Financial Services Report

December 14, 2016

Our Take
As the 114th Congress winds to a close, the attention of the pundits and prognosticators drift toward next year and the start of a new Congress and the transition to a new Administration.   Although the conventional wisdom was a bit “off” for 2016, it hopes to rebound in 2017, as many believe that the will be a break in the legislative log jam that has plagued this city, and our country, for the last decade.  While the genesis and continuation of that gridlock will undoubtedly keep numerous political scientists and poli sci professors employed for years to come, one contributing factor has been the belief that by holding out for the next election only serves to improve one’s position for making a deal today (sort of the opposite of Wimpy’s policy on hamburger payments).

While the continued belief that those future results would strengthen that particular party’s leverage (and both are guilty of this) the results of the 2016 election surprise means that instead of holding out for 2018 or 2020, Republicans now see that the opportunity to legislate has arrived.   With so many years of pent up frustration, combined with a cadre of various and disparate interests eager to undue the “shackles of regulation” created or imposed during the Obama administration, there is a real risk that all of these priorities trying to get through the door will create another bottleneck as the House and Senate attempt to deal with the politics of appeasing so many varied but influential interests. 
As companies look to make sure that they are able to take advantage of this moment in history to ensure their priorities are being considered, we are pleased you look to Thorn Run to help you achieve your goals.  
Looking Ahead

Near Term

  • House and Senate are in Recess until January 3rd.

Further Out

  • The 115th Congress will be sworn into session on January 3rd.
  • The 45th President of the United States will be inaugurated on January 20th.
  • The United States Debt Ceiling expires on March 16, 2017.
  • Funding for the Federal Government expires on April 28th.

The Past Week

Presidential Transition
Trump Nominates Puzder for Labor; Cohn to Head Economic Panel

On Thursday, President-elect Donald Trump tapped fast-food executive Andrew Puzder as his nominee to be Labor Secretary in the upcoming administration. Puzder has been an outspoken critic of the current administration and has strongly opposed the Labor Department’s overtime pay rule. In another significant appointment, Trump picked Goldman Sachs executive Gary Cohn to lead the National Economic Council within the White House. Cohn is the third Goldman Sachs alumnus to take a prominent role in the Trump Administration, following Steven Mnuchin at Treasury and Steve Bannon as White House chief strategist.
Legislative Branch
Hensarling to Announce Subcommittee Chairs in January
On Wednesday, House Financial Services Chairman Jeb Hensarling (R-TX) announced that he plans to formally name subcommittee chairmanships in January. Observers are expecting Rep. Blaine Luetkemeyer to move from his current spot chairing the Housing and Insurance panel to the Financial Institutions and Consumer Credit subcommittee, Reps. Bill Huizenga (R-MI) to ascend to helm the Capital Markets subcommittee while Sean Duffy (R-WI) is expected to take over the Housing and Insurance subcommittees.  Other members of the panel seeking to Chair the two outstanding subcommittees include Reps. Dennis Ross (R-FL), Andy Barr (R-KY), and Steve Pearce (R-NM).  
Capital Markets Subcommittee Holds Hearing on Short-Term Financing
On Thursday, Representative Scott Garrett (R-NJ) Chaired his last House Financial Services Capital Markets and Government-Sponsored Enterprises Subcommittee hearing.  The hearing  to consider the impact Dodd-Frank regulations have had on short-term financing in capital markets, particularly regarding money market funds repurchase agreements, and securities financing. The hearing, featuring remarks from the Securities Industry and Financial Markets Association (SIFMA), comes as Republicans build their case against Dodd-Frank ahead of the next Congress.
Financial Services Subcommittee Discusses Monetary Policy
On Wednesday, the House Financial Services Monetary Policy and Trade Subcommittee held a hearing on the Federal Reserve’s “unconventional monetary policy” since the 2008 financial crisis. Republicans have charged that the Fed is “distorting investment decisions and weakening economic performance” by keeping interest rates near their historic lows. The hearing did not feature remarks from anyone from the Fed, but did include the following witnesses:  Mickey Levy, Berenberg Capital; Charles Plosser, Stanford University; John Taylor, Stanford University; and Simon Johnson, MIT. 
House, Senate Pass Spending Bill After Shutdown Threat From Coal State Dems
The House and Senate officially closed out the 114th Congress by passing a continuing resolution (CR) last week that will keep the government funded through April 28. 2017. The stopgap spending bill was passed on a bipartisan vote in the House, 326-96, on Thursday, before a standoff over coal miners’ health benefits nearly forced a brief government shutdown. Late Friday evening, Sen. Joe Manchin (D-WV) dropped his threats to holdup the bill and the measure passed 63-36.  
End of Year Wrap up Fails to Move Nominations
As the Senate concluded its work for the 114th Congress, it also included its traditional flurry of legislation and nominations.  However, despite rumors that a package of nominations – including those of the SEC, and FCC Commissioners – were to be considered, the Senate adjourned without approving any of those positions.   With the Senate expected to be in pro forma sessions every couple of days for the remainder of the year to block any recess appointments, it seems unlikely that any of the pending nominations will move this year.   When the Congress official adjourns sine die moments before the start of the 115th Congress in January, all of these individuals will have to be re-nominated and it is unclear whether the Obama administration will make any announcements in its final three weeks of office.  
SEC Small Business Capital Advocate Bill Passed in End of Year Blitz
Some in the financial services community will be pleased to see that H.R. 3784, legislation to create a Small Business Capital Advocate at the SEC was included in the numerous bills and resolutions that were approved after the Senate passed the CR.   This legislation had been passed the House unanimously back in February, and then again last week as part of a group of bills.  Those other bills, which included legislation that would have changed the definition of accredited investor must start through the legislative process again in January.    
After Initial Reversal, Senate Approves Bipartisan Money Laundering Bill
On Monday, the Senate passed by unanimous consent a bipartisan bill (H.R. 5602) aimed at improving the Treasury Department’s ability to disrupt terrorist financing and money laundering, before quickly reversing the vote. The rare reversal was due to Sens. Joe Manchin (D-WV) and Mark Warner (D-VA) blocking all unanimous consent legislation until the chamber addressed an expiring coal miners’ health benefit plan. The bill was reapproved late Friday night and now goes back to the House, where it may be approved in a pro forma session on Monday.
Incoming Banking Chairman Crapo Looks to Address Housing Finance
On Wednesday, Sen. Mike Crapo (R-ID), the likely Chairman of the Senate Banking Committee in the 115th Congress, gave an interview to Politico outlining his priorities for the committee in the next Congress. Notably, he said that overhauling the housing-finance system was “not at all” too big of a lift and that the committee will dive into housing even though “no specific vehicles have been identified yet.” Sen. Crapo did not signal if he intends to endorse the wide-ranging Dodd-Frank repeal plans put forward by his predecessor Sen. Richard Shelby (R-AL) and House Financial Services Chairman Jeb Hensarling (R-TX).
Schumer Announces Opposition to Changing CFPB Structure
On Wednesday, incoming Senate Minority Leader Chuck Schumer (D-NY) said that he would not cooperate with Republican efforts to make major changes to the Consumer Financial Protection Bureau (CFPB) next year. This includes a rumored standalone bill that would alter the CFPB’s structure to be led by a five-person commission rather than single director. The announcement follows a slew of negative developments for the CFPB, including a letter signed by the nation’s leading bank organizations pushing for Congress to use the Congressional Review Act to reverse the agency’s rules on arbitration, prepaid cards, and debt collection.
Hatch Signals Hearing for Mnuchin in January
On Friday, Senate Finance Committee Chairman Orrin Hatch (R-UT) said that the panel plans to take the nomination of Steven Mnuchin for Treasury secretary in January. Hatch said he was “very much impressed with him,” but some Democrats have already announced their issues with the nominee’s past work at Goldman Sachs.
Dems Push For Labor Hearing on Bank Waivers
On Wednesday, leading Democrats Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) led a letter to Labor Secretary Tom Perez asking for his Department to hold a public hearing on recent proposals to allow five banks to maintain the title of “qualified professional asset manager.” The lawmakers argue that in order to grant waivers to the banks – namely Barclays, Citigroup, JPMorgan, UBS, and Deutsche Bank –  the Labor Department must ensure that the banks’ harmful actions are “held up to public scrutiny.”
Toomey Says GOP Should Use Reconciliation for Dodd-Frank Repeal
On Thursday, Sen. Pat Toomey (R-PA) gave a floor statement saying that the Senate should use the budget reconciliation process – which circumvents the typical 60-vote threshold necessary for most legislation in the upper chamber – to overhaul the Dodd-Frank financial reform law if Democrats choose to block it. He said he hoped for the support of Democrats, but if not, he believes that Republicans should “use all tools available to get this job done.”
Select Highlights from the Administration
The White House
VP Biden Warns Against Repeal of Dodd-Frank
On Monday, outgoing Vice-President Joe Biden made the case for the Dodd-Frank financial reform law in remarks for an event at Georgetown University. Specifically, Biden touted the benefits of a robust Consumer Financial Protection Bureau (CFPB), increased capital requirements for banks, and the role of the Financial Stability Oversight Council (FSOC). He also called the 1999 repeal of the Glass-Steagall Act – a law designed to separate commercial and investment banking – the “worst vote in my time in the Senate.” President-elect Trump and Republicans in Congress have said that repealing large parts of Dodd-Frank will be near the top of their agenda next year.  
Commodity Futures Trading Commission (CFTC)
CFTC Announces Delay on Position Limits Rule
On Monday, the CFTC voted unanimously to re-propose its pending rule on “position limits” that would cap speculation in energy markets, opting for a scaled-back version that will leave the ultimate decision up to the Trump Administration. In a statement to reporters on the decision, CFTC Chairman Timothy Massad said he did not want to “finalize a rule that next year the commission would choose not to defend or implement.” The re-proposal will now be open for a 60-day comment period and strikes a blow to Democrats hoping to push through the long-negotiated rule before the President-elect Trump takes office in January.
Consumer Financial Protection Bureau (CFPB)
CFPB Fines Reverse Mortgage Companies for Deceptive Advertising
On Wednesday, the CFPB fined three reverse mortgage companies – American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial – over “deceptive advertising practices” that convinced consumers they could not lose their homes with a reverse mortgage. In a statement, CFPB Director Richard Cordray said that the companies did not abide by federal advertising disclosure requirements in their promotional materials. The fines ranged from $65,000 to $400,000.
Federal Reserve
Fed Report Highlights Blockchain Opportunities, Cost Issues
On Monday, the Fed released a research paper finding that a shared distributed ledger, notably including blockchain technology, could offer improvements on cross-border payments, settling trade disputes, and market transparency. The Fed paper postulates that the simpler clearing process offered by blockchain could reduce costs for cross-border payments and allow for smaller banks to compete against bigger firms in the area. However, the paper also found that there are legal complications to relying on digital tokens and warns against the possibility of distributed ledger technology supplanting the function of traditional financial institutions.
Justice Department
DOJ Asks Court to Deny Request to Delay Fiduciary Rule
On Tuesday, the Justice Department asked the D.C. appeals court to reject a request made by the National Association of Fixed Annuities to enjoin the controversial fiduciary rule as the court case attempting to stop the rule makes its way through the legal process. The rule, which requires financial advisors to act in their client’s best interest when providing retirement advice, has drawn considerable criticism from the investment industry, who argue the rule is too costly to implement. Justice Department officials argue that the request to delay the rule should be rejected because the industry’s arguments of irreparable harm are unlikely to succeed in court.
Next Week’s Schedule
The House and Senate are in Recess