Financial Services Report

March 7, 2016

Looking Ahead

Near Term

  • On Monday, President Obama will meet with the heads of the various financial regulatory bodies.  While this is the fourth meeting of these principles in the White House during the President’s two terms, and no new policy announcements are anticipated, the timing, so close to the roll out of the fiduciary rule, is quite interesting.
  • The appropriations committee is hard at work trying to get the work down to accommodate Senate Leader McConnell’s plan to “dedicate three months” on spending bills this year.  This schedule would likely translate to a good portion of June, July and September but almost all conventional wisdom points to an end of the year omnibus or a long term continuing resolution being necessary to resolve final spending numbers.
  • The House is in recess this week. 

Further Out

  • Department of Labor Secretary Tom Perez, a potential VP candidate, is expected to be back before the House Education in Workforce Committee when the House returns from its recess.

The Past Week

Legislative Branch

Speaker Ryan: House to Fight Finalized Fiduciary Rule
On Thursday, Speaker Paul Ryan (R-WI) reiterated his commitment to fighting the Department of Labor’s (DOL) impending fiduciary rule for retirement investment advisers.  The rule, which is currently at the Office of Management and Budget (OMB) is expected to be released in a timeframe that is longer than days but shorter than months.  The House has already passed a series of bills trying to delay the rule or provide an alternative, with Ryan insisting last week that the chamber will “do what we can to protect the savings of hard-working Americans.”
House Financial Services Advances Ten Bills
On Wednesday, the House Financial Services Committee passed a series of ten bills related to flood insurance, startup businesses, and financial regulation for small banks. One bill, H.R. 2896, would require financial regulators to consider risk profiles and business models when creating regulations, a recent point of emphasis for the committee’s majority members. A full list of the measures that were approved can be found here.
Terrorism Financing Task Force Hearing on the Developing World
On Tuesday, the House Financial Services Task Force to Investigate Terrorism Financing held a hearing entitled, “Helping the Developing World Fight Terror Finance” to address the issue of countries who do not have the means or technical knowledge to combat terror financing. Witnesses included Ambassador Robert Kimmitt, Clay Lowery, James Adams of the World Bank, and William Wechsler. Members of the Task Force identified the lack of consistency among various national and international agencies involved in fighting terrorist financing as an area of concern.  
House Small Business Hearing on Research Funding Programs  
The House Small Business Committee held a hearing entitled “Commercializing on Innovation: Reauthorizing the Small Business Innovation Research (SBIR) and Small Business Technology Transfer Programs (STTR)” on Wednesday. Witnesses included John Williams of the Small Business Administration (SBA), Barry Johnson of the National Science Foundation, Matthew Portnoy, and Robert Smith of the Office of Naval Research. The SBIR and STTR programs are set to expire next year, with the committee hoping to provide early reauthorization to eliminate uncertainty for entrepreneurs.   
House Municipal Finance Caucus Formed
On Tuesday, Congressman Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD) announced that they had formed the Municipal Finance Caucus.  The purposes of this caucus is to allow similarly supportive Congressman and Congresswoman to organize as part of an informal group designed to protect the tax-exempt status of municipal securities. 
Senate Banking Subcommittee Holds Hearing on Equity Market Structure
On Thursday, the Senate Banking Subcommittee on Securities, Insurance, and Investment held a hearing entitled “Regulatory Reforms to Improve Equity Market Structure,” featuring the testimony of officials from the Securities and Exchange Commission (SEC) as well as the Financial Industry Regulatory Authority (FINRA). At the hearing, Stephen Luparello, the director of the SEC's Division of Trading and Markets, said that Chair Mary Jo White wants to have a plan for launching the Consolidated Audit Trail (“CAT”) in place by the end of 2016, which would require the proposal to be released for public comment "in the coming few weeks."
Senate Finance Committee Discusses Multiemployer Pensions
On Tuesday, the Senate Finance Committee held a hearing entitled “The Multiemployer Pension Plan System: Recent Reforms and Current Challenges.” The examination of the multiemployer pension plan system included testimony from witnesses representing think tanks and prominent unions, including the United Mine Workers of America. At the hearing, Chairman Orrin Hatch (R-UT) said he would continue to work on legislation geared towards providing relief for mine workers’ pensions.
Senate Finance Committee Hearing on Free Trade Deal Implementation
On Thursday, the Senate Finance Committee held a hearing on the Trans-Pacific Partnership and lessons from the implementation of past trade deals. The hearing included witnesses from various interests affected by such trade deals, including the dairy industry, environmental protection groups, and telecommunications. Chairman Orrin Hatch (R-UT) cited letters sent earlier in the week to the ambassadors of South Korea and Colombia on implementation and compliance issues in free trade agreements with those respective countries.
Senate Dems Pressure Dept. of Education on Military Student Borrowers
On Thursday, leading Democrat Senators Patty Murray (D-WA), Elizabeth Warren (D-MA), Richard Blumenthal (D-CT), and Dick Durbin (D-IL) wrote a letter to Education Secretary John King demanding information on members of the military allegedly being overcharged for their student loans. The letter comes after an inspector’s general earlier this week blamed the Education Department for failing to protect military student borrowers, with the group of senators demanding the agency provide additional oversight of loans being handled by third-party servicers.
Heller Urges for More Coordination Between Agencies For Cybersecurity Examinations
On Friday, Senator Dean Heller (R-NV) sent a letter to Treasury Secretary Jack Lew and Fed Governor Tarullo in their capacity as the Chairmen of the Financial Stability Oversight Council (FSOC) and Federal Financial Institutions Examination Council (FFIEC) respectively urging their regulatory councils to better coordinate their agency examinations with regards to establishing consistent cybersecurity examination practices. 

Select Highlights from the Administration

FSOC Holds Meeting – MetLife Still SIFI
On Wednesday the Financial Stability Oversight Council (FSOC) met for its monthly meeting.  According to the read out among the items the Council examined included a discussion of whether to rescind the SIFI designation of MetLife, which the FSOC chose not to do, as well as a continued discussion about the potential risks to the country’s stability from the asset management industry.
Federal Reserve
Fed Proposes “Major Counterparty Rule”
On Friday, the Federal Reserve Board released a long anticipated rule that would set new limits on how much financial exposure the biggest U.S. banks can have to one another.  This is the Fed’s second effort on crafting a rule, which proponents argue is necessary to enhance the country’s financial stability.  This proposal would apply to bank holding companies with total consolidated assets of $50 billion or more, and according to the Fed’s press release accompanying the rule, are tailored to increase in stringency as the systemic footprint of a firm increases.
Consumer Financial Protection Bureau (CFPB)
CFPB Monthly Snapshot Released
On Tuesday, the CFPB released its latest monthly snap shot of consumer complaints.  Like previous reports, this one included a particular focus on one area with this month’s being prepaid cards.  It also focused on a particular region of the country, which in this case was the Houston metro area.   Interestingly, this report noted that the number of complaints on credit reporting, student loans and payday loan products were all down on a year over year basis.  In addition, the Bureau’s report noted that for residents of six states (UT, WI, TX, VT, SD, and HI) along with the District of Columbia all had a decrease – from 5% to 15% – in the number of complaints.  
CFPB Fines Online Payments System on Data Security Issues
On Wednesday, the CFPB announced that it was fining online payments company Dwolla for $100,000 as well as requiring the company to bring its data security practices in line with what the company had claimed them to be.  According to the CFPB’s press release, at issue was that the company had deceived its customers by claiming to utilize place data security practices far in excess of what was actually in place.  This was one of the first CFPB enforcement actions against an online lend. 

White House
CFTC Nominations Announced
On Thursday, the he White House announced its plans to nominate Chris Brummer, a law professor at Georgetown University and Brian Quintenz, an investment firm founder who previously worked for former Ohio Republican Congresswoman Deborah Pryce.  The announcement came two days after Senate Banking Committee Chairman Richard Shelby survived his primary challenge and indicated that he would now turn his attention to trying to move the nominations.  While it is unclear at what pace the Banking committee and the full Senate will consider these, and other regulatory appointments, once Brummer and Quintenz are eventually confirmed by the U.S. Senate, it will finally allow the CFTC to fill its two vacant seats on the five-member panel.
Next Week’s Schedule
Tues. (3/8)

  • Hearing: Senate Appropriations Subcommittee on Treasury Budget – 10:00 AM – The Senate Appropriations Financial Services and General Government Subcommittee will hold a hearing on the FY 2017 budget request for the Treasury Department. Details here.
  • Hearing: Senate Appropriations Subcommittee on GAO and CBO Budget 3:00 PM – The Senate Appropriations Legislative Branch Subcommittee will hold a hearing on the FY 2017 budget request for the Government Accountability Office (GAO) and the Congressional Budget Office (CBO). Details here.