Financial Services Report

September 14, 2015

Looking Ahead

Near Term

  • The House is expected to take up two bills related to abortion before possibly considering a continuing resolution that may likely include language eliminating federal funding for Planned Parenthood.
  • The Senate is expected to spend the majority of the week continuing to debate the Iran Nuclear Agreement.
  • The House Financial Services Committee will hold two hearings this week.  One full committee hearing continuing the look-back on the 5th Anniversary of Dodd-Frank and another to examine the variety of issues threating the global economy.
  • The FOMC meets on Wednesday and Thursday.  Analysts appear divided on whether the Fed will raise interest rates at this meeting.

Further Out

  • The 2nd Comment Period for the Department of Labor's Fiduciary Rule closes on September 24th
  • Funding for Federal Government runs out on September 30th
  • Congress needs to raise the debt ceiling sometime between the end of October and the end of the year.
  • CFPB Director Cordray is expected to testify before the House Financial Services Committee before the end of the month.

The Past Week

Legislative Branch

Conservatives Continue to Exert their Influence
Following a revolt from some of the House Republican Conference’s most conservative members, the leadership was forced to scuttle its planned single vote of disapproval of the Iran nuclear deal.  Instead, the House held three separate votes on the agreement.  To what extent the House Freedom Caucus is now able to leverage its strength to prevent a spending measure containing funding for Planned Parenthood will play out over the next two weeks.
Department of Labor’s Fiduciary Rule Comes Under Attack
On Thursday, the House Financial Services Capital Markets and Government Sponsored Enterprises and Oversight and Investigations Subcommittees held a hearing on the proposed Department of Labor (DOL) fiduciary rule and Rep. Ann Wagner’s (R-MO) H.R. 1090, which would require the DOL to delay issuing its rule until the Securities and Exchange Commission (SEC) issues its own version of a fiduciary standard. During the hearing many of the witnesses, as well as some of the Republican members expressed their concerns that the Department of Labor is unlikely to make “material” changes to the rule before it is finalized, while Democrats appeared confident that such changes could be made.  As expected, much of the hearing also focused on the “Best Interest Contract” concept and whether the BIC, as proposed, was workable for industry. 
Following the hearing, full Committee Chairman Jeb Hensarling (R-TX) released a statement that the Financial Services Committee would advance H.R. 1090 later, and it is expected to be on the agenda for a mark-up currently scheduled for the end of the month.
Terrorism Financing Task Force Holds Final Hearing
On Wednesday, the Task Force to Investigate Terrorism Financing held a hearing entitled, “Could America Do More? An Examination of U.S. Efforts to Stop the Financing of Terror.”   In his opening statement, Task Force Chairman Michael Fitzpatrick (R-PA) stressed the need to effectively utilize tools to degrade terrorist financing, while questioning the degree of cooperation between federal agencies tasked with combatting terrorism financing.   He also suggested that the Bank Secrecy Act (BSA) may need to be amended to allow more data sharing between banks, and that additional changes may be needed related to beneficial ownership.  He also stated that this would be the last meeting of the Task Force.
During the hearing there was discussion about how emerging technologies are being used by terrorists and also by law enforcement.  For example,      Rep. Stivers (R-OH) questioned whether sufficient protections are being created against emerging means of terrorism financing, such as mobile payment technology and Bitcoin. One of the witnesses indicated that he did not believe this was the case, and cited to the fact that Hezbollah continues to operate while avoiding the use of cash.  Both Democrats and Republicans indicated that greater public-private partnerships are necessary to combat terrorists from using emerging technologies.
Heansarling Asks GAO to Study Proposal to Reduce Fed Dividends Paid to Banks
On Friday, Jeb Hensarling, Financial Services Committee Chairman requested the Government Accountability Office (GAO) study the implications of a proposal  to decrease the dividends paid to banks from Fed in exchange for owning stock in regional Federal Reserve banks.  The proposal, which was included as a pay-for in the Senate Highway Bill offered this summer, would reduce the dividend from 6% to 1.5% and has been estimated to raise $16 billion.  The request from the HFSC Chairman will likely prevent the use of the proposal from being used until the GAO completes its study, which could take upwards of one year.
Ways and Means Passes Bill to Prioritize Debt Payments
On Thursday, the Ways and Means Committee, on a party-line vote, passed a bill that would prioritize debt service payments in the event the debt limit isn’t extended when it runs out this fall.  The bill, which is identical to a measure passed in the run up to the last debt limit fight in 2013, would allow Treasury to borrow money to service bondholder debt and Social Security trust fund payments without raising the debt ceiling.
Democrats Continue to Press on Inversions
On Friday, a group of seven Democrats, lead by Rep. DeLauro (D-CT) sent a letter to Treasury Secretary Jack Lew urging him the Department to annually publicize a list of inverted companies as well as to re-characterize debt as equity for inverted companies. Joining DeLauro, were Senators Dick Durbin, Jack Reed, Sheldon Whitehouse and Elizabeth Warren, as well as House members Lloyd Dogget and Sander Levin.
Select Highlights from the Administration
Lew Urges Congress to Raise Debt Ceiling
In a letter sent Thursday September 10th, Treasury Secretary Jack Lew once again urged Congress to raise the debt ceiling with “as little drama as possible.”  In addition, the letter once again confirmed that Treasury estimates that it will hit a default sometime around the end of October.  Treasury has been attempting to maintain a cash reserve of $150 billion       which generally can cover a week's worth of government bills, throughout the year in order to ensure the government could continue to pay bills in case of an unforeseen disruption of normal operations, such as a natural disaster or terrorist attack.  In his letter, Lew noted that the reserves dipped below that level in mid-August but he anticipates that corporate and individual taxes paid in mid-September will replenish Treasury’s coffers but will gradually be depleted unless the debt limit is raised.
Next Week’s Schedule
On Thursday, September 17th at 10:00 AM in 2128 Rayburn the House Financial Services Committee will hold a hearing entitled, “The Dodd-Frank Act Five Years Later: Are We More Free?”
On Thursday, September 17th at 2:00pm in 2128 Rayburn the Monetary Policy and Trade Subcommittee will hold a hearing entitled, “Strengthening U.S. Leadership in a Turbulent Global Economy.”
On Thursday, September 17th at 10:00 AM in 538 Dirksen the Senate Banking Committee will hold a nominations hearing (rescheduled from last week).