Money Matters: This Week in Washington

This Week in Washington for April 16, 2018

April 16, 2018

Dina Ellis

THE BIG PICTURE

On Monday, the FBI raided the home, office, and hotel room of President Trump’s personal lawyer and self-described “fixer” Michael Cohen, seizing business records, recordings, emails, and various documents. The raid was conducted following a referral by Special Counsel Robert Mueller to the U.S. Attorney’s Office for the Southern District of New York. While it was initially unclear what had prompted the raid, it was later reported that Mr. Cohen is under criminal investigation for his business dealings. The President responded angrily via Twitter, calling the raid a “disgrace” and “an attack on our country.”

Early Wednesday morning President Trump seemed to signal that military action in Syria was imminent after he issued a warning to Russia via Twitter that they should “get ready” because missiles “will be coming” following the chemical weapons attack by the Assad regime. The tweet marked a further deterioration in relations between Moscow and Washington which have soured since the nerve agent attack in Salisbury and ongoing tensions over Syria. Late on Friday evening the President made good on his tweet, ordering targeted bombing strikes in coordination with France and the United Kingdom.

Following months of rumors, Speaker of the House Paul Ryan announced on Wednesday that he does not plan to seek reelection and will surrender his gavel following the midterm elections. Speaker Ryan, who was initially reluctant to assume the role of Speaker, cited a desire to spend more time with his family as his main motivation for retiring. However, some speculate a difficult relationship with President Trump may also have been a contributing factor. He announced later in the week that he plans to endorse House Majority Leader Kevin McCarthy (R-CA) in the race to succeed him as Speaker, should the Republicans maintain control of the House in November. Rep. Steve Scalise (R-LA) has already announced he does not intend to compete for the position.

On Friday, President Trump announced his decision to pardon Scooter Libby. Mr. Libby, a former chief of staff for Vice President Dick Cheney, was convicted in 2007 on charges of perjury and obstruction of justice related to the leaking of CIA officer Valerie Plame’s identity. President George W. Bush had previously commuted Mr. Libby’s prison sentence, but declined to offer a full pardon. In a statement, the President explained that “for years I have heard that he has been treated unfairly. Hopefully, this full pardon will help rectify a very sad portion of his life.”

President Trump held a ceremony to sign into law H.R. 1865, a bill intended to help stop online sex trafficking by making it easier for victims to hold websites accountable. The President criticized the lengthy negotiation process noting, “It shouldn't have been tough.” Sen. Rob Portman (R-OH) who has long championed the legislation celebrated, calling it “a big victory for trafficking victims and survivors who for too long have been denied the opportunity to get the justice they deserve.”

Other highlights of last week include:

• Dennis Ross (R-FL) also announced on Wednesday, that he will not seek reelection, though this was largely overshadowed by Speaker Ryan’s news. Rep. Ross is currently a member of the House Financial Services Committee and has been a leader on issues related to the Financial Stability Oversight Council.

• The CBO released an analysis on Monday showing that the recently passed tax cuts will cost US$1.89T over the next decade, up US$400B from the initial analysis provided by the JCT.

• Sen. Richard Shelby (R-AL) was confirmed as the Chair of the Senate Appropriations Committee, a highly influential position in the allocating of federal funds. Sen. Shelby succeeds former Sen. Thad Cochran (R-MS) who retired earlier this month.

• Sen. Tammy Duckworth (D-IL) gave birth to her daughter, Maile Pearl Bowlsbey, on Monday, becoming the first senator to give birth while in office.

• Democrat Conor Lamb was sworn in on Thursday by House Speaker Paul Ryan, officially succeeding Republican Tim Murphy who resigned in October. Pennsylvania’s 18th District will no longer exist come November, and Rep. Lamb has already announced his run for a full term in the newly formed 17th District.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitled “The 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection”: On Wednesday, the House Financial Services Committee held a hearing on “The 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection” to receive the report and testimony of Acting Director Mick Mulvaney. The hearing was a reunion of sorts for Acting Director Mulvaney, who prior to taking the helm at the OMB and CFPB, was a member of the Committee. Not everyone was happy to see their old colleague however, with Rep. Maxine Waters (D-CA) expressing her view that “Mr. Mulvaney is not the acting director of the Consumer Financial Protection Bureau. He was illegally appointed by President Trump.” In his prepared remarks Acting Director Mulvaney explained his shift in priorities at the agency to “take a prudent, consistent and humble approach to enforcing the law” with a focus on “free markets and consumer choice.”

• The Honorable Mick Mulvaney, Acting Director, Consumer Financial Protection Bureau

Hearing entitled “Oversight of the Federal Housing Finance Agency”: On Thursday the House Financial Services Committee Subcommittee on Oversight and Investigations held a hearing on “Oversight of the Federal Housing Finance Agency.” The purpose of the hearing was to examine the Federal Housing Finance Agency’s (FHFA) performance as the regulator of government sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition, the Subcommittee discussed FHFA’s oversight and regulation of Fannie Mae and Freddie Mac since the conservatorship of these two enterprises began in 2008.

• The Honorable Laura Wertheimer, Inspector General, Federal Housing Finance Agency

Hearing entitled “H.R. 4311, the Foreign Investment Risk Review Modernization Act of 2017”: On Thursday, the House Financial Services Committee Subcommittee on Monetary Policy and Trade held a legislative hearing to examine “H.R. 4311, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA).” H.R. 4311 was introduced on November 8, 2017 by Congressman Robert Pittenger (R-NC) and seeks to amend provisions of section 721 of the Defense Production Act of 1950 (50 U.S.C. 4565) to update the operations of the multi-agency panel known as the Committee on Foreign Investment in the United States (CFIUS). In addition to other provisions, this legislation would expand CFIUS’s jurisdiction to include certain outbound transactions, non-passive investments, and real estate purchases and leases. The legislative hearing provided the Subcommittee with perspectives on the legislation’s effects on national security, economic growth, innovation, and continued foreign investment in the United States. Subcommittee Chairman Andy Barr (R-KY) underscored the importance of this issue, saying “The dramatic increase in the number, size, and complexity of deals CFIUS scanned last year, combined with the notable rise in the percentage of deals that have Chinese ties, is a clear indicator that we should examine ways to modernize the CFIUS process as we head into the third decade of the 21st Century . . . Together, I am confident that Congress can improve the CFIUS process in a way that protects national security, while also being careful not to drive away unobjectionable deals that create jobs and opportunities for Americans of all walks of life.”

• Mr. Jonathan S. Kallmer, Senior Vice President, Global Policy, Information Technology Industry Council

• The Honorable Clay Lowery, Managing Director, Rock Creek Global Advisors, and former Assistant Secretary for International Affairs, U.S. Department of the Treasury

• Mr. David M. Marchick, Managing Director and Global Head of External Affairs, The Carlyle Group

• Mr. Michael A. Brown, Presidential Innovation Fellow, Defense Innovation Unit Experimental

• Ms. Giovanna M. Cinelli, Partner and Lead, International Trade and National Security Practice, Morgan Lewis & Bockius LLP

SENATE BANKING COMMITTEE

Hearing entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress”: On Thursday, the Senate Banking Committee held a hearing on “the Consumer Financial Protection Bureau’s Semi-Annual Report to Congress” to receive the report and testimony of Acting Director Mick Mulvaney. The hearing gave Acting Director Mulvaney and Sen. Elizabeth Warren (D-MA), who have exchanged barbs over the last few months in letters and through the media, a chance to argue face to face. The Acting Director explained his view that the Bureau needs to be reined in and subject to additional congressional oversight, while conceding that since he assumed the top role, no enforcement actions have been initiated.

• The Honorable Mick Mulvaney, Acting Director, Consumer Financial Protection Bureau

ON THE FLOOR

House Passes Three Financial Services Bills: On Wednesday, the House passed two financial services bills, H.R. 4061 and H.R. 4293, intended to create new limitations on the Financial Stability Oversight Council and Federal Reserve. On Friday, in an unusual move for the House which typically wraps up its agenda by Thursday evening, they passed H.R. 4790, exempting small banks from the Volcker Rule.

• H.R. 4061, the Financial Stability Oversight Council Improvement Act of 2017 – sponsored by Rep. Dennis Ross (R-FL) and co-sponsored by Rep. John Delaney (D-MD), the bill would amend the Financial Stability Act of 2010 to require the Financial Stability Oversight Council, in determining whether a nonbank financial company shall be designated as systemically important and consequently be supervised by the Federal Reserve Board and subject to prudential standards, and to consider the appropriateness of imposing such standards as opposed to other forms of regulation to mitigate identified risks to U.S. financial stability. It would also require the council every five years, upon request by a nonbank financial company, to reevaluate such a determination and hold a vote on whether to rescind it. The bill passed 297-121.

• H.R. 4293, the Stress Test Improvement Act of 2017 – sponsored by Rep. Lee Zeldin (R-NY), the bill would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act to modify testing requirements applicable to bank holding companies and certain nonbank financial companies, including by: (1) establishing limitations on Comprehensive Capital Analysis and Review by the Federal Reserve Board, (2) reducing the frequency of stress testing from semiannual to annual, and (3) otherwise revising provisions related to stress testing. The bill was originally Section 152 of H.R. 10, the Financial CHOICE Act of 2017, which passed the House in June 2017. Rep. Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services expressed her opposition in a floor statement, saying the bill “weakens critical protections put in place by Democrats to prevent another financial crisis.” The bill passed 245-174.

• H.R. 4790, the Volcker Rule Regulatory Harmonization Act – sponsored by Rep. French Hill (R-AR), the bill would amend the Bank Holding Company Act of 1956 to exempt from the Volcker Rule banks with total assets: (1) of US$10B or less, and (2) comprised of 5% or less of trading assets and liabilities. (The Volcker Rule prohibits banking agencies from engaging in proprietary trading or entering into certain relationships with hedge funds and private-equity funds.) The bill would also grant exclusive rulemaking authority under the Volcker Rule to the Federal Reserve Board. (Currently, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission also has regulatory authority under the Volcker Rule.) The bill passed 300-104.

THIS WEEK ON THE HILL

Tuesday, April 17

House Financial Services Committee will conduct a hearing entitled “Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System” 10:00 AM in 2128 Rayburn House Office Building

House Financial Services Committee (Subcommittee on Housing and Insurance) will conduct a hearing entitled “Housing Choice Voucher Program: An Oversight and Review of Legislative Proposals” 2:00 PM in 2128 Rayburn House Office Building

• H.R. ____, the “Housing Choice Voucher Mobility Demonstration Act of 2018”

• H.R. ____, the “Transitional Housing for Opioid Recovery Demonstration Program Act of 2018”

• H.R. 2069, the “Fostering Stable Housing Opportunities Act of 2018” (as amended)

Senate Banking Committee will conduct a hearing on “Nominations” 10:00 AM in 538 Dirksen Senate Office Building

• The Honorable Thelma Drake, of Virginia, to be Administrator of the Federal Transit Administration

• Mr. Jeffrey Nadaner, of Maryland, to be Assistant Secretary of Commerce for Export Enforcement

• Mr. Seth Appleton, of Missouri, to be Assistant Secretary of Housing and Urban Development for Policy Development and Research

Wednesday, April 18

Senate Commerce Committee will conduct a hearing entitled “Abusive Robocalls and How We Can Stop Them” 10:00 AM in 253 Russell Senate Office Building

Thursday, April 19

Senate Banking Committee will conduct a hearing entitled “The Semiannual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System” 9:30 AM in 2128 Rayburn House Office Building

House Committee on Energy and Commerce (Subcommittee on Digital Commerce and Consumer Protection) will conduct a hearing entitled “Do Not Call: Combating Robocalls and Caller ID Spoofing” 10:00 AM in 2322 Rayburn House Office Building

THE REGULATORS

Comptroller of the Currency Joseph Otting Discusses Agenda for Coming Months: On Monday, Comptroller of the Currency Joseph Otting discussed the busy agenda he envisions for the OCC in the coming months, including adjustments to the Volcker Rule and an overhaul of the Community Reinvestment Act. Hinting that the Fed and FDIC were not yet totally on board with his plans for the CRA, he emphasized his support saying “I’m hopeful and confident that they will join us in the journey . . . we’re fast-tracking this, and I very much want the other agencies to go along with us, but I would also say that I feel strongly enough about this that I think this needs to be done for the industry.”

Federal Reserve Seeks Comment on Proposal to Simplify Capital Rules for Large Banks: On Tuesday, the Federal Reserve requested comment on a proposal to introduce a “stress capital buffer” which would integrate the forward-looking stress test results with the Board’s non-stress capital requirements, in place of the current system whereby bank holding companies with more than US$50B in total consolidated assets undergo annual supervisory stress tests run by the Board, known as the Comprehensive Capital Analysis and Review.

Federal Reserve and OCC Propose Interagency Rule to Tailor “Enhanced Supplementary Leverage Ratio” Requirements: On Wednesday, the Federal Reserve Board and the Office of the Comptroller of the Currency proposed a rule that would further tailor leverage ratio requirements to the business activities and risk profiles of the largest domestic firms. Currently, firms that are required to comply with the “enhanced supplementary leverage ratio” are subject to a fixed leverage standard, regardless of their systemic footprint. The proposal would instead tie the standard to the risk-based capital surcharge of the firm, which is based on the firm’s individual characteristics. The resulting leverage standard would be more closely tailored to each firm.

FDIC Chairman Martin Gruenberg expressed his opposition in a statement noting that “Strengthening leverage capital requirements for the largest, most systemically important banks in the United States was among the most important post crisis reforms.” Federal Reserve Governor Lael Brainard also dissented.

FTC Calls for More Authority and Resources to Combat Privacy Issues: Speaking at a panel discussion, Terrell McSweeney noted that, “My agency needs to be stronger, it needs some clearer authorities, it needs some more resources, it needs some better tools.”

SEC Chairman Scolds Exchanges for Delay in Implementation of Surveillance: Speaking in Chicago this week, SEC Chairman Jay Clayton noted that he is “concerned by the delays in the development and build of the Consolidated Audit Trail.” The exchanges have dragged their heels for years to implement CAT, largely due to the cost burden. Chairman Clayton asked “Why the delay? It is a question that needs a prompt and effective solution.”

SEC Announces Open Meeting: The SEC gave notice on Wednesday that they plan to hold an Open Meeting on Wednesday, April 18th. The purpose of the meeting will be to consider (1) whether to propose new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors; (2) whether to propose a rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer; and (3) whether to propose a Commission interpretation of the standard of conduct for investment advisers.

Consumer Financial Protection Bureau Issues Request for Information on Consumer Complaints and Inquiries: On Wednesday, the CFPB issued its 12th in a series of requests for information announced as part of Acting Director Mick Mulvaney’s call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions. The Bureau is seeking comments and information from interested parties to assist the Bureau in assessing its handling of consumer complaints and consumer inquiries and, consistent with law, considering whether changes to its processes would be appropriate.

COMINGS AND GOINGS AT THE AGENCIES

OFAC Director to Step Down in May: John Smith, who has headed the Treasury Department’s Office of Foreign Assets Control since early 2015, announced that he will be stepping down in May. Mr. Smith was credited with playing a central role in enacting sanctions against North Korea, with Treasury Secretary Steven Mnuchin praising him as “a central force in Treasury’s response to national security and foreign policy challenges.” Mr. Smith will be replaced by Deputy Director Andrea Gacki on an acting basis.

THE COURTS

CFPB Sued in Bid to Block Payday Rule: Two industry groups filed suit against the CFPB Monday, in an attempt to prevent the Obama-era payday lending rule from going into effect, which they argue will destroy the industry. The suit claims the rule “is outside the Bureau’s constitutional and statutory authority, as well as unnecessary, arbitrary, capricious, overreaching, procedurally improper and substantially harmful to lenders and borrowers alike.” The case is now pending in the Western District of Texas.

OTHER NOTEWORTHY ITEMS

HUD Awards US$28B in Disaster Block-Grants to Nine States, Puerto Rico, and U.S. Virgin Islands: On Tuesday, the U.S. Department of Housing and Urban Development announced that it was awarding US$28B in grants to support long-term disaster recovery in nine states, Puerto Rico, and the U.S. Virgin Islands. The grants represent the largest-ever amount of assistance provided by the agency. HUD Secretary Ben Carson said in a statement, “these grants will help rebuild communities impacted by past disasters and will also protect them from major disasters in the future.”

Texas Securities Board Finds “Widespread Fraud” in Crypto Investments: Following a month-long investigation the Texas State Securities Board released a report detailing its findings of “widespread fraud” in cryptocurrency investments. Securities Commissioner Travis J. Iles said, “There is a lot of hype surrounding cryptocurrencies, but the companies offering investments are often not disclosing all the information investors need to make an informed decision.” The agency now reportedly has dozens of open investigations and has initiated seven regulatory actions so far.