TRP Financial Services Report
September 22, 2014
Once again the smell of jet fumes and the need to get home to campaign overrode other political considerations as both the House and Senate wrapped up their work in DC by passing a continuing resolution that funds the government through December 11th. When they come back there is a fairly good chance that we will have found out whether the Republicans have taken back the Senate or whether the Democrats were able to hold onto their majority. Of course with both Louisiana and Georgia requiring run-offs for elections that result in no candidate obtaining more than 50% of the vote, it is also possible that the question may not be answered until next year. If that is the case we can certainly expect the lamest of all lame ducks . Even if everything is settled come November 5th it is still likely that we will see an abbreviated lame duck, although Leader Reid has announced an ambitious agenda that indicates at least he believes that the post-election environment will break the grid lock that has plagued Congress this year.
Looking Ahead
Near Term
- The House and Senate are in Recess until after the elections.
Further Out
- The House and Senate will start their lame duck session on Wednesday November 12th. Although both the House and the Senate expect to conduct their leadership elections and orientation sessions that week, members have been advised to anticipate votes that week as well.
The Past Week
Legislative Branch
House
House Passes Series of Dodd-Frank Fixes – Senate Action TBD
On Tuesday, by a vote of 327 – 97 the House approved H.R. 5461 that would make certain tweaks to Dodd Frank. The bill was a collection of various bills that had already passed the house such as a change to the Volcker rule to allow collateralized loan obligations, a provision to modify an element of the qualified mortgage rule, and a provision aimed at the treatment of swaps by non-financial companies. In addition, the legislation also included language that would allow the Federal Reserve more flexibility to write the capital rules for insurance companies, a measure that had already passed the Senate. As expected, Senate Democrats took umbrage with this strategy and refused to take up the measure before leaving town. According to published reports, House leadership has indirectly indicated they would be willing to hold a separate vote on a standalone capital insurance bill and it is worth noting that the Senate passed bill still remains in the House, as it was not used as a vehicle for the legislation passed earlier this week.
Separately but related, also on Tuesday, the House passed a bill by a vote of 320-102, that included 11 separate pieces of financial services legislation, many of which the House had passed previously, and also that included some of the provisions at issue in H.R. 5405. Like H.R. 5461, this bill is not expected to be taken up by the Senate this year.
Financial Services Committee Continues to Examine FSOC
On Wednesday, the Oversight Investigations Subcommittee held a hearing entitled, “Oversight of the Financial Stability Oversight Council.” As expected, the hearing touched on issues such as FSOC’s SIFI designation process, their continued analysis of the asset management industry, and how the Council monitors for systemic risk. Interestingly a few other issues came up during the hearing, including a question by Representative Steve Horsford (D-NV) who asked whether the FSOC intended to pursue any actions against the gaming industry.
Slaughter Introduces Political Intelligence Bill
On Thursday, Congresswoman Slaughter (D-NY) along with John Duncan (R-TN) and Tim Waltz (D-MN) introduced the “Political Transparency Act,” a bill that would impose disclosure requirements and restrictions on people who perform “political intelligence” work similar to what exists for lobbyists. Senator Grassley is expected to introduce a companion measure in the Senate before the end of the year.
House Passes Audit the Fed Bill
On Wednesday, the House passed the Federal Reserve Transparency Act, known by its critics as the “Audit the Fed” bill. This legislation would require the Government Accountability Office (GAO), Congress’s non-partisan investigative arm, to conduct a “full audit” of the Federal Reserve’s operation. Currently, the GAO reviews the central bank’s financial operations, but not its policy decisions or agreements with foreign governments and central banks. Although over 106 Democrats joined the majority in passing the bill 333-92, it is unlikely that the Senate will take it up this year, as it faces stiff opposition from many who see it as an effort to politicize and ultimately neuter the Federal Reserve Board.
Bipartisan Group of Congressmen Write to Home Depot about Data Breach
On Monday, Reps. Joe Barton (R-TX), Jan Schakowsky (D-IL) and Bobby Rush (D-IL) sent a letter to the CEO of Home Depot seeking more information about the company’s security practices in the wake of news of a widespread data breach. According to reports, among other questions, the letter asks Home Depot what, if any, lessons it learned and what security measures it implemented after reports of earlier breaches at other major retailers, as well as what are the company’s protocols for screening vendors before issuing them credentials that can be used to access the company's internal networks. A response was requested by October 13th.
Senate
Senate Banking Committee Examines Consumer Finance
On Thursday, the Senate Banking held a hearing entitled “Assessing and Enhancing Protections in Consumer Financial Services” that focused on consumer protections in the “small-dollar” loan industry as well as compliance burdens from Consumer Financial Protection Bureau (CFPB) regulations. In addition other issues that were brought up in the hearing included Operation Choke Point and the pending CFPB rule on mandatory pre-dispute arbitration clauses in consumer financial contracts.
Banking Committee Looks at the State of Small Depository Institutions
On Tuesday, the Senate Banking Committee held a hearing entitled, hearing entitled “Examining the State of Small Depository Institutions.” The hearing offered a forum for community banks to share how they are being impacted by various regulatory burdens as well as for Senators to question aspects of those regulations. Issues raised during the hearing included Risk Based Capital Rules, QM, Privacy Notification Requirements and Senator Brown’s bill to modernize that rule, as well as whether financial regulators are taking steps to reduce regulatory burdens for small financial institutions.
Senate Finance Examines IRAs
On Tuesday, September 16, the Senate Finance Committee held a hearing entitled “Retirement Savings 2.0: Updating Savings Policy for the Modern Economy.” The hearing focused on measures to encourage retirement savings and expand the availability of retirement savings plans. During the hearing, the GAO reported that about 9,000 U.S. taxpayers have each accumulated at least $5 million in individual retirement accounts raising questions about some investors’ tax-advantaged return and causing Chairman Wyden to note that that IRAs were not intended to be tax shelters for millionaires, and that he would like the this issues to be part of the coming consideration of tax reform.
House
House Passes Series of Dodd-Frank Fixes – Senate Action TBD
On Tuesday, by a vote of 327 – 97 the House approved H.R. 5461 that would make certain tweaks to Dodd Frank. The bill was a collection of various bills that had already passed the house such as a change to the Volcker rule to allow collateralized loan obligations, a provision to modify an element of the qualified mortgage rule, and a provision aimed at the treatment of swaps by non-financial companies. In addition, the legislation also included language that would allow the Federal Reserve more flexibility to write the capital rules for insurance companies, a measure that had already passed the Senate. As expected, Senate Democrats took umbrage with this strategy and refused to take up the measure before leaving town. According to published reports, House leadership has indirectly indicated they would be willing to hold a separate vote on a standalone capital insurance bill and it is worth noting that the Senate passed bill still remains in the House, as it was not used as a vehicle for the legislation passed earlier this week.
Separately but related, also on Tuesday, the House passed a bill by a vote of 320-102, that included 11 separate pieces of financial services legislation, many of which the House had passed previously, and also that included some of the provisions at issue in H.R. 5405. Like H.R. 5461, this bill is not expected to be taken up by the Senate this year.
Financial Services Committee Continues to Examine FSOC
On Wednesday, the Oversight Investigations Subcommittee held a hearing entitled, “Oversight of the Financial Stability Oversight Council.” As expected, the hearing touched on issues such as FSOC’s SIFI designation process, their continued analysis of the asset management industry, and how the Council monitors for systemic risk. Interestingly a few other issues came up during the hearing, including a question by Representative Steve Horsford (D-NV) who asked whether the FSOC intended to pursue any actions against the gaming industry.
Slaughter Introduces Political Intelligence Bill
On Thursday, Congresswoman Slaughter (D-NY) along with John Duncan (R-TN) and Tim Waltz (D-MN) introduced the “Political Transparency Act,” a bill that would impose disclosure requirements and restrictions on people who perform “political intelligence” work similar to what exists for lobbyists. Senator Grassley is expected to introduce a companion measure in the Senate before the end of the year.
House Passes Audit the Fed Bill
On Wednesday, the House passed the Federal Reserve Transparency Act, known by its critics as the “Audit the Fed” bill. This legislation would require the Government Accountability Office (GAO), Congress’s non-partisan investigative arm, to conduct a “full audit” of the Federal Reserve’s operation. Currently, the GAO reviews the central bank’s financial operations, but not its policy decisions or agreements with foreign governments and central banks. Although over 106 Democrats joined the majority in passing the bill 333-92, it is unlikely that the Senate will take it up this year, as it faces stiff opposition from many who see it as an effort to politicize and ultimately neuter the Federal Reserve Board.
Bipartisan Group of Congressmen Write to Home Depot about Data Breach
On Monday, Reps. Joe Barton (R-TX), Jan Schakowsky (D-IL) and Bobby Rush (D-IL) sent a letter to the CEO of Home Depot seeking more information about the company’s security practices in the wake of news of a widespread data breach. According to reports, among other questions, the letter asks Home Depot what, if any, lessons it learned and what security measures it implemented after reports of earlier breaches at other major retailers, as well as what are the company’s protocols for screening vendors before issuing them credentials that can be used to access the company's internal networks. A response was requested by October 13th.
Senate
Senate Banking Committee Examines Consumer Finance
On Thursday, the Senate Banking held a hearing entitled “Assessing and Enhancing Protections in Consumer Financial Services” that focused on consumer protections in the “small-dollar” loan industry as well as compliance burdens from Consumer Financial Protection Bureau (CFPB) regulations. In addition other issues that were brought up in the hearing included Operation Choke Point and the pending CFPB rule on mandatory pre-dispute arbitration clauses in consumer financial contracts.
Banking Committee Looks at the State of Small Depository Institutions
On Tuesday, the Senate Banking Committee held a hearing entitled, hearing entitled “Examining the State of Small Depository Institutions.” The hearing offered a forum for community banks to share how they are being impacted by various regulatory burdens as well as for Senators to question aspects of those regulations. Issues raised during the hearing included Risk Based Capital Rules, QM, Privacy Notification Requirements and Senator Brown’s bill to modernize that rule, as well as whether financial regulators are taking steps to reduce regulatory burdens for small financial institutions.
Senate Finance Examines IRAs
On Tuesday, September 16, the Senate Finance Committee held a hearing entitled “Retirement Savings 2.0: Updating Savings Policy for the Modern Economy.” The hearing focused on measures to encourage retirement savings and expand the availability of retirement savings plans. During the hearing, the GAO reported that about 9,000 U.S. taxpayers have each accumulated at least $5 million in individual retirement accounts raising questions about some investors’ tax-advantaged return and causing Chairman Wyden to note that that IRAs were not intended to be tax shelters for millionaires, and that he would like the this issues to be part of the coming consideration of tax reform.
Select Highlights from the Administration
Federal Deposit Insurance Corporation (FDIC)
Hoening Pontificates on the Possibility of Eliminating Title I
On Thursday, while speaking at a conference, FDIC Vice Chairman Thomas Hoening appeared to be willing to eliminate Dodd-Frank’s Title I bankruptcy authority for big banks if it shows impossible to work. However, he noted that if Title I was eliminated because big banks are unable to be processed effectively through the bankruptcy process then it would effectively mean that they should be treated as Government Sponsored Enterprises (GSEs) or public utilities and treated as such. Hoening’s remarks came a week after the House Judiciary Committee passed a bill to expedite the bankruptcy process for large banks.
Federal Reserve Board
Fed to Remain on Glide Path for “Considerable Time”
On Wednesday, the Fed announced that was continuing to slow its QE purchases as expected and remains on target to exit the QE program in the next month or so. Then during her press conference following the FOMC meeting, Fed Chair Yellen indicated that the Fed would not issue new forward guidance for a “considerable time” as it remained comfortable with its current analysis of the country’s economic indicators.
No Changes to Rules on Swipe Fees
Late last week the Federal Reserve announced it was not planning on proposing any changes to its debit card swipe fee rules. The announcement followed a Fed Survey on the costs associated with debit card transactions, where it found that for 64 percent of card issuers, the average cost of authorizing, settling and clearing (ACS) debit card transactions in 2013 was less than the Fed’s swipe fee cap of roughly 21 cents. In addition, the survey showed that the median fraud-prevention and data security costs remained the same – about 1 cent per transaction.
Department of Justice
Holder Calls for Greater Whistle Blower Rewards
In a speech on Wednesday, Attorney General Holder called on Congress to help encourage whistle blowers, especially in the Financial Services industry, as he noted that “we are already witnessing a troubling return to some of the very same profit-driven risk-taking that contributed to the 2008 collapse, and law enforcement needs to keep pace with evolving challenges — so we can prevent the next financial bubble from spiraling into the next full-blown economic crisis.” As part of his speech, the Attorney General called on Congress to require financial companies to designate an individual at their firm to be responsible for when crimes are uncovered, similar to how Sarbanes-Oxley attached responsibility for verifying audit reports on executives.
Securities and Exchange Commission (SEC)
Investor Advisory Committee Scheduled to Address Accredited Investor Definition
On Friday, the SEC announced that its Investor Advisory Committee will be meeting on October 9th to, among other things, will include a vote on recommendation for how the SEC should define “accredited investors.” Currently, an accreditor investor is defined as an individual with income of more than $200,000 or net worth of more than $1 million, excluding their primary home. However, some groups have voiced concerns that this definition is out of date and that the SEC’s rules fail to adequately outline how issuers must verify whether investors are qualified.
The announcement came several days after Commissioner Gallagher gave a speech to the Heritage Foundation where he stated that he believed the SEC should further deregulate public and private offerings for small businesses and should also consider ways to boost secondary-market trading in private shares, including the possibility of expanding safe harbors to encourage trading among accredited investors.
Consumer Financial Protection Bureau (CFPB)
CFPB Announces Larger Participant Rule for Auto Lenders
On Wednesday, the CFPB announced it was proposing to extend its authority over non-bank auto lending companies through a “larger participant” rulemaking. The proposed rule would allow the CFPB to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year. Then on Thursday, the CFPB held a field hearing, where among other things they released a White Paper and a Supervisory Highlights Report intended to offer greater transparency into the Bureau’s methodology and the statistical analysis used to determine auto lenders compliance with federal regulations – though initial reviews from the industry appear to indicate that the Bureau still has work to do.
Next Week’s Schedule
The House and Senate are in Recess until November 12th