Financial Services Report (8/5)

Both the House and Senate are in the August Recess and will return on September 9th. When the Senate returns in September it will continue approving executive nominations, including those of Kelly Craft to be UN Ambassador and Michelle Bowman to the Fed Board.

 

The House Financial Services Committee will also have a full September agenda.

 

Last Week in the House

 

House lawmakers have left Washington for the six-week August recess. The lower chamber will resume legislative business on Monday, September 9.

 

Last Week in the Senate 

The Floor



On Thursday, the Senate voted 67-28 to pass the sweeping budget deal, that provides for a $321 billion increase in federal spending, and also suspends the debt ceiling over the next two years . Despite President Trump's support for the spending deal, 23 Republicans voted against the legislation, citing their concerns of its impact on the deficit. The President signed the legislation on Friday.

 

Lawmakers will now look to feverishly push FY 2020 spending bills through both chambers once Congress returns in September, as appropriators stressed that both a government shutdown and 12-bill omnibus spending measure should be avoided. Senate Appropriations Chairman Richard Shelby (R-AL) stated earlier this week that he may look to package the spending bills for Defense, Labor-Education-Health and Human Services, and Energy-Water for consideration when the Senate returns in September. The Senate Appropriations Committee plans to mark up its first spending bills on Sept. 12. However, given the short time frame a series of min-buses – or even an omnibus is more than likely.

 

Hearings and Markups

 

Digital Currency (7/30): On Tuesday, the Banking Committee held a hearing examining the regulatory framework for digital currencies and blockchain. As the only Republican present during the hearing, Committee Chairman Mike Crapo called for improving the blockchain “rules of the road” in order to support US innovation. For his part, Ranking Member Sherrod Brown, echoed by some of the other Democrats present, warned of products using a veil of “innovation” to escape regulatory scrutiny and was skeptical that digital assets will actually help vulnerable consumers. Other topics receiving attention include the Libra digital currency and the potential for a publicly supported real-time payments system. 

 

USMCA (7/30): On Tuesday, the Finance Committee convened a hearing to discuss the United States-Mexico-Canada (USMCA) with stakeholder representatives from the automobile, agriculture, biotechnology, small business, and organized labor spaces. Republicans and panelists agreed that swift approval of USMCA would strongly benefit U.S. industries, arguing that the revamped deal will provide certainty for businesses while growing the economy. Meanwhile, Senate Democrats reiterated that while they would like to eventually support the deal, serious reservations about efforts by the administration to increase the United States de minimis thresholds, as well as the provisions in the deal related to enforcement, labor and environmental standards, and drug pricing remain. 

 

Bills Introduced

 

Stock Buyback Reform and Worker Divident Act (Brown): Requires publicly traded companies to issue a "worker dividend" to all non-executive employees equal to $1 for every $1 million spent on stock buybacks, dividend increases, and special dividends. Intended to curtail stock buybacks, the legislation would also lower the permissible amount of stock a company can buy back and institute reporting and enforcement requirements. Unveiling the legislation at an event at the National Press Club, Ranking Member Brown commented: "My proposal is simple: if corporations want to transfer wealth to Wall Street, workers have to get a proportionate share of the pie.”

 

Competitive Dollar for Jobs and Prosperity Act (Baldwin and Hawley): Institutes a "market access charge" (MAC) on foreign purchases of US stocks, bonds, and other securities. The legislation's sponsors argue that foreign purchases of such assets have led to the overvaluation of the US dollar, thus harming US exports, and that their legislation would increase the dollar's competitiveness.

 

Venture Exchanges (Kennedy): Allows for the registration of venture exchanges.

 

Unclaimed Savings Bond Act (Kennedy): Provides states access to unredeemed savings bond records with the intention of allowing them to reunite unredeemed bonds with bondholders. The US Treasury currently holds more than $25 billion in matured, unredeemed savings bonds, many of which date to the Forties and Fifties.

 

Automatic IRA Act (Whitehouse): Requires employers who do not provide another qualified retirement plan and who have more than 10 employees to enroll workers automatically in an Auto-IRA unless the employee opts out. Sen. Whitehouse, along with House Ways and Means Committee Chairman Richard Neal (D-MA), previously introduced the legislation last Congress.

 

Retirement Security Preservation Act (Cardin and Portman): Modernizes pension plan non-discrimination rules to prevent the inadvertent freezing of benefits to older workers grandfathered into older defined benefit plans. The provision is included in the House-passed SECURE Act, which is still waiting consideration by the Senate.

 

Other Activity

 

Capital One Breach: On Monday, Capital One disclosed that the information of more than 100 million customer accounts and credit card applications were breached in March in one of the largest financial data breaches ever. Former Amazon Web Services Employee Paige Thompson is accused of the breach, which resulted in access to more than 140,000 social security numbers and prompted swift pushback across Capitol Hill. Banking Committee Ranking Member Sherrod Brown (D-OH) called on the company to clarify how it plans to assist affected consumers, while Financial Services Committee Chairwoman Maxine Waters (D-CA) argued that the breach demonstrates the need for strong oversight of third party technology providers to banks. Also of note, House Oversight Committee Republicans sent letters to Capital One and Amazon requesting a staff briefing on the topic.

 

Banking Committee Republicans Letter to Banking Regulators: On Tuesday, the Republican Members of the Banking Committee sent a letter to the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation calling for a number of steps to sustain the economic expansion. Actions called for in the letter include: (1) setting the community bank leverage ratio at eight percent, rather than the proposed nine percent; (2) monitoring the implementation of the Current Expected Credit Loss accounting standard and providing assistance to financial institutions as needed; (3) finalizing rulemaking to exempt community banks with less than $10 billion in assets from the Volcker rule; (4) simplifying the Volcker Rule to eliminate the proposed accounting prong and revising its "overly broad" definition of covered funds; (5) harmonizing initial margin requirements with the CFTC's exemption for transactions between affiliated entities; (6) continuing to tailor stress testing and foreign bank regulations, as well as indexing any tailoring to future inflation; (7) submitting all rules to Congress in compliance with the Congressional Review Act; and (8) clarifying uncertainty around the "valid-when-made" doctrine.

 

Moran/Van Hollen Wire Fraud Letter: On Wednesday, Sens. Jerry Moran (R-KS) and Chris Van Hollen (D-MD) led a bipartisan group of 33 Senators on a letter requesting information on the Federal Reserve's efforts to prevent real estate wire fraud. In the letter to Fed Chairman Jerome Powell, the Senators express concern at the Fed's "lack urgency" on the matter despite a recent FBI report which found that funds lost from real estate-related email compromise scams increased 2200% between 2015 and 2017. The letter requests a response on several topics, including if the Fed needs additional authority to prevent wire fraud, and if the wire system's current technology can accommodate payee verification.

 

Brown/Waters Inter-Affiliate Margin Letter: On Thursday, Banking Committee Ranking Member Sherrod Brown (D-OH) and House Financial Services Committee Chairwoman Maxine Waters (D-CA) sent a letter to federal banking regulators expressing their "strong opposition to any weakening" of initial margin requirements for swaps transactions between banks and their affiliates. Arguing that exempting banking affiliates from inter-affiliate margin requirements would allow insured institutions to take on affiliates' risk at an effective taxpayer subsidy and reduce capital in the financial system, the letter calls on the regulators to maintain current inter-affiliate margin requirements for any affiliate of a US banking entity.

 

Last Week in the Administration

 

Trump Imposes Tariffs on $300 million in Chinese Imports

On Thursday, President Donald Trump announced his intention to place a ten percent tariff on $300 million in Chinese imports amid straggling talks to resolve the two countries’ ongoing trade tensions. Combined with the in-place 25 percent tariffs on $250 million in products, the tariffs will cover nearly all Chinese imports. In the tweet announcing the decision, President Trump indicated that China had backtracked on its pledge to purchase large quantities of US agricultural goods but called ministerial-level negotiations in Shanghai this week "constructive talks having to do with a future trade deal." Despite the President's ostensible optimism for a trade deal, the tariffs mark another set back for the talks and prompted a pledge of swift retaliation from Chinese officials.

 

Fed Cuts Rates for First Time In Decade

On Wednesday, the Federal Open Market Committee voted to decrease the federal funds rate a quarter of a percentage point to 2-2.25 percent, the central bank’s first interest rate cut since the 2008 financial crisis. Amid slowing global growth and increasing trade tensions, FOMC attributed the cut to “global developments,” while Fed Chairman Jerome Powell called it a “midcycle adjustment” not necessarily indicating future rate cuts. Responding to the move—which was widely expected amid indications of an impending economic slowdown and foreshadowing in Chairman Powell’s most recent Congressional testimony—President Trump kept up his criticisms of Chairman Powell, saying that “Powell let us down” by not increasing rates even further.

 

Labor Department Issues Rules on ARPs, RFI on Open MEPs

On Monday, the Department of Labor issued a final rule intended to make it easier for small employers to participate in association retirement plans (ARP), which allow employers to reduce administrative costs by banding together to offer retirement benefits to employees. Issued pursuant to President Trump’s August 2018 executive order on strengthening retirement saving in America, ARPs will be expressly allowed to be offered by associations of employers in a city, state, or metropolitan area, on a nationwide basis in a particular industry, or sponsored through a Professional Employee Organization. Previously, employers could only participate in plan pooling if they shared a “nexus of interest,” such as being members of the same trade association. In conjunction with the final rule, the Department also issued a request for information on facilitating participation in open multiple employer plans (open MEPs), which go beyond ARPs by allowing employers without any relationship to one another to participate in pooled plans.

 

Economy Adds 164,000 Jobs in July

On Friday, the Bureau of Labor Statistics announced that that the US economy added 164,000 jobs in July, with the unemployment rate holding steady at 3.7%. The numbers provide a somewhat positive development following this month’s lackluster economic growth report and ongoing concerns of an impending economic downturn. May's already low jobs numbers were revised downward to 62,000 jobs, while June's positive report was revised downward to 192,000 new jobs.