TRP Financial Services Report

January 26, 2015
Last week President Obama delivered his State of the Union.  Depending on your political leanings it was either (a) the populist mantra you’ve been waiting for, or (b) the populist mantra you’ve been expecting.  While it was noted that the President chose not to acknowledge the new Republican majorities, he did indicate that one take away from the past election was that the American public wanted Washington to work.  He then went on to implore Republicans to work with him on a litany of issues, all of which had been strategically leaked prior to the address, and all of which are unlikely to generate real bipartisan support.  However, he didn't take the same tone on his tax reform proposal – perhaps an indicator for cautious optimism on getting tax reform done this year.   

Looking Ahead
Near Term 
  • Another short week for the House as the Democratic Legislative Retreat takes place on Thursday and Friday.  Before they leave, the Financial Services Committee will hear from FHFA Director Watt (though not in the traditional committee room) and the Ways and Means Committee will hear from US Trade Rep Michael Froman. 
  • The Senate should wrap up consideration of the Keystone XL legislation by the end of the week.  The Finance Committee will also hold a hearing on Trade policy and the Senate Banking Committee once again is set to hold hearings and then in turn mark-up new sanctions on Iran.
Further Out 
  • Feb. 27: DHS Funding
  • After March 15: Debt Limit
  • March 31: “Doc Fix”
  • May 31: Surface Transportation
  • June 1: USA PATRIOT Act
  • June 30: Export-Import Bank
  • Sept. 30: CHIP Funding
  • Sept. 30: Child Nutrition & WIC
  • Sept. 30: FAA Authorization
The Past Week

Legislative Branch
Hensarling Appears Committed to Housing Finance Reform
During an interview with C-Span’s Newsmakers series, Financial Services Chairman indicated that he remains committed to overhauling the housing finance system.  Last year Chairman Hensarling was able to pass his PATH Act through committee, but it stalled before getting to the House floor.  The Senate Banking Committee advanced its own frame work but there were major differences between the two.  During the interview Hensarling noted that he was willing to talk to the White House and his Senate colleagues to “find a way forward to a sustainable housing finance system.”
Democrats Announce Financial Services Subcommittee Rosters
On Wednesday, the Democrats on the Financial Services Committee announced their subcommittee assignments for the 114th Congress.  While Carolyn Maloney (NY) retained her top spot on the Capital Markets subcommittee, many of the other subcommittees have new faces in the position, including Lacy Clay (MO) as Ranking on the Financial Institutions and Consumer Credit Subcommittee and Emmanuel Cleaver atop the Housing and Insurance Subcommittee.
Financial Services Committee Approves Oversight Plan
On Wednesday, by voice vote, the Financial Services Committee approved its oversight plan for the 114th Congress.  As expected, the plan promises hearings on the Dodd-Frank Wall Street Reform and Consumer Protection Act, and continued scrutiny of the Jumpstart Our Business Startups (JOBS) Act.  In addition the Committee intends to keep a close eye on the Securities and Exchange Commission and government-sponsored enterprises now under the management of the FHFA.  Unlike past years, there was little drama in approving the plan, which Ranking Member Waters classified as non-controversial.
Banking Committee Announces Subcommittee Chairs
On Thursday evening, the Republicans on the Senate Banking Committee announced their subcommittee chairs and the Democrats made their announcements the following day.  Senator Crapo (ID) will chair the Securities, Insurance, and Investment Subcommittee & Senator Warner (VA) will be the top Democrat; Senator Toomey (PA) will chair the Financial Institutions and Consumer Protection Subcommittee with Senator Merkley (OR) as Ranking; Senator Scott (SC) will chair the Housing, Transportation and Community Development Subcommittee and Senator Menendez (NJ) will be ranking; Senator Heller (NV) will chair the Economic Policy Subcommittee and Senator Warren (MA) will be ranking; and Senator Kirk (IL) will chair the National Security and International Trade and Finance Subcommittee with Senator Heitkamp as ranking.  There was some speculation that Senator Warren might get the top slot on the Financial Institutions subcommittee, which among other things, has jurisdiction over the CFPB. 
Finance Subcommittee Rosters Set
On Thursday, the Senate Finance Committee announced that it had determined its subcommittee rosters.  The full list of the roster can be found here.   Perhaps the most interesting part of this announcement was the Subcommittee on Fiscal Responsibility and Growth, chaired by Rob Portman, and with only Mark Warner (D) as the sole Democrat, and thus ranking member.
Hatch Continues to Express Optimism For Tax Reform
On Friday, while speaking at a Brookings Institute event on Inversion policy, newly minted Finance Committee Chairman Orrin Hatch (UT) expressed his belief that “there is real momentum” to get something done on tax reform this year.  A point that was echoed by WH NEC Chair Jeff Zients earlier when he indicated that tax reform was one of the issues that the White House views as having a “good shot” of passing.    Potentially aiding Chairman Hatch’s optimism was the fact that Senator Portman reintroduced his dynamic scoring bill on Wednesday.  Portman’s bill would require JCT to produce supplemental reports on the macroeconomic effects of legislation, something the House has required for more than a decade. However, Portman’s plan stops short of recently amended House rules requiring those effects to be woven into JCT’s official cost estimates, instead the dynamic impact of legislative changes would only be advisory.
Select Highlights from the Administration
White House
President Delivers State of the Union
On Tuesday, the President delivered his State of the Union address, and appeared to recognize that the American public continues to be frustrated by the inaction in Washington, but then he offered proposals—almost all, except for his call for trade promotion authority—that will be hard pressed to find strong bipartisan support in the “new” Republican Congress.   Further, by laying down a strong marker with a broad veto threat on any legislation that would roll back Dodd-Frank, a move applauded by Senator Warren and Ranking Member Waters, his speech was viewed by some as limiting areas for compromise.  Furthermore, since none of the proposals discussed—“free” community college, raising the minimum wage, subsidized child care, or guarantee paid sick leave and maternity leave—are likely to garner much GOP support, so perhaps the speech was notable for what it didn’t mention.  Despite a high profile roll-out just days before the State of the Union, the President barely mentioned his tax proposal at all.  Perhaps the omission is a sign that the President is willing to cut a deal on tax reform, and his proposal was an initial offer to Republicans such as Orrin Hatch and Paul Ryan framed as a populist wish list.
White House Appears Ready to Push for Strong Fiduciary Rule
On Thursday, a memo prepared by Council of Economic Advisers Jason Furman and CEA Member Betsey Stevenson  was leaked to the press.  The memo presented what will likely be the White House’s defense of new rules on brokers in the retirement industry.  In response to the leaked memo, one report had a White House official note that the memo, titled “Draft Conflict of Interest Rule For Retirement Savings,” should not be seen as a new turn in much expected Fiduciary Rule the Department of Labor is expected to release in the coming weeks. 
Lew Outlines Tax Proposal
On Wednesday morning, Treasury Secretary Jacob J. Lew spoke at the Brookings Institute about the President’s tax priorities for 2015.  Secretary Lew’s speech was focused on business tax reforms including dis-incentivizing inversions, closing loop holes “that drive investment for tax purposes rather than manufacturing and infrastructure improvements”, and making tax filing easier for small business through the cash method of accounting.  During his remarks, Lew stressed that the revenues that would come from these changes would be a one-time gain, and therefore should be used as investments for “infrastructure upgrades rather than to create permanent tax-cuts.” Changes to retirement structures, much hyped in advance of the State of the Union, were not discussed.
As laid out by the Secretary the President proposes to:

  • Reducing the current top corporate tax rate from 35 percent to 28 percent by closing loop holes;
  • Lowering tax rates for domestic manufacturing to 25 percent and making the Research and Experimentation Tax Credit permanent;
  • Creating a minimum tax rate on foreign earnings while tightening rules on shifting profits to other countries. The administration also looks to eliminate tax deductions that enable inversions while providing tax breaks for companies that bring production back to the United States;
  • Simplifying taxes for small business. The administration is seeking to make tax filing easier by instituting the cash accounting  and allowing business to annually expense up to $1 million in investments; and
  • Utilizing revenue neutral reforms for both the short and long runs.  The Secretary pointed to establishing permanent pay-fors for tax extenders. 
This proposal is clearly the opening salvo of the debate that is continuing to ramp up on tax reform. 
Financial Stability Oversight Council Approves Transparency Changes
On Wednesday members of the FSOC appeared to be in broad agreement to staff recommendation that would improve the transparency of the Council’s systemically important (SIFI) designation process.  Among the recommendation likely to formally approved at the next FSOC meeting were;  FSOC should notify companies when they are  under active review under stage 2 as opposed to current practice of at stage 3, the FSOC should be willing to confirm if a company publicly discloses it is at either stage 2 or stage 3 of the SIFI review process, and finally companies should have more opportunities to challenge SIFI designations.  In addition, the FSOC heard from DOJ about the pending MetLife SIFI designation challenge.
Federal Deposit Insurance Commission (FDIC)
FDIC Harmonizes Capital and Liquidity Rules with New Swaps Rules
On Tuesday, on a 4-1 vote, the FDIC harmonized new capital and liquidity rules for banks so that they comport with recent industry move establishing temporary stays of derivatives contracts when a major bank fails. 
 Next Week’s Schedule
On Tuesday January 27th at 10:00am in 2175 Rayburn, the House Financial Services Committee will hold a hearing entitled, “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency”
On Tuesday, January 27th at 10:00am in 538 Dirksen the Senate Banking Committee will meet to organize for the 114th Congress and then will hold a hearing entitled, “Perspectives on the Strategic Necessity of Iran Sanctions. ** Rescheduled from last week)
On Tuesday, January 27th at 10:00am in 215 Dirksen, the Finance Committee will hold a hearing entitled, “President Obama’s 2015 Trade Agenda.”
On Tuesday, January 27th at 10:00 am in 2123 Rayburn, the Energy and Commerce Committee will hold a hearing entitled, "What are the elements of Sound Data Breach Legislation?"

On Tuesday, January 27th at 2:00pm in HVC 210, the House Ways and Means Committee will hold a hearing entitled, “US Trade Policy Agenda.”
On Thursday, January 28th at 10:00am in 538 Dirksen, the Senate Banking Committee will meet in Executive Session to mark-up legislation entitled the “Nuclear Weapon Free Iran Act of 2015.” ** Rescheduled from last week.
On Thursday, January 28th at 2:30pm in 342 Dirksen, the Homeland Security and Government Affairs Committee will hold a hearing entitled, “Protecting America From Cyber Attacks: The importance of Information Sharing.”