Money Matters: This Week in Washington

This Week in Washington for February 19, 2019

February 19, 2019

Dina Ellis

THE BIG PICTURE

On Friday, the President announced that in addition to signing the spending deal agreed to by Congress to avert another partial shutdown, he would also declare a national emergency to secure additional funding for a wall on the southern border. The spending deal included US$1.4B for 55 miles of fencing, and the President plans to increase that to US$8B by redirecting US$3.6B from a military construction fund, US$2.5B from a DoD drug-interdiction program, and US$600M from Treasury’s asset-forfeiture fund. The move is already subject to a lawsuit filed by a coalition of 16 states in federal court on Monday, and will likely be bogged down in litigation in the months to come. Democratic leadership slammed the move; calling it an “end-run around Congress” and a “gross abuse of the power of the presidency,” while vowing to defend their constitutional authority. Some on the right were hesitant to embrace the decision, cautioning the precedent set could be abused by future administrations; however Senate Majority Leader Mitch McConnell announced he would back the move.

Special Counsel Robert Mueller’s office filed its sentencing recommendation for Paul Manafort in his Virginia court proceedings on Friday night, recommending he serve 19.5 to 24.5 years for his eight convictions, noting that “Manafort acted for more than a decade as if he were above the law,” and that “the sentence here should reflect the seriousness of these crimes.” Earlier in the week, D.C. District Court Judge Amy Berman Jackson ruled that Paul Manafort had violated the terms of his plea agreement, and therefore the special counsel’s office was “no longer bound” by the terms of that agreement.

In a surprise move, on Thursday Amazon abruptly announced that it was canceling plans to build one if its headquarters in Long Island City. The decision followed a period of intense public backlash from community activists and progressives such as freshman Rep. Alexandria Ocasio-Cortez, who raised concerns over the substantial US$3B tax incentive package offered and the impact of the development on the local community. The company instead will move forward with its plans for a new corporate campus in Crystal City, Virginia and an operations hub in Nashville, Tennessee.

Freshman Congresswoman Ilhan Omar (D-MN) sparked a controversy with a series of tweets suggesting that  pro-Israel lobbying groups paid legislators for their support, which some interpreted as containing anti-Semitic tropes. Democratic House leadership condemned the remarks, which they said crossed the line, and called for Rep. Omar to apologize. On Tuesday, Rep. Omar apologized and expressed gratitude for “Jewish allies and colleagues who are educating me on the painful history of anti-Semitic tropes,” but reaffirmed her stance on the problematic role of lobbyists in politics.

Other highlights of last week include:

• On Saturday, State Department spokeswoman Heather Nauert announced she was withdrawing her name from consideration to serve as the next U.S. ambassador to the United Nations.

• Former Massachusetts Governor Bill Weld announced that he was considering a 2020 primary challenge to the President, saying that “our president is simply too unstable.”

• President Trump’s former personal attorney Michael Cohen postponed his planned February 12 appearance before the Senate Intelligence Committee as part of their Russia investigation, citing his need to recover from a recent surgical procedure.

• The President signed an executive order on “Maintaining American Leadership in Artificial Intelligence” noting that continued leadership in this space is of “paramount importance” to our “economic and national security.”

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitled “Homeless in America: Examining the Crisis and Solutions to End Homelessness”: On Wednesday, the full committee met to hear from witnesses about the continuing challenges of ending homelessness in America, and to consider their recommendations for legislation to help overcome those challenges. The issue of homelessness is one Chairwoman Maxine Waters (D-CA) has championed throughout her career, and in her opening remarks she noted that it was “long overdue for this committee to turn its attention to this crisis and consider proactive solutions.” They discussed several draft legislative proposals, including (1) “The Ending Homelessness Act of 2019” introduced by Chairwoman Waters which would provide US$13.27B over five years to several critical federal housing programs and initiatives; (2) “Working Together to End Homelessness Act of 2019,” a discussion draft from Chairwoman Waters that would permanently reauthorize USICH; (3) “Homes for Our Heroes Act of 2019,” a discussion draft from Rep. Peters that would require HUD and the Department of Veteran Affairs (VA) to provide more detailed reporting on the HUD-VASH programs; and (4) “Veteran Housing Opportunities and Unemployment Support Extension (Veteran HOUSE) Act of 2019” which would align eligibility for the HUD-VASH Program with other homelessness services furnished by the Department of Veterans Affairs.

• Ann Marie Oliva, Senior Policy Advisor, Corporation for Supportive Services

• Nan Roman, President and CEO, National Alliance to end Homelessness

• Joshua Stewart, Director of Policy, National Coalition for Homeless Veterans

• Justin T. Rush, Public Policy Director, True Colors Fund

• Carolyn Darley, Speaker Advocate, National Coalition for the Homelessness

• David S. Lucas, Ph.D., Postdoctoral Research Fellow, Institute for an Entrepreneurial Society, Whitman School of Management, Syracuse University

Hearing entitled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses”: On Wednesday, the Subcommittee on Consumer Protection and Financial Institutions held a hearing to consider a discussion draft of the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act).

• The Honorable Ed Perlmutter, Member of Congress

• The Honorable Fiona Ma, California State Treasurer

• Maj. Neill Franklin (Ret.), Baltimore City & Maryland State Police Departments, and Executive Director, Law Enforcement Action Partnership (LEAP)

• Ms. Rachel Pross, Chief Risk Officer, Maps Credit Union, on behalf of Credit Union National Association (CUNA)

• Mr. Gregory S. Deckard, President, CEO and Chairman, State Bank Northwest, on behalf of Independent Community Bankers of America (ICBA)

• Mr. Corey Barnette, Owner, District Growers Cultivation Center & Metropolitan Wellness Center

• Mr. Jonathan H. Talcott, Chairman, Smart Approaches to Marijuana (SAM)

Rep. Bill Foster Seeks Chairmanship of Task Force on Financial Technology: Although Chairwoman Maxine Waters has not yet announced the creation of the new House task force on financial technology, Congressman Bill Foster (D-IL), who also co-chairs the Blockchain Caucus, has launched a bid to lead the task force in a letter to Rep. Waters, outlining his vision of tackling issues such as online lending, cryptocurrencies, and artificial intelligence.

SENATE BANKING COMMITTEE

Hearing on “Nominations”: On Thursday, the full Committee met to hear testimony from and consider the nominations of Bimal Patel to be an Assistant Secretary of the Treasury; Todd Harper to be a Member of the National Credit Union Administration Board; Rodney Hood to be a Member of the National Credit Union Administration Board; and Dr. Mark Calabria to be Director of the Federal Housing Finance Agency. During questioning, Mark Calabria sought to distance himself from his prior comments on overhauling Fannie Mae and Freddie Mac, stressing that “the very broad changes” he feels are needed, “have to be done by Congress.”

ON THE FLOOR

Green New Deal Vote: Majority Leader Mitch McConnell (R-KY) announced he intended to bring up Rep. Alexandria Ocasio-Cortez’s (D-NY) Green New Deal proposal for a vote, forcing several 2020 candidates to go on record.

Barr Nomination: On Thursday, the Senate confirmed William Barr to serve as the next attorney general by a vote of 54-45, with Democrats Doug Jones (AL), Joe Manchin (WV), and Kyrsten Sinema (AZ) joining with the Republicans.

LEGISLATION INTRODUCED AND PROPOSED

Stock Buyback Tax Increase: Senator Marco Rubio (R-FL) released a plan on Tuesday via the Senate Small Business Committee that would take away the “privileged status” of stock buybacks, which are currently taxed at the capital gains rate, and instead privilege immediate business expensing.

THIS WEEK ON THE HILL

No hearings, as Congress is in recess until the 25th.

THE REGULATORS

Fed Chair Delivers Speech Encouraging Economic Development in Rural Communities: On Tuesday, Federal Reserve Chair Powell delivered a speech on “Rural Places, Rural Spaces: Closing Financial Services Gaps in Persistent Poverty America” at the Hope Enterprise Corporation Rural Policy Forum held at Mississippi Valley State University. In his remarks he acknowledged that “prosperity has not been felt as much in some areas, including many rural places” and that “poverty remains a challenge.” He also discussed the Fed’s efforts to reduce the burden of unnecessary regulation on community banks, and noted the Fed was committed to reforming the Community Reinvestment Act to better serve communities in a way that did not weaken the law. He emphasized the need for access to high-quality education, entrepreneurial support, and access to safe and affordable credit.

Federal Reserve Extends Comment Period on Proposed Rule Change to Company-Run Stress Tests: On Friday, the Federal Reserve Board extended until March 21 the comment period for its proposed rule that would modify company-run stress testing requirements to conform with the Economic Growth, Regulatory Relief, and Consumer Protection Act. Originally, comments were due by February 19.

Quarles Says Financial Stability Board Must Evolve: In his first speech since taking the reins of the international regulatory board, Randal Quarles said that, “it is time for the FSB to turn more of its energy and attention to the future” by identifying emerging threats and vulnerabilities, while continually reviewing the effectiveness of existing reforms. He noted that the international community “cannot be complacent and assume that we are safe from all shocks.”

Michelle Bowman Delivers First Speech Since Joining Fed: On Monday, Michelle Bowman gave her first speech since being confirmed to a seat on the Board reserved for a community banker, pledging to “fulfill this unique responsibility by traveling widely and listening closely to community bankers, consumers, small business owners, community leaders.” She also highlighted the need for banks to “actively manage concentrations of credit risk.”

Treasury Expresses Concern over European Commission List of Jurisdictions with Strategic AML/CFT Deficiencies: On Wednesday, the European Commission released a list of 23 “high-risk” jurisdictions which they deemed to pose “significant threats” to the EU financial system, including Puerto Rico and the U.S. Virgin Islands, which may trigger “enhanced due diligence.” In response, the U.S. Treasury issued a statement expressing “significant concerns” about the list and “the flawed process by which it was developed,” adding that they did not expect U.S. institutions to take the European list into account.

FDIC Extends Comment Period on its Request for Information on the Deposit Insurance Application Process: On Tuesday, the FDIC announced it had extended the comment period related to the Request for Information on the Deposit Insurance Application Process until March 31, from the original closing date of February 11. The RFI solicits comments on steps the FDIC can take to improve the deposit insurance application process, including ways in which the FDIC could or should support the continuing evolution of emerging technology and fintech companies as part of its application review process.

CFTC Gets Budget Boost: For the first time since 2015, the CFTC received a budget increase of 7%, to US$268M, in the appropriations bill signed into law on Friday. Chairman Chris Giancarlo praised the move, saying he was thankful to the administration “for recognizing the agency’s critical oversight of America’s financial and commodity derivatives markets.”

CFTC Publishes “Cheat Sheet” on Compliance Examinations Amid Plans for Increase in Oversight: On Tuesday, the CFTC published a “cheat sheet” of examination priorities in an effort to share best practices. In the guidance, the agency explained that “the Compliance Branch’s focus in 2019 will be on more frequent and prompt examinations; emerging trends, products, and technologies; and targeted aspects of traditional compliance functions.”

Agencies Extend Comment Period on Proposed Standardized Approach for Calculating the Exposure Amount of Derivative Contracts: Three federal banking agencies on Friday extended until March 18, 2019, the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts. The proposal, jointly issued by the Federal Reserve Board, the FDIC, and the OCC, would provide the “standardized approach for measuring counterparty credit risk,” also known as “SA-CCR” as an alternative approach to the agencies’ current exposure methodology, or CEM, for calculating derivative exposure under the agencies’ regulatory capital rules.

Agencies Release Joint Final Rule Implementing Biggert-Waters Flood Insurance Reform Act: On Tuesday, the Federal Reserve, Farm Credit Administration, FDIC, NCUA, and OCC released a joint final rule to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 requiring regulated institutions to accept certain private flood insurance policies in addition to National Flood Insurance Program policies, effective July 1, 2019.

IG Finds Former Director of FHFA Misused Office: An IG report released on Friday found that former Federal Housing Finance Agency Director Mel Watt had misused his position to “coerce or induce” a subordinate “to engage in a personal relationship with him.” The report also noted that Mr. Watt had “lacked candor” during interviews with investigators.

Office of Financial Research Adopts Data Collection Rule: On Tuesday, the Office of Financial Research adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market. The daily collection will enhance the ability of the Financial Stability Oversight Council to identify and monitor potential risks to U.S. financial stability by closing the data gap related to centrally cleared repo transactions. The collection will also support the calculation of certain reference rates, particularly alternatives to the U.S. dollar London Interbank Offered Rate (LIBOR). The rule requires the submission of information by central counterparties with average daily total open repo commitments of at least US$50B. The collection is expected to begin in mid-October.

SEC Extends Comment Period for Rulemaking Proposal Regarding Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts: The SEC announced on Thursday that it was extending for one month, through March 15, 2019, the comment period on the proposed rulemaking to amend rules and forms to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts that was published in the Federal Register on November 30, 2018.

Former SEC Officials Criticize Proposal to Overhaul Broker Conflict Rules: In a letter to Chairman Jay Clayton, 11 former SEC economists sharply criticized the “weak and incomplete” analysis underlying the proposal to overhaul broker conflict of interest rules, saying “we find it worrisome that the proposal’s economic analysis does not fully consider some potentially important dimensions of the retail client-adviser relationship.”

Fannie Mae and Freddie Mac Release Fourth Quarter Figures: Fannie Mae reported a fourth quarter 2018 net income of US$3.2 billion, while Freddie Mac reported US$1.1B in profits.

GAO Calls for Federal Privacy Law to Protect Consumers: In a report released on Wednesday, the GAO recommended Congress consider comprehensive consumer data privacy legislation, arguing that “Comprehensive internet privacy legislation that establishes specific standards and includes traditional notice-and-comment rulemaking and broader civil penalty authority could enhance the federal government’s ability to protect consumer privacy.”

OTHER NOTEWORTHY ITEMS

State Regulators Release Plan to Harmonize and Streamline Oversight of Fintech: On Thursday, the Conference of State Bank Supervisors released a series of recommendations which would streamline state licensing and supervision for non-bank entities and fintech companies, with the aim of making the market more accessible for new entrants.

State Attorneys General Criticize CFPB’s Sandbox Proposal: In response to a proposal released by the CFPB in December that included “no-action letter” and “sandbox” policies for companies, 22 Democratic AGs wrote a comment letter explaining that “while we share the CFPB’s goal of fostering innovation in the consumer financial sector, we respectfully submit that innovation should not come at the expense of consumers or the stability of the U.S. financial system.”

District of Columbia Explores Regulatory Sandbox: On Thursday, DC announced it was launching a 
21-member Financial Services Regulatory Sandbox and Innovation Council with the goal of exploring ways to attract innovative fintech companies to the District while weighing potential benefits and costs to residents. Securities and Banking Commissioner Stephen Taylor said in a statement, the District wants to be “on the cutting edge—utilizing the intersection of technology and financial services to benefit our residents and businesses.”