Financial Services Report

Our Take

When the House returns today, and the Senate a day later, from their 4^th of July breaks it is unlikely that the time spent extolling the virtues of our country, wrapping themselves in patriotism or recalling the words of the Declaration of Independence will have any effect on the partisan gridlock that has continued to grip Congress in a vice lock this year.   With only two weeks of session before an elongated summer recess that will include each party’s respective Presidential convention we should continue to expect rhetorical fireworks for the remainder of their time in DC.  

Looking Ahead

Near Term

• The House reconvenes on Tuesday after its last floor session ended abruptly due to Democrats’ dramatic sit-in on the chamber floor to force a vote on gun control proposals. House lawmakers will resume consideration of the fiscal 2017 Financial Services and General Government Appropriations bill.  There are 70 amendments to the bill that were made in order as part of the rule so there could be some late nights on the floor this week.
• The Senate returns on Wednesday and is expected to take up legislation that would create the first nationwide standard for foods containing genetically modified organisms (GMOs).

Further Out

• The week of July 11^th is going to be a busy on in the House Financial Services Committee, with hearings on Chairman Hensarling’s Dodd-Frank Alternative, marketplace lending, as well as a mark-up of a series of yet to be determined bills.
• The Senate Banking Committee is expected to hold a hearing on the Financial Risks of China on July 14^th.
• Republican Convention begins on July 18^th
• Democratic Convention starts on July 25th

The Past Week

Legislative Branch
House
The House was in Recess Last week
 
Senate
Puerto Rico Debt Bill Passes Ahead of July 1 Deadline
Late Wednesday evening, the Senate passed a bill addressing Puerto Rico’s $72 billion debt crisis by a vote of 68-30. The bill, which was signed by President Obama quickly after passing the upper chamber, will create a financial control board to oversee the island territory’s fiscal affairs and the restructuring of its debt. While Senate leaders successfully shepherded the bill through the chamber ahead of a July 1 deadline for Puerto Rico’s next debt payment, the government still defaulted on its constitutionally guaranteed debt on Friday and the island could run out of money as early as August.
 
Warren, Warner Roll Out New Derivatives Regulation Bill
On Wednesday, Senate Democrats Elizabeth Warren (D-MA) and Mark Warner (D-VA) introduced a bill that would revamp the regulation of derivatives through the Commodity Futures Trading Commission (CFTC). Specifically, the bill would authorize the CFTC to collect user fees from financial firms to cover its budget, similar to other regulatory agencies such as the Securities Exchange Commission (SEC) and Food and Drug Administration (FDA). While the CFTC is considered underfunded given its new responsibilities under the Dodd-Frank financial reform law, the Warren/Warner bill is unlikely to receive any attention in a Republican-controlled Congress that is determined to roll back Dodd-Frank.
 
Senate Dems Push Shelby on Ex-Im Nominees
On Thursday, Sens. Heidi Heitkamp (D-ND) and Maria Cantwell (D-WA) led nearly the entire Senate Democratic caucus in writing a letter to Senate Banking Committee Chairman Richard Shelby (R-AL) urging the Committee to hold a vote on a nominee to the Board of Directors for the Export-Import Bank. The Board is currently missing three members, meaning that it cannot reach quorum, which is needed to approve some of the bank’s bigger loans. The senators were joined earlier this week by the National Association of Manufacturers and the U.S. Chamber of Commerce in pushing the Committee to confirm a nominee.
 
Select Highlights from the Administration
Treasury
FSOC Removes SIFI Designation for GE Capital
On Wednesday, the Treasury Department announced that the Financial Stability Oversight Council (FSOC) had approved a request from GE Capital Global Holdings to be removed from the Council’s list of systemically important financial institutions (SIFIs). In a unanimous decision, FSOC decided that distress at GE Capital would no longer cause a threat to U.S. financial stability. The news is a boon to supporters of FSOC and the Dodd-Frank financial reform law, as critics had charged that there was no “off-ramp” for SIFI-designated companies – though if the GE de-designation process is to serve as a precedent then it would appear that SIFI companies will have to divest of all financial services products in order to head towards the off-ramp.
 
Federal Reserve
Vast Majority of U.S. Banks Pass Fed Stress Test
On Wednesday, the Federal Reserve released the results of its latest Comprehensive Capital Analysis and Review (CCAR) stress tests on major U.S. banks. Of the thirty-three institutions tested, only two – the American subsidiaries of Deutsche Bank and Santander – failed the Fed’s exam. Passing grades for the other institutions will allow those banks to pay dividends and buy back stock from shareholders. The annual tests are designed to simulate how major financial institutions would handle significant turmoil in the global economy.
 
Consumer Financial Protection Bureau (CFPB)
CFPB Proposes Amendment Gramm-Leach-Bliley Rule on Privacy Notices
On Friday, the CFPB released a proposed amendment to a rule implementing the requirements of the Gramm-Leach-Bliley Act (GBLA). The recently enacted legislation requires financial institutions to send annual privacy notices to their customers, detailing how the firms use nonpublic personal information. The proposed amendment would allow certain financial institutions to be exempt from sending the notices if they meet certain conditions, such as if the institution has not changed its privacy notice from one previously issued to the customer.  
 
CFPB Touts $24.5 Million in Restitution in 2016
On Thursday, the CFPB announced that its supervisory actions in the first four months of the year resulted in $24.5 million in restitution for over 257,000 consumers. The report highlights the agency’s enforcement decisions in auto finance, debt collection, and small-dollar lending, among other areas.
 
Bancorpsouth Reaches $10.6 Million Settlement with CFPB, DOJ
On Wednesday, BancorpSouth Bank agreed to pay $10.6 million in response to joint action from the CFPB and Department of Justice (DOJ) alleging discriminatory mortgage lending practices. The regulators’ complaint alleges that the bank engaged in numerous discriminatory practices, including charging African-American customers higher interest rates than for white consumers. As part of the settlement, BancorpSouth will pay $4 million in direct loan subsidies in minority neighborhoods in Memphis, at least $800,000 for community programs, advertising, outreach, and credit repair, $2.78 million to African-American consumers who were unlawfully denied or overcharged for loans, and a $3 million penalty.
 
Securities and Exchange Commission
Investor Advocate Releases Goals for FY17
On Thursday, SEC Investor Advocate Rick Fleming released his annual report, outlining the office’s objectives for the next year.  Among the items included, were an increased focus on how brokers and RIAs disclose fees to clients.  
 

Next Week’s Schedule
 

Thurs. (7/7)
Hearing: House Financial Services Subcommittee on Aircraft Sales to Iran – 10:00 AM – The House Financial Services Subcommittee on Monetary Policy and Trade will hold a hearing entitled, “The Implications of U.S. Aircraft Sales to Iran.” Details here