Money Matters: This Week in Washington

This Week in Washington for December 10, 2018

December 10, 2018

Dina Ellis

THE BIG PICTURE

The country continued to mourn the passing of former President George H.W. Bush last week as a series of remembrances were held, culminating in funeral services at both the National Cathedral in Washington, and St. Martin’s Episcopal in Houston. Flags were at half-staff and federal offices, many courts, post offices, and the stock market were shuttered on Wednesday as a national day of mourning was observed. On Thursday, the President was buried next to his wife Barbara and daughter Robin on the grounds of his presidential library and museum in College Station, Texas.

With the focus on President Bush’s funeral, political machinations surrounding government funding negotiations and a potential shutdown ground to a halt. Congressional leaders introduced a two week continuing resolution that also included an extension of the National Flood Insurance Program, which pushed the deadline to December 21st. Both the House and Senate passed the measure on Thursday, and the President signed it into law. The President’s demand for the inclusion of border wall funding will likely continue to be a point of contention as leaders work to find a compromise.

The public got a long awaited peek into special counsel Robert Mueller’s investigation last week through a series of heavily redacted court filings. On Tuesday, the special counsel’s office filed a sentencing memorandum for Michael Flynn, the President’s former national security advisor, in which they recommended little to no prison time, citing Mr. Flynn’s “substantial assistance” during 19 interviews conducted as part of the ongoing investigation. On Friday, they detailed the ways in which the President’s former campaign chairman, Paul Manafort, had violated his plea agreement. Also on Friday, Federal prosecutors in New York recommended that the President’s former personal attorney, Michael Cohen, receive a “substantial” sentence despite his assistance. The special counsel’s office in a separate filing reported that Mr. Cohen had provided “consistent and credible” information.

The President unveiled a number of high profile personnel changes last week in a shake-up as he shifts gears towards focusing on the 2020 election. On Friday, the President announced his decision to nominate State Department spokeswoman and former Fox News host Heather Nauert to be the next United Nations Ambassador, succeeding the outgoing Nikki Haley. The President also announced that he had selected Bill Barr as his nominee for attorney general; Mr. Barr previously held that role under President George H.W. Bush. On Saturday, the President announced his plan to nominate Army Chief of Staff Gen. Mark Milley to become the next chairman of the Joint Chiefs of Staff once Gen. Joseph Dunford retires in June. Finally, over the weekend it was confirmed that Chief of Staff John Kelly, who has had an increasingly strained relationship with the President in recent months, will depart the White House before the new year.

Other highlights of last week include:

• The Labor Department released the latest jobs report on Friday, revealing that the economy added 155,000 jobs in November, down from the 237,000 added in October, and the unemployment rate remains at 3.7 percent.

• The election in North Carolina’s 9th Congressional District cannot yet be certified amid ongoing concerns over absentee ballot irregularities and an investigation into potential fraud. On Thursday, Democrat Dan McCready withdrew his concession to Republican Mark Harris, and urged Mr. Harris to “to tell us exactly what he knew and when he knew it.”

• The NRCC revealed that it had suffered a “cyber intrusion” during the 2018 midterm elections, during which the email accounts of top officials were hacked and surveilled for a period of several months.

• Speculation over 2020 Democratic contenders continues, but on Tuesday, two would-be candidates, Massachusetts Governor Deval Patrick and attorney Michael Avenatti, announced they would not be entering the race.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearings were postponed in observance of former President George H.W. Bush’s funeral.

SENATE BANKING COMMITTEE

Hearing on “Proxy Process and Rules: Examining Current Practices and Potential Changes”: On Thursday, the full Committee held a hearing to consider several aspects of the proxy voting system, including the role of proxy advisory firms, the shareholder proposal process, and retail shareholder participation.

• The Honorable Daniel M. Gallagher, Chief Legal Officer, Mylan N.V., and former Commissioner, U.S. Securities and Exchange Commission

• Mr. Michael Garland, Assistant Comptroller, Corporate Governance and Responsible Investment, Office of the Comptroller, New York City

• Mr. Thomas Quaadman, Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness

ON THE FLOOR

CFPB Nominee Kraninger Confirmed by Senate: On Thursday, the Senate narrowly confirmed OMB Associate Director Kathy Kraninger by a 50-49 party line vote to head the CFPB for a 5-year term.

McConnell Files Clotures on Treasury Nominee: Senate Majority Leader Mitch McConnell (R-KY) filed cloture on the nomination of Justin Muzinich, a current aide to Treasury Secretary Steven Mnuchin, to serve as Deputy Secretary at Treasury. The first procedural vote could occur as early as next week.

LEGISLATION INTRODUCED AND PROPOSED

Small Business Lending Fairness Act: Senators Sherrod Brown (D-OH) and Marco Rubio (R-FL) introduced the “Small Business Lending Fairness Act” which is intended to protect small businesses from predatory lending practices by codifying the Federal Trade Commission’s 1985 ban on confessions of judgment in consumer loan contracts and extending the ban to include small business borrowers. In a statement, Sen. Brown touted the bipartisan bill as “ensur[ing] that consumers and small business owners benefit from protections that prevent predatory lenders from stripping away their hard earned money under cover of night.”

Robocall Bill: Senators Dianne Feinstein (D-CA), Richard Blumenthal (D-CT), and Amy Klobuchar (D-MN) introduced the “Real Peace Act” which aims to close the loophole exempting telecom companies from FTC oversight. Senator Feinstein said in a statement that “illegal robocalls are a nuisance to every person with a phone number,” and said that the bill would “finally put illegal robocallers out of business.”

Congressional Stock Trade Bill: Senators Jeff Merkley (D-OR) and Sherrod Brown (D-OH) introduced a bill intended to prohibit members of Congress from purchasing or selling stocks in an attempt to prevent lawmakers from using their position of authority for personal gain. “It’s way past time to end conflicted trading, in which legislators and top staff trade in stocks while making decisions affecting their value,” Merkley said in a statement.

THIS WEEK ON THE HILL

Tuesday, December 11

Senate Banking Committee Hearing Entitled “Oversight of the U.S. Securities and Exchange Commission”: 10:00 AM in 538 Dirksen Senate Office Building.

House Financial Services Committee (Financial Institutions and Consumer Credit Subcommittee) Hearing Entitled "Assessing the Impact of FASB’s Current Expected Credit Loss (CECL) Accounting Standard on Financial Institutions and the Economy”: 2:00 PM in 2128 Rayburn House Office Building.

Wednesday, December 12

House Financial Services Committee (Monetary Policy and Trade Subcommittee) Hearing Entitled “Evaluating the Effectiveness of the International Financial Institutions”: 10:00 AM in 2128 Rayburn House Office Building.

THE REGULATORS

CFTC Allows Additional UK Multilateral Trading Facilities to Operate without CFTC Registration as Exempt SEFs: On Monday, the CFTC issued an amended order that will allow an additional four multilateral trading facilities (MTFs) authorized within the European Union to be exempted from the requirement to register with the CFTC as swap execution facilities (SEFs). These MTFs have been added to the CFTC’s original December 2017 order that exempted certain MTFs and organized trading facilities (OTFs) from the SEF registration requirement.

CFTC Chairman Releases Statement on Financial Stability Concerns Regarding Brexit: CFTC Chairman Giancarlo sounded the alarm over the potential ramifications of continued uncertainty surrounding Brexit on the derivatives markets, issuing a statement which called for the EU and UK “authorities to take immediate and fully effective action to provide market participants with the necessary legal and regulatory certainty to manage their operations and activities after Brexit.”

Fed Governor Suggests Banks Should Raise Capital: On Friday, Federal Reserve Governor Lael Brainard discussed her view that the central bank should ask larger banks to raise additional capital due to the current risk level in the economy. She noted that corporate borrowing “has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments, such as leveraged lending” and suggested that “it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant.”

Fed’s Quarles Suggests Community Bank Exemption from Volcker Rule Is Forthcoming: In a speech on Thursday, Federal Reserve regulatory chief Randal Quarles revealed that a proposal exempting smaller banks from a ban on proprietary trading would be forthcoming, as required by the banking deregulation bill, saying that, “we ... expect soon to propose an exemption for community banks to the Volcker Rule.”

Agencies Release Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing: On Monday, the Federal Reserve, the FDIC, FinCEN, the NCUA, and the OCC issued a joint statement to encourage banks to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.

Speaking at a conference, Sigal Mandelker, Treasury undersecretary for terrorism and financial intelligence, reiterated the message saying that the agencies “recognize the value of trial and error” and urged banks to “not be deterred from testing innovative ideas out of a concern that it could lead to regulatory criticism.”

OCC’s Semiannual Assessment Highlights Corporate Debt as a Risk for Banks: On Monday, the OCC released its semiannual report on key risks for the federal banking system. The report detailed that while credit quality remains strong, there is an elevated operational and compliance risks for banks as they respond to an evolving and increasingly complex operating environment, manage money laundering risks, and comply with amended consumer protection requirements. The report also highlighted the emerging risk posed by the growth in corporate debt.

SEC Chair Discusses Possible Changes in Shareholder Voting: In a speech on Thursday, SEC Chairman Jay Clayton discussed his support for stronger oversight of advisory firms that assist investors in making voting decisions, and making it harder for investors to file shareholder proposals, saying, “there is growing agreement that some changes are warranted.”

SEC Announces Agenda for 37th Annual Small Business Forum: On Friday, the SEC announced the agenda and panelists for the 2018 Government-Business Forum on Small Business Capital Formation, to be held on December 12th. Following opening remarks from the SEC Chairman and Commissioners there will be two panels. The first will explore how capital formation options are working for small businesses, such as those in the Midwest. The second will focus on diversity and capital formation. Panelists will include Midwest-based representatives of small businesses, investors, and advisors to the small business community.

SEC Investor Advisory Committee to Meet on December 13: The SEC announced that it will hold a meeting of its Investor Advisory Committee on December 13, 2018. The committee will hold panel discussions with outside speakers on two topics: a morning discussion on Sustainability and Environmental, Social, and Governance disclosures and an afternoon session on unpaid arbitration awards. In addition, the committee will discuss disclosures on human capital.

FDIC Announces Actions to Promote a More Transparent, Streamlined, and Accountable Deposit Insurance Application Process: The FDIC announced multiple initiatives and resources related to the deposit insurance application process for organizers of new, or de novo, banks, and to promote a more transparent, streamlined, and accountable process for all applications submitted to the agency. “A pipeline of new banks is critical to the long-term health of the industry and communities across the country. The application process should not be overly burdensome and should not deter prospective banks from applying. The FDIC wants to see more de novo banks, and we are hard at work to make this a reality,” said FDIC Chairman Jelena McWilliams.

Agencies Seek Public Comment on Proposal to Raise Appraisal Exemption Threshold for Residential Real Estate Transactions: The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency announced they are seeking public comment on a proposal to raise the threshold for residential real estate transactions requiring an appraisal from US$250K to US$400K. The appraisal threshold has remained unchanged since 1994, and the agencies believe an increase would provide burden relief without posing a threat to the safety and soundness of financial institutions.

COMINGS AND GOINGS AT THE AGENCIES

Associate Regional Director of SEC’s Atlanta Office, to Leave Agency: On Monday, the SEC announced that Aaron Lipson, Associate Regional Director for enforcement matters in the Atlanta Regional Office, would leave the agency this month after 14 years of service. Mr. Lipson joined the SEC in 2004 as a staff attorney and was promoted to Assistant Regional Director in 2010 before being named Associate Regional Director in 2016.

Shira Pavis Minton, Ethics Counsel, to Retire from the SEC: On Tuesday, the SEC announced that Shira Pavis Minton, Ethics Counsel and Designated Agency Ethics Official, will be retiring from the agency this month after more than 20 years of federal service and nearly 10 years with the SEC.

OTHER NOTEWORTHY ITEMS

Democratic Senators Call on FTC to Crack Down on Auto-Lenders: A group of Democratic Senators led by Kirsten Gillibrand (D-NY) sent a joint letter to the FTC calling on the agency to do more to address discrimination in auto-lending. They argued that the elimination of CFPB guidelines on the issue “introduced regulatory uncertainty about how to meet fair lending obligations and raises questions as to how federal regulators will enforce the law.”