Financial Services Report

April 5, 2017

Our Take

If you believe that America’s greatness was built on the concept of incremental policy movements built on compromises – then you are likely troubled that as of late it seems like both sides of the political spectrum consistently retreat to their respective wings and therefore seem to perpetually advocate binary choices (i.e., you’re either with us or against us) that result in policy that flip flops with whoever is in power. We have said before that President Trump is the wrong answer to the right question and after the failure of the Health Care legislation it appears that he may be trying to be the disruptor that he campaigned as – however, much to the concern of establishment Republicans that might require the President to work with Democrats. With the funding of the government quickly running out – conveniently set to expire on the President’s symbolic 100th day in office – he is being presented an opportunity to show his willingness to compromise and put a ribbon his first legislative victory. Let’s see if he takes it.

Looking Ahead

Near Term

  • Much of Washington will be focused on the Senate floor this week, as the Gorsuch nomination for the Supreme Court and Leader McConnell’s promise that he will be confirmed by Friday will be at the forefront.   The underlying question is whether one of the last vestiges of the filibuster for nominations is annihilated through the utilization of the nuclear option. 
  • There will be two financial services bills on the House Floor this week.  The first (H.R. 1343) would double the threshold at which companies are required by the Securities and Exchange Commission (SEC) to disclose their employee stock options. Another measure (H.R. 1219) is designed to bolster business investment by allowing up to 250 people invest in a venture capital fund before the fund would have to register with the SEC. Both measures were passed out of committee with significant Democratic support.
  • The House Financial Services Committee has a jammed schedule, with multiple hearings this week, including one where the full Committee will hear from CFPB Director Cordray.
  • The Senate Banking Committee is expected to vote on Wall Street lawyer Jay Clayton’s nomination to the Securities and Exchange Commission on Tuesday. Democrats are largely opposed to the nomination over his past ties to large financial firms and inexperience in corporate prosecutions.
  • The smell of jet fuel and a two-week recess will weigh heavily on all voting members of the Congress (and their staffs)

Further Out

  • Two weeks of Recess
  • Congress returns and immediately needs to address the funding of the government.  Without any action, the government is set to shut down on April 28th – Day 100 of the Trump Presidency. 

The Past Week

Legislative Branch
House Financial Services Subcommittee Questions FSOC Designation Process, Accountability
On Tuesday, the House Financial Services Subcommittee on Oversight and Investigations held a hearing focusing on the Financial Stability Oversight Council (FSOC) entitled, “The Arbitrary and Inconsistent Non-Bank SIFI Designation Process.” The hearing was particularly partisan, but was notable for the new Republican members of the Committee joining the chorus calling for reform to the process for FSOC to designate nonbanks as systemically important financial institutions (SIFIs).
Financial Services Capital Markets Panel Examines Volcker Rule
On Wednesday, the House Financial Services Subcommittee on Capital Markets, Securities, and Investment held a hearing entitled, “Examining the Impact of the Volcker Rule on the Markets, Businesses, Investors, and Job Creators.” The hearing featured panelists from the Investment Company Institute, U.S. Chamber of Commerce, and Securities and Financial Markets Association.  Not surprisingly, and from their respective opening statements Republicans and their witnesses launched an attack on the Volcker Rule, while Ranking Member Carolyn Maloney (D-NY) and the rest of the Democrats on the committee defended the provision as a critical component of Dodd-Frank that removed unnecessary risk from the Financial Services markets. 
Financial Institutions Subcommittee Holds Hearing on State of Bank Lending
On Tuesday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled, “The State of Bank Lending in America.” Panelists included presidents of community banks, as well as representatives from the National Federation of Independent Businesses and Mortgage Bankers Association.   Chairman Luetkemeyer used the hearing as a forum to highlight many of the problems that small and mid-sized banks are having.   He also noted that the Subcommittee would discuss the Community Reinvestment Act (CRA), the Bank Secrecy Act (BSA), and appraisals in future hearings.
Yoder, Johnson Ask Treasury for Investigation of MoneyGram Deal
On Friday, the bipartisan pair of Reps. Kevin Yoder (R-KS) and Eddie Bernice Johnson (D-TX) wrote to Treasury Secretary Steven Mnuchin arguing that the Committee on Foreign investment in the United States (CFIUS) should conduct an investigation into the proposed deal between MoneyGram and Ant Financial. Ant Financial is partially owned by Chinese institutions, and the lawmakers that deal with an American money transfer agent would give those institutions access to American financial infrastructure.
Senate Banking Holds Hearing on Financial Companies Role in Promoting Economic Growth
On Tuesday, the Senate Banking Committee held a hearing entitled, “Fostering Economic Growth: The Role of Financial Companies,” featuring the testimony of former regulators from the Federal Reserve and Federal Deposit Insurance Corporation. Chairman Mike Crapo (R-ID) touched on the decline of certain parts of the industry, such as small-dollar credit, which he noted the CFPB has disclosed would be negatively impacted by the Bureau’s forthcoming small dollar lending rule.   Ranking Member Sen. Sherrod Brown (D-OH) used the hearing as an opportunity to indicate that he is willing to work with the Chairman on targeted reforms, but argued against broad rollbacks fo the Dodd-Frank Act.   He also argued that financial services companies needed to focus on providing workers a living wage and decent benefits. During the hearing Senators from both parties talked about how small banks needed to be protected from overly burdensome Dodd-Frank regulations, though neither could reach consensus on what constituted a “small” lending institution.
Ahead of Vote This Week, McCain Hoping for Deal to Avoid Nuclear Option
With the debate over Neil Gorsuch’s confirmation to the Supreme Court expected to come to a head this week, Sen. John McCain (R-AZ) last week said he is trying to craft a deal that would garner the support of enough Democrats in order to avoid a blockade and save the filibuster for future Supreme Court nominations. McCain said that while he will continue to have conversations, he is “not optimistic” about a deal. As of Friday afternoon, 39 Democrats had committed to blocking Gorsuch, with only one more needed for a successful filibuster.  
Brown, Reed Say CFPB Needed to Protect Military Families
On Monday, the Ranking Members of the Senate Banking and Armed Services Committees, Sherrod Brown (D-OH) and Jack Reed (D-RI) respectively, wrote a letter and released a video directed towards their Senate colleagues urging them to support the Consumer Financial Protection Bureau (CFPB) based on the agency’s work on behalf of members of the Armed Services and their families. The letter cites 70,000 complaints submitted by servicemembers to the consumer watchdog on credit reporting and debt collection, among other issues. Citing critics of the CFPB, the senators argued that Members of Congress should continue to support “an independent and strong CFPB.”
Crapo Sets Early 2018 Date for Housing Finance Reform, Economic Growth Legislation
In a speech to the Chamber of Commerce, Senate Banking Committee Chairman Mike Crapo (R-ID) said that two of the Committee’s top legislative priorities, housing finance reform and economic growth, could be considered soon after an anticipated tax reform package. The timeline would have those two issues addressed “either later this year or early next year.” Additionally, the Chairman said that an economic growth package would be broader than making reforms to the 2010 Dodd-Frank financial regulation overhaul.  
Senate Banking GOP Senators Urge Mnuchin to Limit FSOC on Nonbank Designation
On Tuesday, ten of the Senate Banking Committee’s twelve Republicans wrote to Treasury Secretary Steven Mnuchin urging him to bar the ability of the Financial Stability Oversight Council (FSOC) to name nonbanks as systemically important financial institutions (SIFIs). The letter came on the same day as a hearing on the issue in the House Financial Services Committee, and Republicans in both chambers have argued the regulatory body lacks accountability and transparency. The letter also argues that FSOC creates “substantial new regulatory costs while putting taxpayers on the hook for any future bailout to these firms.”
Grassley, Reed Introduce Bill to Increase SEC Fines to $10M
Under a newly introduced bill from Sens. Chuck Grassley (R-IA) and Jack Reed (D-RI), companies could be fined up to $10 million by the Securities and Exchange Commission (SEC), up from the current maximum of $905,000. Per the provisions of the proposal, individual fines would also rise from $181,000 to $1 million.
Senate Banking Dems Ask for Probe on SEC’s Piwowar
On Wednesday, Democrat Senate Banking Committee members Sens. Elizabeth Warren (D-MA), Ranking Member Sherrod Brown (D-OH), Bob Menendez (D-NJ), and Brian Schatz (D-HI) sent a letter to the Securities and Exchange Commission (SEC) inspector general asking for an investigation into Acting Chair Michael Piwowar due to his statements on reconsidering Dodd-Frank rules. Democrats say that Piwowar’s remarks and actions “may lack adequate justification,” and “exceed his authority as acting chairman.” Specific rules initiatives cited by the Democrat senators include one related to conflict minerals and another that would require public companies to publicize the ratio between the CEO’s salary and that of the average employee.
Bipartisan Group Warns FHFA, Treasury Not to Block Payment from Housing Giants
In a letter to Federal Housing Finance Agency (FHFA) Director Mel Watt, a bipartisan group of the Senate Banking Committee warned the FHFA and Treasury Department against withholding a $10 billion payment from Fannie Mae and Freddie Mac to the Treasury. Trump Administration officials have reportedly considered allowing the housing giants to build capital rather than make the mandated payment to the Treasury as recompense for the taxpayer lifeline offered to the par in 2012. Congress is hoping to reform the government-sponsored enterprises, which would need multiple years of positive performance in order to be able to operate without government backing.
Dems Ask for Probe on Trump Deals in Azerbaijan
On Thursday, a group of three Democratic senators, including Senate Banking Committee Ranking Member Sherrod Brown (D-OH), wrote to Attorney General Jeff Sessions, Treasury Secretary Steven Mnuchin, and Federal Bureau of Investigations (FBI) Director James Comey asking the agency heads to investigate President Donald Trump over his business dealings in Azerbaijan. Specifically, the senators cite an article in the New Yorker that suggests the President may have violated anti-corruption laws and sanctions against Iran’s Islamic Revolutionary Guard when negotiating the development of Trump Tower in the Eurasian country’s capital, Baku.
Bipartisan Letter Asks Ross for Currency Manipulation Investigation
The bipartisan Ohioan pair of Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH) sent a letter to Commerce Secretary Wilbur Ross last week asking for the department to conduct an investigation on currency manipulation. Notably, the senators say the Obama Administration “elected to ignore allegations of currency manipulation in antidumping and countervailing duty investigations,” and ask for a stronger policy going forward.
Select Highlights from the Administration
Federal Reserve

Pockets of High Unemployment Remain Despite Job Gains, Says Fed Chair Yellen
Speaking on the state of the American economy, Federal Reserve Chair Janet Yellen asserted last week that pockets of persistently high unemployment have remained an issue for the central bank despite improvements in the job market since the 2008 financial crisis. Yellen did not offer any evaluation on the monetary policy outlooked, but responded to the issue of minority and low-income employment, which have remained problems throughout the economic recovery. Yellen argued workforce development and training for non-college educated individuals were crucial and she also endorsed the creation of more apprenticeship opportunities in the U.S.  
Consumer Financial Protection Bureau (CFPB)
CFPB Monthly Snapshot Highlights Complaints to Credit Card Companies
In its monthly complaint report, the CFPB highlighted complaints to credit card companies, particularly those related to consumers trying to dispute charges on their card. Commenting on the report, CFPB Director Richard Cordray said that consumers “deserve clear guidance and need to be able to resolve problems that arise with their cards.” As of March 1, 2017, the CFPB has processed over 1.1 million complaints across all products.
Office of the Comptroller of the Currency
Curry Continues to Defend OCC Plans to Charter for Fintech Firms
In a speech to the National Community Reinvestment Coalition on Wednesday, Comptroller of the Currency Tom Curry continued to defend the agency’s authority to create a special purpose charter for financial technology firms providing banking services. Adding to previous remarks on the issue, Curry said that the new charter “builds upon current authority, rules, guidance and processes that exist and can be applied to chartering and supervising fintech companies engaged in the business of banking.” The OCC will likely be forced to defend the decision in court as opponents such as the Conference of State Bank Supervisors and others plan a legal challenge.