Money Matters: This Week in Washington

This Week in Washington for April 15, 2019

April 15, 2019

Dina Ellis

THE BIG PICTURE

House Ways and Means Committee Chairman Richard Neal set a new April 23rd deadline for the IRS to comply with his request for six years of the President’s personal and business tax returns. The move came after the agency missed the original Wednesday deadline, with Treasury Secretary Mnuchin instead responding that he needed additional time to review and consider the request “to ensure that our response is fully consistent with the law and the Constitution.” A subpoena is the next likely step, after Neal noted the IRS has “an unambiguous legal obligation” to comply. The President continued to cite an ongoing audit as his reason for declining to release the returns, saying “while I’m under audit, I won’t do it.”

Following reports that the administration was “strongly considering” transporting detained illegal immigrants to so-called sanctuary cities, the President announced via Twitter on Saturday that the “USA has the absolute legal right to have apprehended illegal immigrants transferred to Sanctuary Cities.” His tweet stood in contrast to statements from the White House and Department of Homeland Security earlier in the week that the proposal was merely “a suggestion that was floated and rejected.”

Other highlights of last week include:

• Congressman Eric Swalwell (D-CA) announced his bid for the presidency on Monday during an appearance on “The Late Show with Stephen Colbert.”

• On Tuesday, Attorney General William Barr announced that he plans to release a redacted version of Special Counsel Robert Mueller’s report “within a week.”

• The President announced the departure of Secret Service Director Randolph Alles on Monday, one day after the resignation of Homeland Security Secretary Kirstjen Nielson. James Murray, a career member of the USSS, will succeed him in May.

• On Thursday, Greg Craig, who previously served as White House Counsel during the Obama administration, was indicted by a federal grand jury on counts of making false statements and concealing information regarding his work lobbying on behalf of Ukraine.

• On Sunday South Bend, Indiana Mayor Pete Buttigieg formally launched his presidential campaign, calling for “a new American spring.”

LAST WEEK ON THE HILL

Hearing on “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining”: On Tuesday, the Subcommittee on Consumer Protection and Financial Institutions held a hearing to consider the impact of the Community Reinvestment Act on discrimination and to consider modernization efforts.

• Mr. Jesse Van Tol, Chief Executive Officer, National Community Reinvestment Coalition (NCRC)

• Ms. Mehrsa Baradaran, Associate Dean for Strategic Initiatives & Robert Cotten Alston Chair in Corporate Law, University of Georgia School of Law

• Mr. Clint Odom, Senior Vice President Policy and Advocacy and Washington Bureau Executive Director, National Urban League

• Mr. Benson Doyle Mitchell, Jr. President and CEO, Industrial Bank, Representative of National Bankers Association

• Mr. Aaron Glantz, Senior Reporter, Reveal from The Center for Investigative Reporting

• Mr. Benson F. “Buzz” Roberts, President and CEO, National Association of Affordable Housing Lenders

Hearing on “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System”: On Tuesday, the full Committee held a hearing to receive the testimony of Treasury Secretary Steven Mnuchin on the status of efforts to reform the International Monetary Fund (IMF) and the state of the international financial system. Secretary Mnuchin clashed at times with Chairwoman Maxine Waters (D-CA), including a tense exchange over the length of the hearing. During his testimony, the Secretary urged the Committee to find a bipartisan solution to bridge the gap between federal and state laws regarding marijuana enforcement, saying the discrepancy was causing “significant conflict.” He also indicated that the Committee was “headed in the right direction” in their work on anti-money laundering legislation.

• The Honorable Steven T. Mnuchin, Secretary, U.S. Department of the Treasury

Hearing on “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 years after the Financial Crisis”: On Wednesday, the full Committee held a hearing to examine seven of the eight U.S.-based GSIBs, with topics spanning a diverse set of issues such as gender equality, student debt, the financial crisis, climate change, cybersecurity and interest rates, among others. During the hearing Rep. Alexandria Ocasio-Cortez said she thought it was “absolutely” the right time to activate the countercyclical capital buffer, because “if we’re not doing it now, in a time of a downturn we won’t be as prepared.”

• Mr. Michael L. Corbat, Chief Executive Officer, Citigroup

• Mr. James Dimon, Chairman & Chief Executive Officer, JP Morgan Chase & Co.

• Mr. James P. Gorman, Chairman & Chief Executive Officer, Morgan Stanley

• Mr. Brian T. Moynihan, Chairman & Chief Executive Officer, Bank of America

• Mr. Ronald P. O’Hanley, President & Chief Executive Officer, State Street Corporation

• Mr. Charles W. Scharf, Chairman & Chief Executive Officer, Bank of New York Mellon

• Mr. David M. Solomon, Chairman & Chief Executive Officer, Goldman Sachs

SENATE BANKING COMMITTEE

No hearings held.

ON THE FLOOR

Interior Chief Confirmed: On Thursday, the Senate voted 51-46 to confirm former lobbyist David Bernhardt as the next Interior secretary, after three Democrats – Joe Manchin (WV), Martin Heinrich (NM), and Kyrsten Sinema (AZ) – and one Independent joined with the Republicans to vote in favor.

LEGISLATION INTRODUCED AND PROPOSED

Tax Cuts for Workers and Families: Virginia Senators Mark Warner and Tim Kaine, along with 42 of their colleagues, introduced the “Working Families Tax Relief Act (WFTRA),” which aims to cut taxes for workers and families by expanding the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). Sen. Warner noted that “by expanding two critical tax credits, this legislation will provide dependable financial relief to millions of low- and moderate-income households as well as families with children so that folks can finally focus on getting ahead.”

Fannie Mae and Freddie Mac Salary Cap Enforcement: Democratic Sen. Elizabeth Warren (MA) and Republican Sen. Thom Tillis (NC) introduced the “Respect the Caps Act,” which would close a loophole which has allowed compensation for executives at Fannie Mae and Freddie Mac to expand well beyond Congressionally-mandated limits. “Instead of enforcing the law, the FHFA has allowed executive compensation at Fannie to increase by $3.6 million and at Freddie, by $3.25 million,” said Senator Warren.

Reinstate and Expand Glass-Steagall: Rep. Marcy Kaptur (D-OH), lead 29 members in introducing H.R. 2176, the “Return to Prudent Banking Act of 2019,” which would reinstate and expand the historic provisions of the Glass-Steagall Act of 1933 restricting affiliations between commercial and investment banks. In announcing the bill, Rep. Kaptur decried the “misguided deregulation [which] opened the floodgates for growth of financial institutions that are too big to fail and encouraged the type of risky behaviors that led to the crash of the American financial system in 2008.”

Shutdown Protection: Rep. Jennifer Wexton (D-VA) introduced H.R. 2290, the “Shutdown Guidance for Financial Institutions Act,” which would require federal financial regulators to issue guidance encouraging banks and other financial institutions to work with consumers and businesses affected by a federal Government shutdown. Rep. Wexton said the measure was inspired by stories from her constituents during the recent government shutdown, including one “who was denied a mortgage due to a government shutdown she couldn’t control,” and pledged to “continue to work to safeguard our federal workforce should a government shutdown occur.”

Veteran Loans: Rep. Vicente Gonzalez (D-TX) introduced H.R. 2305, the bipartisan “Veterans Member Business Loan Act,” which would exclude veterans’ loans from the statutory credit union member business loan cap as well as amend the Federal Credit Union Act to exclude extensions of credit made to veterans from the definition of a member business loan, thus increasing veterans’ access to loans for small business purposes from a credit union. “It is critical that our servicemembers are equipped with the tools they need to find success in their transition to civilian life,” said Rep. Don Young (R-AK), who also signed onto the measure.

Blockchain and Innovation: Congressmen Warren Davidson (R-OH) and Darren Soto (D-FL) introduced H.R. 2144, the “Token Taxonomy Act of 2019,” which would amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for another, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash. Rep. Davidson touted the bill as necessary to “clarify the numerous conflicting state initiatives and regulatory rulings, and patchwork of judicial decisions, that have clouded certainty for entrepreneurs and businesses that use blockchain technology” and unlock the power of blockchain.

THIS WEEK ON THE HILL

No hearings held during recess period.

THE REGULATORS

Federal Reserve Invites Comment on Regulatory Framework Proposal: On Monday, the Federal Reserve invited public comment on a regulatory framework that would more closely match the rules for foreign banks with the risks they pose to the U.S. financial system. Under the proposed framework, foreign banks with US$100B or more in U.S. assets would be sorted into categories of increasingly stringent requirements based on several factors. The factors, which reflect banks’ complexity and risk to the financial system, include asset size, cross-jurisdictional activity, and reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure.

Federal Reserve Publishes Archive of Transcripts: On Friday, the Federal Reserve Board published transcripts of more than 50 interviews with former policymakers and former senior staff that chronicle nearly half a century of Federal Reserve history. The interviews, including with former chairs Paul A. Volcker, Alan Greenspan, and Janet L. Yellen, provide personal recollections of important economic, monetary policy, and regulatory developments. They also provide impressions of life and culture at the Federal Reserve Board.

SEC Regulatory Guidance Risks Creating a “Minefield” Says Commissioner Peirce: Speaking at the SEC’s annual conference on Monday, Commissioner Hester Peirce described her concern that the agency’s regulatory guidance could be creating a “minefield” of “secret law” that would be detrimental to businesses. She noted that it, “binds market participants like law does, but is immune from judicial and even commission review,” and that “there is a line that can be crossed” in which staff guidance goes from “being merely helpful lore to something that is more akin to secret law.”

SEC Issues Agenda for April 15 Meeting of the Fixed Income Market Structure Advisory Committee: On Thursday, the SEC released the agenda for the April 15 meeting of the Fixed Income Market Structure Advisory Committee, which will include panel discussions on (1) Block Pilot and Reference Data Service Proposal; (2) Draft Recommendation on Pennying in the Corporate Bond and Municipal Securities Markets; (3) Draft Recommendations on Certain Principal Transactions with Advisory Clients; (4) Updates from the Credit Ratings, ETFs and Bond Funds, and Corporate Bond Transparency Subcommittees; and (5) LIBOR Transition: Implications for the Corporate Bond and Municipal Securities Markets.

HUD Issues Request for Information on Opportunity Zones: On Friday, HUD released an RFI seeking public input on how the Department can use its existing authorities to maximize the beneficial impact of Opportunity Zones for residents and their communities. “We are looking to better understand how HUD can better tailor its policies and help Opportunity Zones create more positive economic outcomes for the millions of Americans that live in these areas,” sad Secretary Ben Carson.

Minutes from March FOMC Meeting Released: The minutes from the March 19-20 Federal Open Markets Committee were released on Wednesday, showing that officials see little risk of inflation, and will likely maintain interest rates at current levels. The minutes described that “a majority of participants expected the evolution of the economic outlook ... would likely warrant leaving the target range unchanged for the remainder of the year.”

U.S., European Banking Union, and UK Officials to Meet for Planned Coordination Exercise on Cross-Border Resolution Planning: Senior officials representing resolution, regulatory and supervisory authorities, central banks, and finance ministries in the United States, the United Kingdom, and the European Banking Union will hold a meeting on Saturday, April 13, as part of a series of planned exercises to enhance understanding of one another’s resolution regimes for global systemically important banks and strengthen coordination on cross-border resolution.

Treasury Sanctions Lebanese Money Launderer: On Thursday, Treasury’s OFAC identified Lebanese national Kassem Chams and designated the Chams Money Laundering Organization as Specially Designated Narcotics Traffickers (SDNT) pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). “Kassem Chams and his international money laundering network move tens of millions of dollars a month in illicit narcotics proceeds on behalf of drug kingpins and facilitate money movements for Hizballah. We are targeting the financial infrastructure of these narcotics traffickers as part of this administration’s unprecedented campaign to prevent Hizballah and its global terror affiliates from profiting off violence, corruption, and the drug trade,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence. “Treasury continues to aggressively use its tools to cut off global support networks used by Hizballah to finance its nefarious activities.”

Treasury Increases Pressure on Cuba to End Support to Maduro by Imposing Further Oil Sector Sanctions: On Friday, Treasury’s OFAC designated four companies that operate in the oil sector of the Venezuelan economy, along with nine vessels, some of which transported oil from Venezuela to Cuba, as blocked property owned by the four companies. “We continue to target companies that transport Venezuelan oil to Cuba, as they are profiting while the Maduro regime pillages natural resources. Venezuela’s oil belongs to the Venezuelan people, and should not be used as a bargaining tool to prop up dictators and prolong oppression,” said Treasury Secretary Steven Mnuchin.

COMINGS AND GOINGS AT THE AGENCIES

Rodney Hood Named Chairman of National Credit Union Administration: On Monday, the President named the newly sworn-in Rodney Hood as the Chairman of the National Credit Union Administration. Mr. Hood replaces Mark McWatters, who will remain on the board until the end of his term in August, or until a replacement is confirmed.

Federal Reserve Nominees Face Pushback from Republicans in Congress: The President’s two reported choices for vacancies on the Federal Reserve Board, Herman Cain and Stephen Moore, are encountering some resistance from Republican Senators who question the seriousness of the candidates. Republican whip Senator John Thune (R-SD) noted that “there are concerns that are being voiced to the administration about qualifications,” while Sen. Mitt Romney (R-UT) said it would be a mistake to “turn the Federal Reserve into a more partisan entity.” Four Republican Senators expressed their opposition to Mr. Cain, narrowing his potential path to confirmation if he were to be formally nominated.

THE COURTS

Deadlocked Jury Leads to Mistrial in Thakkar Spoofing Trial: The jury in USA v. Thakkar failed to reach a verdict last week, leading to a mistrial. The case centered on claims that software programmer Jitesh Thakkar had aided and abetted the criminal securities transactions of a U.S.-based trader. The case highlighted the practice of spoofing, a form of market manipulation in which traders place a large volume of fake orders to give a false impression of supply and demand. The government has two weeks to decide if they want to proceed with a retrial.

OTHER NOTEWORTHY ITEMS

White House Seeks to Rein in Agency Regulation: A memorandum released by OMB on Thursday could have major implications for agencies seeking to implement regulations. The memo directs regulators to submit nonbinding guidance to the White House for review and determination by the Office of Information and Regulatory Affairs as to whether it meets the “major” threshold for congressional review under the CRA.

Senator Brown Calls on Mnuchin to Address Emerging Leveraged Loan Threat: Senate Sherrod Brown (D-OH) wrote to Secretary Treasury Steven Mnuchin, urging him to “take decisive action” to address the emerging threat created by risks in the leveraged loan market. Sen. Brown noted that “the marked increase in the volume of leveraged loans originated by financial institutions has been accompanied by a notable decrease in underwriting standards” and said the FSOC must “consider whether this additional risk to the banking system serves as a public benefit to the real economy.”

Democratic Senators Raise Concerns over CFPB’s Oversight of Student Loan Services: In a letter to the CFPB, a group of Democratic Senators lead by Elizabeth Warren (D-MA) questioned the agency’s supervisory diligence, saying “we are concerned that CFPB leadership has abandoned its supervision and enforcement activities related to federal student loan services.” The Senators demanded information from the Bureau about its efforts in that space, as well as an explanation as to why there is not an information-sharing agreement between the CFPB and Department of Education.

IMF Cuts Growth Outlook to Lowest Level Since Financial Crisis: On Tuesday, the International Monetary Fund released its global growth outlook, forecasting that growth will drop from 3.5 to 3.3 percent this year, amid increased uncertainty surrounding Brexit, trade tensions and higher tariffs.