Financial Services Report

July 21, 2016

Looking Ahead

Near Term

  • The Republican National Convention starts today and runs through Thursday.
  • The Democratic National Convention starts one week from today and runs through Thursday, July 28th

Further Out

  • Congress returns from its recess on September 6th.
  • Funding for the Federal Government expires on September 30th.
  • Presidential election will be on November 8th

The Past Week

Legislative Branch

Waters Joins Hensarling in Criticizing DOJ over Deferred Prosecution of HSBC
On Friday, Financial Services Chairwoman Maxine Waters sent a letter to Attorney General Loretta Lynch, voicing her concerns about reports of a decision to defer prosecution of HSBC.  Waters letter marks one of the rare occurrences of high level criticism of the Administration, as it follows on a report released by Chairman Hensarling on Monday outlining his concerns that the DOJ decision – made under then AG Eric Holder – reinforced the concept of too big to jail.
McHenry Introduces Pair of Bills on Online Lending
On Tuesday, Rep. Patrick McHenry introduced a pair of bills geared towards online lenders. The first (H.R. 5724) would reemphasize the supremacy of federal law over state usury laws on loans that are resold to a third party – a move deemed necessary by the Madden v. Midland Funding ruling that held a debt collector’s interest rate violated New York state’s usury caps. The second bill (H.R. 5725) would require the Internal Revenue Service to create an application programming interface (API) for online lenders and others to verify income.
House Committee Holds First Hearing on Financial CHOICE; Banking Group Urges Changes
On Tuesday, the House Financial Services Committee held its first hearing deliberating on Chairman Jeb Hensarling’s (R-TX) Dodd-Frank replacement plan known as the Financial CHOICE Act. The hearing focused on bank regulation, with a trade group representing the nation’s largest banks suggesting that lawmakers alter the plan’s required 10 percent capital requirement. Despite criticism of the reliance on a simple leverage ratio, Republicans have sought to alter risk-based regulation and reduce the burden on community banks.
House Members, Chamber of Commerce Criticize EU Decision to Delay Collateral Requirements
On Thursday, House Agriculture Committee members, Reps. Michael Conaway (R-TX) and Collin Peterson (D-MN), wrote a letter to Federal Reserve Chair Janet Yellen and other regulators criticizing the European Union’s decision to delay implementation of a global derivatives rule until 2017. The letter, along with a separate letter from the U.S. Chamber of Commerce, insists that U.S. regulators must renegotiate a deal with the EU to ensure that American businesses are on the same timetable as their European counterparts. Worldwide implantation of the collateral requirements for swaps positions must be the same, the letters argue, or American businesses will suffer from additional uncertainty and be less competitive than their European counterparts.
FDIC’s Gruenberg Tells Oversight Panel FDIC Can Improve Bank Applications
On Wednesday, the House Oversight and Government Reform Committee questioned Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg on the agency’s practices regarding the application process for startup banks. Gruenberg pledged improvements, and argued that a prolonged period of interest rates was likely the leading cause for a drop in applications. He also asserted that he expects charters to pick up as the economy approves, citing “indications of increased interest” from potential applicants. Specific steps that he pledged on taking include holding regional meetings, reducing the amount of time that new banks will face tougher monitoring and preparing a guidebook on the application process for publication later this year.
House Advances Bill to Promote Small Stock Exchanges
On Tuesday, the House advanced a bill (H.R. 5421) by voice vote designed to help small stock exchanges by extending a regulatory exemption on state-by-state registration. House Financial Services Ranking Member Maxine Waters (D-CA) led Democrats in approving the bill after negotiating a series of tweaks that would allow the Securities and Exchange Commission (SEC) to establish exchange listing standards.
House Panel Criticizes Gruenberg over FDIC Hacks
On Thursday, the House Science, Technology, and Space Oversight subcommittee grilled Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg on the alleged cover-up of a series of computer hacks that have hit the agency. Chairman Gruenberg assured the panel that the agency was taking steps to prevent future incidents, and the FDIC’s Inspector General Fred Gibson said the agency had been complaint in providing information on cybersecurity practices. The hacks, which were thought to have originated in China, targeted information on the “living wills” required of banks by the Dodd-Frank financial reform law.
Democrats Write to SEC on IPO Spreads
On Friday, Congressman Jim Himes, along with eight of his colleagues sent a letter to SEC Chair White and FINRA Chairman Ketchum questioning the gross spreads paid by young companies to financial institutions for underwriting IPOs. In the letter, the signatories, who also included, Carolyn Maloney, Nydia Velazquez, Gregory W. Meek, Stephen Lynch, David Scott, Emmanuel Cleaver, Keith Ellison and John Carney, questioned the regulators as to the cost of IPO fees for American companies were double that of their European counterparts. 
Senate Clears, Obama Expected to Sign Bipartisan Housing Bill
On Thursday, Senate lawmakers approved a bill (H.R. 3700) that would boost inspections of low-income housing and lower requirements of condominiums to be recertified for Federal Housing Administration (FHA) insurance. The bill, which would also allow the Department of Agriculture to delegate loan approval for the single-family housing guaranteed loan program to preferred lenders, was passed unanimously by the House in February and is expected to be signed by President Obama in the near future.
Warren, Sanders Lead Dems in Letter to SEC on Publishing Private-Equity Fee Findings
On Thursday, Sens. Elizabeth Warren (D-MA) and Bernie Sanders (D-VT) led a group of eight Democratic senators in writing to the Securities and Exchanges Commission (SEC) on disclosing private equity investments to the public. The letter urges SEC Chair Mary Jo White to produce a bulletin that “consolidates findings and warnings with respect to private equity investments,” in a similar fashion to the SEC’s existing investor bulletin on hedge funds.
In Senate Panel Hearing, Venture Capitalists Urge Increased Access to Capital
On Thursday, the Senate Committee on Small Business heard from venture capitalists on the need for increased access to capital markets for start-up companies. The panelists urged Congress to take steps in order to re-energize small initial public offerings (IPOs), noting that $25 million IPOs should be used to augment the $100 million or more offerings that currently dominate the market.  
Warner, Heller Introduce Bill to Encourage Stock Options for Employees of Startups
On Tuesday, the bipartisan pair of Sens. Mark Warner (D-VA) and Dean Heller (R-NV) introduced a bill (S. 3152) that would encourage startup businesses to award stock options to their employees. Specifically, the bill would give employees – excluding majority owners and executives – flexibility in handling the tax obligations of stock options for up to seven years. In order to qualify for the benefit, companies must offer stock options to at least 80 percent of their workforce.
Select Highlights from the Administration
Consumer Financial Protection Bureau (CFPB)
CFPB Fines Santander for Its Overdraft Practices
Last week, the CFPB announced that it was fining the U.S. subsidiary of Banco Santander $10 million to settle allegations that one of the bank’s vendors engaged in deceptive marketing and signed up customers for an overdraft service without their consent.  According the CFPB’s release the bank was found to be in violation of the “opt-in rule,” and so going forward the bank will need to receive the affirmative consent of its customers if they want to partake in the bank’s overdraft service.  In addition, the under the consent order the bank is prohibited from using outside parties to market its overdraft service.
Office of the Comptroller of the Currency
OCC Report Warns Banks on Bank Secrecy Act and Money Laundering Compliance
On Monday, the Office of the Comptroller of the Currency (OCC) released its semiannual report on risk, warning U.S. banks of the need to update compliance with the Bank Secrecy Act (BSA) and anti-money laundering laws given advancements in technology. The report, which also noted the effects of low prices on bank loan portfolios, asserted that technological developments in delivery platforms could create new vulnerabilities to criminal activity in addition to existing risks.
Securities and Exchange Commission (SEC)
SEC Investor Advisory Committee Picks Up 3 New Members, Reappoints 5
On Tuesday, the Securities and Exchange Commission (SEC) Investor Advisory Committee named three new members: former SEC Chair Elisse Walter, Harvard Law School Professor John Coates, and American Association of Retired Persons (AARP) Executive Vice President Nancy LeaMond. Reappointed members are Stephen Holmes, Barbara Roper, Kurt Schacht, Anne Sheehan and Damon Silvers.
Next Week’s Schedule
The House and Senate are in Recess until September 6th.