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Financial Services Report

April 1, 2019
The major action this week in the Senate will be the completion of the supplemental disaster aid bill (text; summary) while in the House, House, lawmakers are scheduled to reauthorize the Violence Against Women Act (VAWA), as well as vote on another rebuke of the Trump Administration's recent decision to argue against the legality of the Affordable Care Act.  
 
In the Committees, the Banking, Housing and Urban Affairs Committee will examine the role of asset managers and proxy advisers in investing, while the Senate Judiciary Committee will hold a hearing on arbitration. Over in the House, the Financial Services Committee will continue its work on Housing issues, while the Ways and Means Committee will mark up a Retirement Security measure.
 

Last Week in the House

The Floor
 
With the House's week highlighted by the passage of the Paycheck Fairness Act (HR 7) gender pay gap bill and its failure to override President Trump's veto of the resolution overturning his border wall emergency declaration, the lower chamber did not consider any pieces of financial services legislation this week.
 
Hearings and Markups
 
HFSC Markup (3/26-3/27): On Tuesday and Wednesday, the Financial Services Committee held a two day mark up were the Committee advanced five pieces of legislation:

  • The Kleptocracy Asset Recovery Rewards Act (HR 389) passed by a voice vote. Sponsored by Reps. Stephen Lynch (D-MA) and Ted Budd (R-NC), the bill creates a rewards program for notifying the government of foreign corruption-linked assets in US institutions.

  • The Consumers First Act (HR 1500) passed in a 34-26 party line vote. The bill—a flagship priority for Chairwoman Maxine Waters (D-CA)—would reverse a number of changes made at CFPB by former Acting Director Mick Mulvaney.

  • The SAFE Banking Act (HR 1595) passed in a 45-15 vote with 11 Republicans joining Committee Democrats in voting in favor. Perennially introduced by Rep. Ed Perlmutter (D-CO) and others, the bill creates a legal safe harbor for financial institutions doing business with state-legal marijuana businesses.

  • The SEC Disclosure Effectiveness Testing Act (HR 1815) passed in a 33-26 party-line vote. Sponsored by Rep. Sean Casten (D-IL), the bill requires the SEC to test the usability of disclosures targeting retail investors prior to final rulemaking.

  • The Ending Homelessness Act (HR 1856) passed in a 32-26 party-line vote. Sponsored by Chairwoman Maxine Waters (D-CA), the bill provides $13.27 billion in new funding over five years for programs and initiatives aimed at preventing homelessness including new units of affordable housing, new vouchers, case management, and technical assistance.

Disaster Recovery Funds (3/26): On Tuesday, the Financial Services Subcommittee on Oversight and Investigations held a hearing entitled “The Administration of Disaster Recovery Funds in the Wake of Hurricane Harvey, Irma, and Maria.” During the hearing, Members examined a number of alleged deficiencies in the Department of Housing and Urban Development's Community Development Block Grant Disaster Recovery (CDBG-DR) program. Additionally, several members and witnesses spoke favorably of the Reforming Disaster Recovery Act draft legislation (text) circulated by Subcommittee Chairman Al Green (D-TX) and Rep. Ann Wagner (R-MO), which would make the CDBG-DR program permanent and institute several reforms to the distributions of disaster relief funds.
 
FSGG Public Witness Hearing and Member Day (3/27): On Wednesday, the Appropriations Subcommittee on Financial Services and General Government held a public witness hearing and a brief Committee Member Day. The witness list for the public witness hearing can be found here but featured only two Members with only limited mentions of financial services.
 
Small Business Retirement Security (3/27): On Wednesday, the House Committee on Small Business held a hearing entitled: “Unlocking Small Business Retirement Security.” During the hearing, several witnesses spoke favorably of the Retirement Enhancement and Savings Act (RESA) and other retirement-related bills and policies. Other policies discussed as potentially decreasing the burden on small employers attempting to offer retirement plans included expanded multiple employers plans (MEPs), better plan portability, non-match qualified plan safe harbors, and 401(k) matches for student loan repayment.  
 
Bills Introduced
 
FIO Abolition (Mooney): Abolishes the Department of the Treasury's Federal Insurance Office.
 
Senior Security Act (Gottheimer and Hollingsworth): Creates an SEC inter-divisional taskforce for senior investors. The bill was part of the JOBS 3.0 capital formation package last Congress.
 
Export-Import Bank Termination Act (Amash): Eliminates the Export-Import Bank over a three year period.
 
Helping Angels Lead our Startups Act (Chabot and Schneider): revises Regulation D to exempt presentations at events such as demo days from the definition of a general solicitation, removing barriers to pitching investors at these events. The HALOS Act was included in last year's JOBS 3.0 package.
 
Automatic Enrollment Tax Credit (Trahan and Kelly): Creates a $500 tax credit for employers offering auto-enrollment retirement plans.
 
Other Activity
 
Deutsche Bank Investigation: On Tuesday, Financial Services Committee Chairwoman Maxine Waters (D-CA) told reporters that Deutsche Bank is cooperating with the joint HFSC-Intelligence Committee investigation into President Trump's relationship with the bank and has begun handing over documents. She added that she is satisfied with DB's cooperation with the probe, after the bank had previously refused to hand over certain records when Democrats were in the minority.
 
Last Week in the Senate
The Floor
 
On Tuesday, the Senate voted 0-57 against a resolution recognizing the responsibility of the federal government to create a Green New Deal. With the resolution put on the floor by Majority Leader Mitch McConnell (R-KY) in order to put Senate Democrats on the record on the issue, all but four Democrats voted "present" on the resolution.
 
With the balance of the Senate's week spent on judicial confirmations and a disaster relief package, the Senate did not otherwise consider financial services legislation this week.
 
Hearings and Markups
 
Small Business Data Privacy (3/26): On Tuesday, the Commerce Subcommittee on Manufacturing, Trade, and Consumer Protection held a hearing entitled “Small Business Perspectives on a Federal Data Privacy Framework." Although only four Members attended the hearing, three of them—Sens. Jerry Moran (R-KS), Richard Blumenthal (D-CT), and Roger Wicker (R-MS)—are leading work on a bipartisan data privacy bill expected to be unveiled in the coming weeks. All three promoted this working group during the hearing. Continuing trends from previous hearings on the topic, Sen. Moran expressed concern over a potential state-by-state data privacy patchwork, while Sen. Blumenthal again called for any federal preemption of state data privacy laws to constitute a “floor” rather than a “ceiling” to state privacy protections.
 
Housing Reform (3/26-3/27): On Tuesday and Wednesday, the Banking Committee held two days of hearings on Chairman Mike Crapo's (R-ID) Housing Reform Outline (text) released in February. Chairman Crapo's outline was positively received as a starting point for needed housing finance reform, but the hearing ultimately yielded few concrete points of agreement.
 
Witnesses from the housing industry spoke favorably of the bill's preservation of government-sponsored entities (GSE's)—in contrast with some more conservative proposals that would wind down their operations—and Members on both sides of the dais broadly opposed a "recap and release" arrangement whereby the government releases the GSE's from conservatorship absent structural reforms. Additionally, the outline's proposed repeal of the GSE's affordable housing goals and "duty-to-serve obligations" garnered criticisms from several Democrats who argued that a proposed "Market Access Fund" could not effectively replace these programs.
 
Bills Introduced
 
Reward Work Act (Baldwin): Bans open-market stock buybacks and requires that publicly traded companies allow workers to directly elect one-third of the company's board of directors. Accompanying the bill, Sen. Baldwin released a staff report arguing that stock buybacks depress wages.
 
Economic Mobility Corps Act (Coons and Cassidy): Establishes a competitive grant program to place national service members at certified nonprofit Community Development Financial Institutions (CDFIs). The program would be jointly administered by the Treasury Department and the Corporation for National and Community Service, the agency that carries out national service programs such as AmeriCorps.
 
The Holding Foreign Companies Accountable Act (Kennedy and Van Hollen): requires exchange-listed companies to provide proof that they are not "implicitly" state-owned and bars from US exchanges companies that refuse inspection for three consecutive years. The bill is one of three bills targeting China released by Sen. Kennedy this week.
 
Other Activity
 
Crapo Gun Banking Letter: On Tuesday, Banking Committee Chairman Mike Crapo (R-ID) sent letters to the CEOs of eight major banks urging them to not discriminate against "constitutionally-protected" but politically disfavored industries. The letter expresses concern at "recent news reports" suggesting that large banks withhold access to credit from such businesses and notes that banks that receive various forms of government form of support "should not seek to replace legislators and policymakers."
 
Brown BB&T/Suntrust Letter: On Thursday, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to the CEOs of BB&T and SunTrust Bank inquiring about the potential impact of the two banks' proposed merger on employees, customers, and communities. The letter argues that the magnitude of the merger merits "scrutiny" and expresses concern that the two banks have not explained how increased operational efficiency would impact their workforce, or what impact decreased competition would have on consumers. Ranking Member Brown requested a response to the letter by April 15.
 
Tim Sloan Reactions: On Thursday, Wells Fargo announced that embattled CEO Tim Sloan is stepping down from his position effective immediately. With progressives in both Chambers having called for Sloan's resignation amid a plethora of scandals at the bank, prominent Members of the Banking Committee responded positively, if tepidly, to the news. Ranking Member Brown, for instance, said "Tim Sloan needed to go….but Wells Fargo's mismanagement is about more than one CEO," while Sen. Elizabeth Warren (D-MA) commented "about damn time."
 
Last Week in the Administration
 
Treasury, HUD Told to Draft Housing Finance Plan
On Wednesday, President Trump signed a memorandum (text) directing the Treasury Department and Department of Housing and Urban Development to develop a plan to end federal conservatorship of government-sponsored housing finance entities (GSEs). While the memorandum does not outline specifics with regards to the future of Fannie Mae and Freddit Mac, it does identify several goals for GSE regulation, including: (1) facilitating competition; (2) ensuring that the federal government is properly compensated for any support to GSE's; (3) preserving access to the 30 year fixed-rate mortgage; and (4) defining the GSEs' role in implementing federal affordable housing goals.
 
Mnuchin and Lighthizer Back in Beijing
On Friday, Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer met with Chinese officials in Beijing continuing efforts to the ongoing US-China trade dispute. Following the meetings, Secretary Mnuchin called the talks "constructive" and confirmed that Chinese Vice Premier Liu He will be in Washington this week. Bloomberg has reported that last week's talks largely focused on the wording of legal text, after Chinese versions of text backtracked on commitments made with regards to key issues including intellectual property and technology.
 
Hassett: Moore Must Curb Rhetoric
On Wednesday, Council of Economic Advisers Chair Kevin Hassett told CNBC that Fed Board designee Stephen Moore would be "more careful" about his rhetoric "if [he] ends up being the nominee"—suggesting that the conservative economist's nomination to fill one of two empty Fed Board positions is not final. Mr. Hassett's comments came in response to a suggestion by Mr. Moore earlier in the week that the Fed should cut interest rates by 50 basis points, which was not the only time he was in the headlines this week. The Guardian on Wednesday reported that Mr. Moore owes more than $75,000 in back taxes.
 
Fed Releases Additional Stress Testing Data
On Thursday, the Federal Reserve Board of Governors released additional information on its stress testing program following the February announcement of its plan to increase stress testing transparency. The 80-page document includes more than 30 tables providing more information on stress test models, including: (1) ranges of loss rates for loans grouped by different risk characteristics; (2) portfolios of hypothetical loans with loss rates; and (3) enhanced descriptions.
 
FDIC Adds New Members to Community Banking Advisory Committee
On Thursday, the Federal Deposit Insurance Corporation (FDIC) announced the selection of six additional members to its Advisory Committee on Community Banking, which advises FDIC on community bank-related policy issues. The additions to the Committee's membership can be found here.
 
Agencies Propose Custody Bank SLR Rule
On Friday, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) and Federal Reserve Board released notice of proposed rulemaking (text) inviting comments on its proposal to loosen capital requirements for custody banks pursuant to last year's Economic Growth, Regulatory Relief, and Consumer Protection Act. Under section 402 of the law, certain Fed deposits of custody banks—banks focused on safeguarding assets rather than lending—are excluded from calculation of the supplementary leverage ratio. Applying specifically to banks with a ratio of assets under custody to total assets of at least 30 to 1, the proposed rule would cover major custody banks, but not major banks with smaller custodial lines of businesses.
 
Regional Banks Pass Living Will Review
On Friday, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announced that no deficiencies were identified with the 2017 living wills of the 14 domestic regional banks. The finding marks a departure from 2015 examinations, when regulators identified several deficiencies in the living will filed by Northern Trust.
 
SEC Delays Transaction Fee Pilot Program
On Thursday, SEC announced that it would delay implementation of its Transaction Fee Pilot Program pending legal challenges mounted by the companies that own 12 of the nation's 13 stock exchanges. First announced in December and intended to examine the impact of how rebate payments influence broker behavior, the pilot program would implement caps and prohibitions on rebates for test group participants—a move that exchanges have claimed would limit liquidity and impede competition.
 
CFTC Increases Flexibility for De Minimis Exception Calculations
On Monday, the Commodity Futures Trading Commission (CFTC) voted to increase flexibility for banks with regards to counting interest-rate swaps for the purposes of the "swap dealer" de minimis threshold. The approved final rule (text) will increase the flexibility of banks to hedge investments using options without breaching the $8 billion threshold requiring that they be designated a swap dealer and subjected to additional regulations. While the amendment's proponents argue that it would expand the hedging ability of small and regional banks and decrease regulatory burden, CFTC's two Democratic Commissioners voted against the proposal, which they said would increase risk in the financial system.
 
Watchdog: FHFA Skirted Fannie/Freddie CEO Pay Limits
On Monday, the Federal Housing Finance Agency (FHFA) Office of Inspector General issued a report finding that FHFA acted to circumvent the $600,000 limit on compensation to the CEO's of housing finance agencies set by Congress in 2015. Per the report, Fannie Mae and Freddie Mac's boards diverted responsibilities formerly handled by their CEOs to a president position for which pay is uncapped. Specifically, the OIG found, Fannie Mae is paying $4.2 million to two executives carrying out functions previously fulfilled by the CEO, while Freddie Mac is paying $3.85 million.
 
HUD: Facebook Housing Ads Illegal
On Thursday, the Department of Housing and Urban and Development filed allegations that Facebook "encourages, enables, and causes housing discrimination" in violation of the Fair Housing Act. The charge (complaint) alleges that housing-related ads on Facebook unlawfully discriminate through data-profiling partly based on protected characteristics. Additionally, the Department alleges that Facebook allows advertisers to exclude people based on characteristics aligned with protected class demographics, as well as engage in virtual redlining. HUD began investigating Facebook over the matter last August following a Secretary-initiated complaint.
 
SBA Head Linda McMahon Stepping Down
On Friday, Small Business Administration (SBA) head Linda McMahon announced that she would be stepping down as Administrator effective April 12. Sources have indicated that the former WWE CEO and major Republican fundraiser is leaving in order to chair the pro-Trump super PAC America First Action heading into the 2020 Presidential elections.
 
This Week's Schedule
Mon. (4/1)
  • Business Meeting: Senate Agriculture Committee – 5:30 PM – The Senate Committee on Agriculture, Nutrition, and Forestry will hold an executive business meeting to vote on the nomination of Heath Tarbert to be Chairman of the Commodity Futures Trading Commission (CFTC). Details here.
Tues. (4/2)
  • Hearing: Senate Banking Committee on Investment – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled "The Application of Environmental, Social, and Governance Principles in Investing and the Role of Asset Managers, Proxy Advisors, and Other Intermediaries." Details here.
  • Hearing: House Financial Services Committee on the Fair Housing Act – 10:00 AM – The House Financial Services Committee will hold a hearing entitled "The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing" Details here.
  • Hearing: Senate Judiciary Committee on Arbitration – 10:00 AM – The Senate Judiciary Committee will hold a hearing entitled "Arbitration in America." Details here.
  • Hearing: House Small Business Sub. on Small Business Trade – 10:00 AM – The House Small Business Subcommittee on Rural Development, Agriculture, Trade, and Entrepreneurship will hold a hearing entitled "The Small Business Trade Snapshot: Agriculture and Workers." Details here.
  • Hearing: House Appropriations Sub. on the Rural Economy – 10:30 AM – The House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies will hold a hearing to examine the state of the rural economy. Details here.
  • Hearing: House Financial Services Sub. on Affordable Housing – 2:00 PM – The House Financial Services Subcommittee on Housing, Community Development, and Insurance will hold a hearing entitled "The Affordable Housing Crisis in Rural America: Assessing the Federal Response." Details here.
Wed. (4/3)
  • Hearing: House Education and Labor Sub. on Higher Education Accountability – 9:00 AM – The House Education and Labor Subcommittee on Higher Education and Workforce Investment will hold a hearing entitled “Strengthening Accountability in Higher Education to Better Serve Students and Taxpayers." Details here.
  • Executive Session: Senate Commerce Committee – 9:30 AM – The Senate Commerce Committee will hold an executive session to consider 12 bills and eight pending nominations. Details here.
  • Member Day Hearing: House Financial Services Committee – 10:00 AM – The House Financial Services Committee will convene a Member Day hearing. Details here.
  • Hearing: FSGG on the FCC's Budget – 1:30 PM – The House Appropriations Subcommittee on Financial Services and General Government (FSGG) will hold a hearing to examine the Federal Communication Commission's (FCC) FY 2020 budget request. Details here.
  • AEI Event on Data Privacy – 12:00 PM – The American Enterprise Institute (AEI) will host an event entitled "Perspectives on data privacy from the Federal Trade Commission and Department of Justice," featuring a conversation with Federal Trade Commission (FTC) Commissioner Christine Wilson. Details here.
  • Hearing: House Appropriations Sub. on the Department of Labor Budget – 2:00 PM – The House Appropriations Subcommittee Labor, Health and Human Services, Education and Related Agencies will hold a hearing to examine the Department of Labor's FY 2020 budget request. Details here.
  • Hearing: House Financial Services Sub. on Accountability Proposals – 2:00 PM – The Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will convene a hearing entitled, “Putting Investors First: Reviewing Proposals to Hold Executives Accountable.” Details here.
  • Hearing: House Appropriations Sub. on the Department of Commerce Budget – 2:15 PM – The House Appropriations Subcommittee Commerce, Justice, Science, and Related Agencies will hold a hearing to examine the Department of Commerce's FY 2020 budget request. Details here.
  • Hearing: Senate Judiciary Sub. on Diversity in Patents – 2:15 PM – The House Senate Judiciary Subcommittee on Intellectual Property will hold a hearing entitled "Trailblazers and Lost Einsteins: Women Inventors and the Future of American Innovation." Details here.
  • Hearing: House Senate Small Business Committee on SBA Access to Capital Programs – 2:30 PM – The Senate Committee on Small Business and Entrepreneurship will hold a hearing to examine reauthorization of the Small Business Administration's (SBA) Access to Capital Programs. Details here.
Thurs. (4/4)
  • No events scheduled.
Fri. (4/5)
  • No events scheduled.
Further Out
  • Hearing: House Financial Services Sub. on the Community Reinvestment Act – April 9 – The House Financial Services Subcommittee on Consumer Protection and Financial Institutions will hold a hearing entitled, “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining.” Details here.
  • Hearing: House Financial Services Committee on the State of the International Financial System – April 9 – The House Financial Services Committee will hold a hearing to receive the annual testimony of the Secretary of the Treasury on the State of the International Financial System. Details here.
  • Hearing: House Financial Services Committee on Systemically Important Banks – April 10 – The House Financial Services Committee will hold a hearing entitled, “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 years after the Financial Crisis.” Details here.