Money Matters: This Week in Washington

This Week in Washington for August 6, 2018

August 06, 2018

Dina Ellis

THE BIG PICTURE

President Trump’s Supreme Court nominee Brett Kavanaugh is one step closer to confirmation, after Senator Rand Paul (R-KY) announced his support. Sen. Paul had previously expressed doubts over Mr. Kavanaugh’s opinions on data privacy issues, but concluded that he “must be judged on the totality of [his] views, character, and opinions.” The National Archives announced that it would not be able to complete its review of the estimated 900,000 pages of documents related to Mr. Kavanaugh’s time at the White House until October. Senate Democrats are calling for the confirmation hearing process to be delayed until a full review can be completed.

The President called for Attorney General Jeff Sessions to “stop this Rigged Witch Hunt” via Twitter on Wednesday. AG Sessions has long drawn the President’s ire for recusing himself from the Russian investigation, which is now overseen by Deputy Attorney General Rod Rosenstein. Senator Susan Collins (R-ME) called the tweet “highly inappropriate and intemperate.” White House Press Secretary Sarah Huckabee Sanders later sought to clarify that the President was expressing his opinion, not issuing an order.

On Wednesday, the Senate voted 87-10 to pass the US$717B 2019 National Defense Authorization Act. The compromise bill included an amendment by Senators Marco Rubio (R-FL), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR) which would require the Financial Crimes Enforcement Network (FinCEN) to issue a report on its program that collects shell corporations’ beneficial ownership information—details on the true owner of the company—for expensive real estate deals in certain markets around the country. The Senate also passed a bundle of appropriation bills by a vote of 92-6, which included funding for the departments of Agriculture, Transportation, Interior, Treasury and HUD, as well as the EPA and IRS.

Trade tensions continued to escalate between the United States and China last week, with China announcing a set of retaliatory tariffs on US$60B worth of U.S. exports. The new tariffs were in response to the Trump administration’s threat to levy a 25% tariff on US$200B worth of Chinese goods, instead of the originally planned 10% tariff. China said in a statement that the United States had violated “the bilateral consensus reached after multiple rounds of negotiations,” and had “unilaterally escalated trade frictions.”

The Senate adjourned for a “skinny” shortened August recess on Wednesday, and is scheduled to return on August 15th. The House remains in recess until after Labor Day.

Other highlights of last week include:

• The President has asked his chief of staff John Kelly to remain in his post through 2020.

• The unemployment rate fell to 3.9% in July, with the economy adding 157,000 jobs.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

No hearings held.

SENATE BANKING COMMITTEE

The scheduled August 2nd vote on several financial services nominations was postponed. A new date has not yet been scheduled.

OTHER COMMITTEES

Senate Agriculture Committee Meeting to Consider Nominations: On Tuesday, the Committee held a business meeting to vote on the nominations of Dan Michael Berkovitz for a Democratic seat at the CFTC, and James E. Hubbard to serve as USDA undersecretary for natural resources. The Committee approved both nominees, advancing them to the floor for full senate consideration.

Senate Finance Committee Executive Session to Consider Nominations: On Wednesday, the Committee met in open session to vote on the nominations of Justin Muzinich to be Deputy Secretary of the Treasury, and Michael J. Desmond to be Chief Counsel for the Internal Revenue Service and an Assistant General Counsel in the Department of the Treasury. Mr. Muzinich’s nomination was advanced by a vote of 14-13, while Mr. Desmond was advanced by a vote of 25-2.

ON THE FLOOR

Senate Passes Flood Insurance Extension: The Senate voted 86-12 to pass S. 1182, which provides a lifeline to the National Flood Insurance Program through November 30th, with just hours to spare before the program lapsed. The measure is headed to President Trump’s desk for signature.

LEGISLATION INTRODUCED AND PROPOSED

Bipartisan Group of Senators Introduce New Russia Sanctions Bill: Senators Lindsey Graham (R-SC), Ben Cardin (D-MD), Bob Menendez (D-NJ), Cory Gardner (R-CO), John McCain (R-AZ), and Jeanne Shaheen (D-NH) introduced the Defending American Security from Kremlin Aggression Act of 2018. The bill would impose sanctions on the Russian energy sector and several politicians and oligarchs, require a two-thirds vote in the Senate for the U.S. to leave NATO, and create an Office of Cyberspace and the Digital Economy within the State Department to strengthen security. Sen. Graham said that current sanctions had “failed to deter Russia” from intervening in the midterms and stated that “our goal is to change the status quo and impose crushing sanctions and other measures against Putin’s Russia until he ceases and desists meddling in the U.S. electoral process, halts cyber-attacks on U.S. infrastructure, removes Russia from Ukraine and ceases efforts to create chaos in Syria.”

S. 3323: Sen. Dean Heller (R-NV) joined Sen. Joe Donnelly (D-IN) to introduce the National Senior Investor Initiative Act, which is aimed at protecting seniors from financial crimes and fraud. The proposal would create a task force within the SEC dedicated to strengthening protections for seniors who have built up their life savings and want to make investments.

S.3343: Sen. Cory Booker (D-NJ) and Sen. Sherrod Brown (D-OH) introduced the Stop Overdraft Profiteering Act of 2018, a bill which would amend the Truth in Lending Act to limit overdraft fees and establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions. Sen. Booker said that “our bill would end these unfair practices many banks use that leave some consumers—especially those that are the most vulnerable—trapped in a vicious cycle of poverty.”

THIS WEEK ON THE HILL

No hearings scheduled during recess period.

THE REGULATORS

Treasury Targets Russian Bank and Other Facilitators of North Korean United Nations Security Council Violations: The Treasury’s Office of Foreign Assets Control announced additional sanctions related to North Korea, continuing the enforcement of existing UN and U.S. sanctions. The action targeted a Russian bank for knowingly facilitating a significant transaction on behalf of an individual designated for weapons of mass destruction-related activities in connection with North Korea. OFAC also targeted one individual and two entities for facilitating North Korean illicit financial activity. This action reinforces the United States’ ongoing commitments to upholding the decisions of the UN Security Council. “Our sanctions will remain in place until we have achieved the final, fully-verified denuclearization of North Korea,” said Treasury Secretary Steven Mnuchin.

Treasury Sanctions Turkish Officials with Leading Roles in Unjust Detention of U.S. Pastor Andrew Brunson: The Treasury’s Office of Foreign Assets Control took action Wednesday targeting Turkey’s Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, both of whom played leading roles in the organizations responsible for the arrest and detention of Pastor Andrew Brunson. These officials serve as leaders of Turkish government organizations responsible for implementing Turkey’s serious human rights abuses, and are being targeted pursuant to Executive Order (E.O.) 13818, “Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption,” which builds upon the Treasury’s Global Magnitsky Act authorities.

Treasury Releases Report on Nonbank Financials, Fintech, and Innovation: On Monday, the Treasury released a report identifying improvements to the regulatory landscape that will better support nonbank financial institutions, embrace financial technology, and foster innovation. The Treasury’s report identifies just over 80 recommendations that are designed to: embrace the efficient and responsible use of consumer financial data and competitive technologies; streamline the regulatory environment to foster innovation and avoid fragmentation; modernize regulations for an array of financial products and activities; and facilitate “regulatory sandboxes” to promote innovation.

Sen. Sherrod Brown (D-OH) criticized the report, which included a recommendation to end the CFPB’s payday lending rule, saying the Administration “wants to give payday lenders a free pass to trap people in debt, [and] now it is actively undermining Ohio’s efforts to protect working people from these predators.”

OCC Begins Accepting National Bank Charter Applications From Financial Technology Companies: The Office of the Comptroller of the Currency (OCC) announced on Tuesday that it will begin accepting applications for national bank charters from nondepository financial technology (fintech) companies engaged in the business of banking. Comptroller of the Currency Joseph M. Otting, explained that “the decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.”

Acting Director CFPB Mick Mulvaney issued a statement praising the move, saying “we welcome the important steps taken by our fellow agencies to promote innovation.” However, Rep. Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee expressed her “deep concern” over the decision, saying that “it is important that we encourage responsible innovation with the appropriate safeguards in place to protect consumers and without displacing traditional banking institutions.” The CSBS also registered their opposition, issuing a statement calling it “a regulatory train wreck in the making” adding that “such a move exceeds the current authority granted by Congress to the OCC.”

FHFA Extends Public Comment Period By 60 Days for Proposed Rule on Enterprise Capital Requirements: The Federal Housing Finance Agency announced that it is extending the public comment period for the Agency’s proposed rule on Enterprise Capital Requirements by an additional 60 days. The previous deadline for comments was September 17, 2018. The new deadline will be November 16, 2018. The FHFA is extending the public comment period due to the high level of interest in the proposed rule and requests from multiple stakeholders for more time to evaluate it.

Federal Reserve Notes Strong Job Gains and Economic Activity: The Federal Reserve’s Federal Open Market Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent, saying that its stance on monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. The statement noted that “economic activity has been rising at a strong rate,” leading some to suspect an interest-rate increase could be on the horizon.

NCUA Proposes Changes to Risk-Based Capital Rule: The proposed rule would delay the current effective date of the risk-based capital rule approved in October 2015 to January 1, 2020. The current effective date is January 1, 2019. NCUA Board Chairman J. Mark McWatters said, “The proposed changes to the risk-based capital rule, reached through a collaborative and bi-partisan process, if finalized, would allow the agency to provide federally insured credit unions with a measure of regulatory relief without impairing the safety and soundness of the National Credit Union Share Insurance Fund.”

Fannie and Freddie Report Q2 Income: Freddie Mac announced US$2.4B in net income for the second quarter, and will return US$1.6B to the Treasury, while Fannie Mae reported US$4.5B in net income, and will pay a dividend of US$4.5B to the Treasury by September.

SEC Announces Staff Roundtable on the Proxy Process: SEC Chairman Jay Clayton announced a roundtable on the proxy process in a statement that explained “shareholder engagement is a hallmark of our public capital markets, and the proxy process is a fundamental component of that engagement. In 2010, the Commission issued a concept release seeking public comment on whether the U.S. proxy system as a whole operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and companies should expect. In light of the many changes in our markets, technology, and how companies operate since then, SEC staff will host a roundtable this fall to hear from investors, issuers, and other market participants about whether the SEC’s proxy rules should be refined.”