner Marks Rare Trump-Powell Meeting
On Monday, President Trump and Federal Reserve Chairman Jerome Powell met face to face for the first time since Powell became Fed Chair. During a 90-minute dinner that night, the two leaders—joined by Treasury Secretary Steven Mnuchin and Fed Vice Chair Richard Clarida—reportedly discussed “recent economic developments and the outlook for growth, employment and inflation." Although details on the conversation are scarce, White House economic advisor Larry Kudlow—who was not in attendance—called the meal “quite cordial … respectful, constructive” and said that “both sides got their points across.” The relationship between President Trump and Chairman Powell has soured in recent months amid the President’s vocal criticism of several Fed interest rate hikes—a strategy that the Fed last month said was on hold.
Fed Finalizes Stress Test Transparency Measures
On Tuesday, the Federal Reserve Board of Governors finalized a slate of changes intended to increase the transparency of its stress testing program. Beginning with the 2019 cycle, banks will receive significantly more information about the stress testing models used in the Fed’s annual Comprehensive Capital Analysis and Review (CCAR), including ranges of lost rates, portfolios of hypothetical loans with loss rates, an greater explanations of key equations of variables. For 2019, the CCAR and stress test models—intended to evaluate a banks resiliency in hypothetical adverse economic scenarios—will model three scenarios of distress, including a “severely adverse” scenario with 10 percent unemployment. Also Tuesday, the Board officially announced that most firms with less than $250 billion in assets will be moved to extended stress test cycles and not required to participate in supervisory stress testing this year.
Consumer Financial Protection Bureau
CFPB Announces Intention to Rescind Payday Lending Rule’s Underwriting Requirement
On Wednesday, the Consumer Financial Protection Bureau related a notice of proposed rulemaking (text) to modify certain provisions of its 2017 Final Rule governing “Payday, Vehicle Title and Certain High Cost Installment Loans” a/k/a the Small Dollar lending or “Payday Lending” Rule.   Specifically, the Burau indicated that it wants to rescind the rule’s ability to repay requirement—which requires small dollar lenders to verify the ability of borrowers to repay their loans.  In a press release announcing the proposal, CFPB said that there was insufficient evident and legal support for the rule’s mandatory underwriting provisions and expressed concern that they would impede access to credit.
Not surprisingly, the announcement sparked swift pushback from Congressional Democrats. House Financial Services Committee Chairwoman Maxine Waters (D-CA) described the proposed change as a “giveaway to predatory payday loan sharks” while presidential hopeful Sen. Elizabeth Warren (D-MA) called on CFPB to “immediately rescind” the proposal. 

Next Week’s Schedule

Mon. (2/11)

  • Brookings Event on Smart Cities and AI – 10:00 AM – The Brookings Institute will host an event on smart cities and Artificial Intelligence (AI). Details here.
  • Fed Speech: Governor Michelle Bowman – 11:15 AM – Federal Reserve Governor Michelle Bowman will deliver remarks at the 2019 American Bankers Association Conference for Community Bankers. Details here.

Tues. (2/12)

  • Hearing: House Appropriations Sub. on GSA – 10:00 AM – The House Appropriations Subcommittee on Financial Services and General Government (FSGG) will hold a hearing entitled "Addressing Administrative and Management Challenges in GSA's Public Buildings Service." Details here.
  • BPC Event on Capital Markets – 10:00 AM The Bipartisan Policy Center (BPC) will host an event that looks at the year ahead in capital markets. Details here.
  • Hearing: House Financial Services Committee on Economic Sanctions – 10:00 AM – The House Financial Services Committee will hold a hearing entitled "The Use of Sanctions and Economic Statecraft in Addressing U.S. National Security and Foreign Policy Challenges." Details here.  (Postponed until further notice)
  • Hearing: House Small Business Sub. on SBA Capital Access Programs – 10:00 AM – The House Small Business Subcommittee on Investigations, Oversight, and Regulations will hold a hearing entitled "Shutdown Lessons: SBA Capital Access Programs." Details here.
  • Fed Speech: Chairman Jerome Powell – 12:45 PM – Federal Reserve Chairman Jerome Powell will deliver remarks the Hope Enterprise Corporation Rural Policy Forum. Details here.

Wed. (2/13)

  • Hearing: House Energy and Commerce Sub. on the T-Mobile/Sprint Merger – 10:00 AM – The House Energy and Commerce Subcommittee on Communications and Technology will hold a hearing entitled "Protecting Consumers and Competition: An Examination of the T-Mobile and Spring Merger." Details here.
  • Hearing: House Financial Services Committee on Homelessness – 10:00 AM – The House Financial Services Committee will hold a hearing entitled "Homelessness in America: Examining the Crisis and Solutions to End Homelessness." Details here.
  • Hearing: Senate Commerce Committee on Infrastructure – 10:15 AM – The Senate Committee on Commerce, Science, and Transportation will hold a hearing entitled "America's Infrastructure Needs: Keeping Pace With a Growing Economy. Details here.
  • Hearing: House Education and Labor Joint Sub. Hearing on H.R. 7 – 10:15 AM – The House Education and Labor Subcommittees on Workforce Protections and Civil Rights and Human Services will hold a hearing on the Paycheck Fairness Act. Details here.
  • Hearing: House Small Business Committee on Priorities for the 116th Congress– 11:00 AM – The House Committee on Small Business will hold a hearing entitled "Small Business Priorities for the 116th Congress." Details here.
  • Hearing: House Financial Services Sub. on Pot Banking – 2:00 PM – The House Financial Services Subcommittee on Consumer Protection and Financial Institutes will hold a hearing entitled "Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses." Details here.

Thurs. (2/14)

  • Nomination Hearing: Senate Banking Committee – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a nomination hearing to consider four nominees, including Mark Calabria to be director of the Federal Housing Finance Agency. Details here.
  • Hearing: House Financial Services Sub. on Affordable Housing – 10:00 AM – The House Financial Services Subcommittee on Housing, Community Development, and Insurance will hold a hearing entitled "The Affordable Housing Crisis in Rural America: Assessing the Federal Response." Details here.
  • Hearing: House Judiciary Sub. on the T-Mobile/Sprint Merger – 10:00 AM – The House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law will hold a hearing entitled "The State of Competition in the Wireless Market: Examining the Impact of the Proposed Merger of T-Mobile and Spring on Consumers, Workers, and the Internet. Details here.

Fri. (2/15)

  • No events scheduled.