TRP Financial Services Report

Despite having the fewest members since the Hoover Administration, the fact that Speaker Boehner has had deal with a disparate and  unruly group of Republicans contrasted with the minority’s more uniform cohesion and then combine that with a similar framework in the Senate, the reality is that Democrats, even House Democrats  have real power in this Congress.   So while it may seem self-serving to say it, the reality is that as we look at the major issues coming down the pike — from regulatory reform to funding the government and ensuring it doesn’t default, to everything in between — it will be important for stakeholders in those issues to actively engage with the minority party in order to advance their efforts.    As we have seen with DHS funding, and the rumored Doc Fix likely to be introduced this week, despite their overwhelming majority in the House, the fact remains that only truly bipartisan measures are the ones that getting to the President to be signed into law. 

Looking Ahead
 
Near Term 

• Treasury Secretary Jack Lew will be before the House Financial Services Committee on March 17, and while the hearing is officially about the state of the international financial system, because he will be appearing the day after the US officially hit the debt ceiling, expect that issue to dominate.  Also on on Tuesday, House Republicans also get their first crack at Labor Secretary Thomas Perez whose Department of Labor is moving forward with a controversial fiduciary rule. 
• On Tuesday, Senate Finance Continues to set the foundation for tax reform with another hearing, this one on building a competitive international tax system.
• On Thursday the three major bank regulators will be in front of the Senate Banking Committee to talk about regulatory relief for regional banks.  According to published reports, some mid-sized banks may not be supporting the effort, and as is the case with any Dodd-Frank tweaks, there is always a question of whether Senator Warren can support any suggested reforms. 
• The Budget Committees meet this week.  Watchers will be looking to see if House and Senate can find consensus on a blueprint for the nation’s budget.
• On Wednesday, the FOMC meets where Fed watchers  will be carefully parsing Chair Yellen’s press conference that day for further evidence on when the Fed intends to raise interest rates.

 Further Out 

• Budget votes are expected in the House and Senate before both chambers break for the Easter / Passover Recess.
• Consumer Financial Protection Bureau (CFPB) will hold a field hearing on March 26^th in Richmond, VA.  It is expected that the CFPB will use this event to announce the Small Business Regulatory Enforcement Fairness Act (SBREFA) panel that it is required to conduct before it can proceed with a small dollar /payday  loan rulemaking.
• We’ve now crossed the second Rubicon of this year’s legislative deadlines, the need to extend the debt limit by March 15^th although due to “extraordinary measures” we’ve avoided default.  Next on that list, the so-called “Doc Fix” comes dues at the end of the month, and while rumors of a deal run rampant, the one thing definite about this Congress is that nothing is done until it is done.  As a reminder, the remaining deadlines for the year are:
  • 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
  • End of September or October: Extraordinary Measures for dealing the Debt Ceiling run out and default becomes possible.

 The Past Week
Legislative Branch
 
Senate
Subcommittee Holds Hearing on Venture Exchanges
On Tuesday, the Senate Banking Subcommittee on Securities, Insurance and Investment held a hearing entitled, “Venture Exchanges and Small-Cap Companies.”  Only the Subcomittee Chairman Senator Crapo (R-ID) and its Ranking Member, Senator Warner (D-VA) asked questions of the witnesses, who included; Mr. Stephen Luparello, the SEC’s Director of Division of Trading and Markets; Mr. Thomas Farley, the President of the NYSE Group; and Mr. Nelson Griggs, the Executive Vice President of Listing Services at the NASDAQ OMX Group.  The hearing came weeks after Securities and Exchange Commission Chair Mary Jo White had announced that the agency is actively engaged in working on ways to promote venture exchanges, though Mr. Luparello didn’t use the hearing as a forum to elaborate on the SEC’s plans.  The executives from the exchanges presented their views on how such exchanges would work, and other measures the SEC could be doing to help small cap businesses raise additional capital.
 
Aging Committee Examines Retirement Planning
On Thursday, the Senate Special Committee on Aging held a hearing entitled, “Bridging the Gap: How Prepared Are Americans for Retirement?”  In her opening statement Committee Chairwoman Susan Collins (R-ME) indicated that this would be the first in a series of hearings on the issue.  Additionally, Senator Warren used the hearing as a forum to advocate for the Department of Labor’s pending rulemaking on broadening the scope of the fiduciary standard for givers of retirement advice.    Other topics included the MyRA and the need for other, possibly opt-in style, retirement programs. 
 
Toomey & Warner Introduce Bill to Ease Employee Ownership Rules
On Monday, Senators Pat Toomey and Mark Warner, the Chair and Ranking respectively of the Senate  Banking Subcommittee on Securities, Insurance and Investment introduced S. 576, a bill that would increase the amount of stock options a company can issue to employees before it must give additional disclosures to investors.  A version of the bill, which would double the threshold to $10 million dollars, is the same language that passed the House in January, though earlier versions of similar House passed bills had increased the threshold to $20 million.  It seems unlikely that this bill will find major floor time, and so its chance for passage is contingent on moving through the uniramous consent process. 
 
Dozen Democratic Senators Introduce Bill to Allow Students to Discharge Debt in Bankruptcy
On Thursday, Minority Whip Durbin, along with 12 other Democratic Senators introduced S. 729, the “Fairness for Struggling Students Act.”  The bill’s introduction followed President Obama’s announcement that  the Administration would increase their efforts to  help federal student loan borrowers navigate the repayment process as well as tightening rules for private companies servicing school debt. 

Heller Concerned that Fed Imposing Overly Burdensome Capital Rules on Insurance Industry
On Thursday, Senator Dean Heller (R-NV) sent a letter to Fed Chair Janet Yellen expressing his concerns that the Federal Reserve may be imposing inappropriate capital standards on the insurance industry.  The letter comes as Congress and industry have been watching the Fed’s efforts to impose capital standards on the larger insurance holding companies as well as some of the larger insurance companies have been designated as systemically important (SIFI) by the FSOC.  As Heller notes in his letter, insurance regulation has traditionally been at the state level, as individual insurance commissioners have imposed their own capital standards on the insurance companies operating in their borders.
 
Select Highlights from the Administration
 
Department of Labor
Perez Commits to Finishing so-called Fiduciary Rule
On Friday, while speaking before a Consumer Federation of America conference, DOL Secretary Thomas Perez expressed confidence that his Department would be able to complete its rule on expanding the scope of the fiduciary duty for certain retirement advisers and brokers.  While the rule has just gone to OMB, and is expected to be released for public comment in the next 90 days, Perez indicated that he believed an “effective” final rule would be implemented before the end of the Obama Administration.  Shedding some light on what the rule may entail, Perez noted that “we will not be banning commissions in the proposed rule,” and that “we're going to clarify the line between education and advice.”  He went on to liken the situation with retirement savings to the sale of complex mortgages in the run-up to the housing market collapse,
 
Treasury
Treasury Commences Extraordinary Measures to Stave off Default
On Friday, in a letter to Congress, Treasury Secretary Jack Lew informed Congressional Leadership that his Department had begun using so-called extraordinary measures to avoid breaching the debt limit and called on Congress to lift the debt ceiling sooner than later.  The Congressional Budget Office has indicated that Treasury will likely run out of the maneuvers, and cash, by October or November, just in time to coincide with the end of the Federal fiscal year. 
 
Securities and Exchange Commission (SEC)
Republican Commissioner Expresses Disappointment in Pace of Stock Market Reform Efforts
On Friday, at a speech at Notre Dame, SEC Commissioner Michael Piwowar expressed his belief that the Commission needs to speed up its capital market structure work, including the pending pilot project on “tick sizes.”  In addition, Piwowar noted how Michael Lewis’ book “Flash Boys”, an unflattering expose on the American equity markets, has impacted the industry and the Commission’s reaction to its allegations. 
Consumer Financial Protection Bureau (CFPB)

CFPB Releases Mandatory Arbitration Study
On Tuesday, the CFPB released a 728 page study that analyzed the use of mandatory pre-dispute arbitration agreements in six “consumer finance” markets: credit cards, checking accounts, prepaid cards, payday loans, private student loans, and mobile wireless contracts.   The report was in part based on the results of surveys where consumers indicated they were unaware of the existence of these clauses in their contracts with the company, which has been noted may not result in the most empirically derived method of determining the value of these clauses.  Nonetheless, the CFPB concluded that “arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions.”  While the CFPB was required to conduct the report under Dodd-Frank, it is not similarly required to engage in a rulemaking, however, it is expected that this report is not the Bureau’s last word on the issue of arbitration.

Next Week’s Schedule
On Tuesday the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Agencies will hold a budget hearing on the Department of Labor at 10:00 AM. The Honorable Thomas Perez, Secretary of the Department of Labor, will testify.

On Tuesday the House Committee on Financial Services will hold a hearing entitled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System” at 10:00 AM. The Honorable Jacob J. Lew, Secretary of the U.S. Department of the Treasury, will testify.

On Tuesday the House Committee on Foreign Affairs’ Subcommittee on Terrorism, Nonproliferation and Trade will hold a hearing entitled “National Security Benefits of Trade Agreements with Asia and Europe” at 2:00 PM.

On Tuesday, the Senate Committee on Finance will hold a hearing entitled “Building a Competitive U.S. International Tax System” at 10:00 AM.