Insights

Money Matters: This Week in Washington

This Week in Washington for July 17, 2017

July 17, 2017

Dina Ellis and Casey Miller

THE BIG PICTURE

Senate Parliamentarian Issues Ruling Favorable to Republicans: Senate Republicans successfully argued before the parliamentarian that a House-passed healthcare overhaul reconciliation bill can be taken up and amended in the Senate this week.

Senate Cancels First Two Weeks of August Recess: House Will Adjourn for August Recess Unless Senate Acts on Healthcare: The Senate on July 11 announced that it will cancel the first two weeks of August recess in order to work on a healthcare bill. This is rare, as Congress doesn’t usually work during August recess. However, it is not unprecedented: in 1994, Congress worked into August recess to work on Clinton-era health reform, and in 2005, Congress came back into session during August recess to pass a relief measure related to Hurricane Katrina.

House Majority Leader Kevin McCarthy announced on July 12 that the House will break for recess as planned unless the Senate passes a healthcare bill. His announcement received significant pushback from the Freedom Caucus, which is urging GOP leadership to cancel recess in order to work on repealing Obamacare, tax reform, and a budget deal.

House to Possibly Consider Massive Spending Bill: In a GOP meeting on July 14, House Majority Leader Kevin McCarthy said that the Appropriations Committee would finish all FY18 funding bills by the end of this week. Leadership will begin a tentative whip count to see whether lawmakers will vote for the package before August recess.

The Appropriations Committee on July 13 passed a funding bill for the Treasury Department and SEC that includes several provisions of the Financial CHOICE Act that the House passed last month, including an overhaul of the bankruptcy code tailored to financial institutions.

House Passes National Defense Authorization Act (NDAA): The House overwhelmingly passed on July 14 a $696.5 billion defense policy bill that goes far beyond President Trump’s budget request. The NDAA broadly outlines policy and spending rules for the Pentagon and military agencies.

Democratic House Members Introduce Article of Impeachment against President Trump: On July 12, Reps. Brad Sherman (D-CA) and Al Green (D-TX) issued an Article of Impeachment against President Trump for High Crimes and Misdemeanors. The Article accuses the President of obstruction of justice in connection with the federal investigation of Russia’s interference in the 2016 presidential election.

FBI Director Nominee Christopher Wray Vows to be Independent: Christopher Wray testified before the Senate Judiciary Committee that he will remain independent of any pressure as FBI Director. Wray stated, “If I am given the honor of leading this agency, I will never allow the FBI’s work to be driven by anything other than the facts, the law, and the impartial pursuit of justice.”

ALSO LAST WEEK ON THE HILL

Senator Lindsey Graham (R-SC) Supports New Nominee for Export-Import Bank: Speaking in an interview on July 13, Senator Lindsey Graham said that he will try to get the White House to nominate someone other than former Rep. Scott Garrett (R-NJ) as President of the Export-Import Bank. While in Congress, Garrett strongly opposed the Bank and worked to close it.

National Association of Manufacturers President Jay Timmons also published an op-ed in the Wall Street Journal asking President Trump to withdraw his nomination of Garrett.

Democrats Raise Concerns Over Potential Conflicts of Interest: Reps. Elijah Cummings (D-MD), Ranking Member of the House Oversight and Government Reform Committee, and Hakeem Jeffries (D-NY) sent a letter to the President’s Trustees and Department of Housing and Urban Development (HUD) Secretary Ben Carson, requesting documents related to potential conflicts of interest arising from the President’s ownership of a stake in the nation’s largest government-subsidized residential property, Starrett City. Starrett City is located in Brooklyn, NY and has 46 buildings with 5,881 apartments.

HOUSE FINANCIAL SERVICES COMMITTEE

Federal Reserve Chair Janet Yellen Testifies Before Committee: Federal Reserve Chair Janet Yellen testified before the Committee in a hearing entitled “Monetary Policy and the State of the Economy,” which focused on the Fed’s Monetary Policy Report. In his opening statement, Chairman Jeb Hensarling (R-TX) stated that economic growth requires “transparent policy strategy” from the Fed. Ranking Member Maxine Waters (D-CA) warned that the Trump Administration has been “one of chaos and turmoil” that creates uncertainty and threatens the economy. Yellen gave an overview of the economy, stating that “the labor market has continued to strengthen” and that we are gaining an average of 180,000 jobs per month this year, which is a slight decrease from the average in 2016.

Democrats Renew Efforts on Trump Russia Ties: Ranking Member Maxine Waters and a group of Democrats have filed a “resolution of inquiry” that demands U.S. Treasury Secretary Steven Mnuchin to produce all documents in his possession “relating to President Trump's financial connections to Russia, certain illegal financial schemes, and related information.” The resolution must be considered on the House floor within 14 legislative days, unless the Committee calls for a markup.

Subcommittee on Capital Markets, Securities, and Investment Examined Fiduciary Duty Rule: The Subcommittee held a hearing last week to examine the impact on capital markets of the Department of Labor’s Fiduciary Duty Rule. The focus of the hearing was to discuss the consequences of the Rule. Witnesses included:

Mr. David C. Knoch, President, 1st Global
Mr. Mark Halloran, Senior Director, Head of Industry and Regulatory Strategy, Transamerica
Mr. Jerome Lombard, President, Private Client Group, Janney Montgomery Scott LLC
Ms. Cristina B. Martin Firvida, Director, Financial Security and Consumer Affairs, AARP
Dr. Douglas Holtz-Eakin, President, American Action Forum

Subcommittee on Financial Institutions and Consumer Credit Evaluated Legislative Proposals: The Financial Institutions and Consumer Credit Subcommittee held a hearing on July 12 to examine legislation aimed at reducing regulatory burdens on community financial institutions. Subcommittee Chairman Blaine Luetkemeyer (R-MO) said that the bills are “designed to take the first steps in relieving pressure on our nation’s community financial institutions and preserving choice and financial independence for all consumers.” Witnesses included:

Mr. Robert Fisher, President and Chief Executive Officer, Tioga State Bank, on behalf of the Independent Community Bankers of America
Mr. Rick Nichols, President and Chief Executive Officer, River Region Credit Union, on behalf of the Heartland Credit Union Association
Mr. Scott B. Astrada, Director of Federal Advocacy, Center for Responsible Lending
Professor J.W. Verret, Senior Affiliated Scholar, Associate Professor, George Mason University School of Law

The hearing examined the following legislative proposals:
H.R. 864, (Rep. Love), the “Stop Debt Collection Abuse Act of 2017”
H.R. 924, (Rep. Rothfus), the “Financial Institutions Due Process Act of 2017”
H.R. 1457, (Rep. Tipton), the “Making Online Banking Initiation Legal and Easy Act of 2017”
H.R. 2133, (Rep. Luetkemeyer), the “Community Lending Enhancement and Regulatory Relief Act of 2017”
H.R. 2148, (Rep. Pittenger), the “Clarifying Commercial Real Estate Loans”
H.R. 2396, (Rep. Trott), the “Privacy Notification Technical Correction Act”
H.R. ____, (Rep. Kustoff), the “Access to Affordable Mortgages Act of 2017”
H.R. ____, (Rep. Hollingsworth), the “Ensuring Quality Unbiased Access to Loans Act of 2017”
H.R. ____, (Rep. Tenney), to simplify the process for national banks to obtain deposit insurance, and for other purposes.

SENATE BANKING COMMITTEE

Federal Reserve Chair Janet Yellen Testifies Before Committee: Federal Reserve Chair Janet Yellen also testified on July 13 before the Senate Banking Committee on the “Semiannual Monetary Policy Report to Congress.” Yellen said that it would be “quite challenging” for the economy to reach the Trump Administrations goal of three percent growth in the next five years. She further said that to accelerate economic growth, U.S. productivity would need to increase by at least two percent annually.

Regarding the so-called Volcker Rule, which prohibits proprietary trading, Yellen said that Congress may want to consider appointing a lead regulator to implement the Rule. Currently, the Rule is overseen by five agencies.

Who Will be Next Federal Reserve Chairman? Senate Banking Committee Chairman said on July 13 that National Economic Council Director Gary Cohn would be a good choice to replace Janet Yellen and lead the Federal Reserve. In an interview, Crapo said that Cohn has “got the skill set and clearly he understand the issues.” Senator Sherrod Brown (D-OH), Ranking Member of the Committee, said that he would like to see current Fed Chair Janet Yellen renominated.

Cohn is the leading candidate to replace Yellen. House Financial Services Chairman Jeb Hensarling (R-TX) has expressed support for Cohn, but also offered the name of another candidate: John Taylor of Stanford University.

THIS WEEK ON THE HILL

Tuesday, July 18

House Financial Services Capital Markets, Securities, and Investment Subcommittee, Hearing, “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance,” 10:00am, 2128 Rayburn House Office Building

House Financial Services Terrorism and Illicit Finance Subcommittee, Hearing, “Managing Terrorism Financing Risk in Remittances and Money Transfers,” 2:00pm, 2128 Rayburn House Office Building

Senate Banking Committee, Nomination Hearing, 10:00am, Dirksen Senate Office Building

Mr. J. Paul Compton, Jr., of Alabama, to be General Counsel, U.S. Department of Housing and Urban Development;
Ms. Anna M. Farias, to be Assistant Secretary for Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development;
Mr. Neal J. Rackleff, to be Assistant Secretary for Community Planning and Development, U.S. Department of Housing and Urban Development;
Mr. Richard Ashooh, to be Assistant Secretary for Export Administration, U.S. Department of Commerce;
Ms. Elizabeth Erin Walsh, to be Assistant Secretary for Global Markets and Director General of the United States and Foreign Commercial Service, U.S. Department of Commerce; and
Mr. Christopher Campbell, to be Assistant Secretary for Financial Institutions, U.S. Department of the Treasury.

Wednesday, July 19

House Financial Services Oversight and Investigations Subcommittee, Hearing, “Congressional Oversight of Independent Regulatory Agencies,” 10:00am, 2128 Rayburn House Office Building

House Financial Services Monetary Policy and Trade Subcommittee, Hearing, “Restricting North Korea’s Access to Finance,” 2:00pm, 2128 Rayburn House Office Building

Thursday, July 20

Senate Banking Committee, Hearing, “Housing Finance Reform: Maintaining Access for Small Lenders,” 10:00am, 538 Dirksen Senate Office Building

Ms. Brenda Hughes, Senior Vice President and Director of Mortgage and Retail Lending, First Federal Savings Bank of Twin Falls, on behalf of the American Bankers Association (ABA);
Mr. Tim Mislansky, Senior Vice President and Chief Lending Officer, Wright-Patt Credit Union and President, myCUmortgage,LLC, on behalf of the Credit Union National Association (CUNA);
Mr. Jack E. Hopkins, President and CEO, CorTrust Bank, N.A., on behalf of the Independent Community Bankers of America (ICBA);
Mr. Charles M. Purvis, President and CEO, Coastal Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions (NAFCU);
Mr. Wes Hunt, President, Homestar Financial Corporation, on behalf of the Community Mortgage Lenders of America (CMLA); and
Mr. Bill Giambrone, President and CEO, Platinum Home Mortgage and President, Community Home Lenders Association (CHLA).

THE REGULATORS

Consumer Financial Protection Bureau (CFPB) Issues Final Rule to Prohibit Mandatory Arbitration Clauses in Certain Contracts: The CFPB announced on July 10 a new pro-class action and anti-arbitration Final Rule. The rule prohibits financial services companies from using mandatory arbitration clauses in consumer contracts. While House Financial Services Ranking Member Maxine Waters and Senate Banking Ranking Member Sherrod Brown issued statements praising the rule, Senate Banking Chairman Mike Crapo is planning to introduce a resolution under the Congressional Review Act that will overturn the rule. Senator Bob Corker (R-TN) has publicly stated that he will back the resolution when it is introduced.

Comptroller of the Currency Keith Noreika sent a letter to the CFPB raising concerns regarding the expose of financial institutions to “potential ruinous liability” that would force settlement of “unmeritorious claims to mitigate the significant costs and risks associated with class-action lawsuits.” CFPB Director Richard Cordray responded and challenged Noreika’s claim, and pointed out that the Office of the Comptroller of the Currency did not previously raise concerns about the rule, despite having more than a year to do so. When defendants make the same argument that Director Cordray is making – e.g. the practice has been ongoing and you haven’t said anything was wrong – the CFPB routinely discards that argument, known as estoppel.

CFPB Issues Notice of Proposed Rulemaking on Mortgage-Data Reporting: The CFPB proposed amendments that would increase the threshold for collecting and reporting data with respect to open-end lines of credit so that financial institutions originating fewer than 500 open-end lines of credit would not be required to begin collecting such data until January 1, 2020. Comments must be received on or before July 31, 2017.

Securities and Exchange Commission (SEC) Chairman Jay Clayton Addresses Economic Club of New York: In his first public speech, SEC Chairman Jay Clayton addressed the Economic Club of New York on July 12. He outlined guiding principles for his Chairmanship that will help him fulfill the agency’s mission “(1) to protect investors, (2) to maintain fair, orderly, and efficient markets, and (3) to facilitate capital formation.” In addition to other initiatives, he announced that the SEC could launch a pilot program to reduce the fees that traders pay to access stock exchanges. He also emphasized the threat of cyber attacks and stressed the need for greater cooperation on cybersecurity.

Commodity Futures Trading Commission (CFTC) to Review Swaps Reporting Rules: The CFTC is starting to review its swaps reporting rules, with an aim to have an overhaul of the rules by 2019. On July 10, the agency opened a 40-day comment period for public suggestions. The goals of the changes to existing regulations are “(a) to ensure that the CFTC receives accurate, complete, and high quality data on swaps transactions for its regulatory oversight role; and (b) to streamline reporting, reduce messages that must be reported, and right-size the number of data elements that are reported to meet the agency’s priority use-cases for swaps data.”

Federal Reserve Governor Lael Brainard Gave Speech on Cross-Border Spillovers of Balance Sheet Normalizations: Speaking at the New York Fed, Gov. Lael Brainard said that normalization of the Fed’s main borrowing rate is “well under way.” She said that the central bank should begin to allow some of its asset holdings to mature without being replaced. According to Brainard, if the labor market continues to be strong and economic activity stable, it would be “appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.”

Treasury Department and U.S. Trade Representative Issue Notice of Intent to Sign Covered Agreement: The U.S. Department of the Treasury and the Office of the U.S. Trade Representative announced on June 14 their intent to sign the Bilateral Agreement between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance. In addition to signing the Agreement in the coming weeks, the Administration also plans to issue a U.S. policy statement on implementation.

Federal Deposit Insurance Corporation (FDIC) Holds Meeting of Advisory Committee on Community Banking: The FDIC held a meeting on July 12 of the Advisory Committee on Community Banking. The agenda included updates on supervisory issues such as liquidity risk, capital and examination processes, de novo applications, appraisals, and Call Reports.

Consolidated Audit Trail Faces Setback: The SEC is reviewing how exchanges will pay for the gigantic database that would make it easier to catch cheaters and trace the causes of crashes in the U.S. stock market. The database, known as the Consolidated Audit Trail, is to be paid for with fees from brokers, banks, and other traders. The SEC is looking into the matter after groups such as OTC Markets Group and the Securities Industry and Financial Markets Association put increasing pressure on the agency to review the Consolidated Audit Trail.

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

Neomi Rao confirmed as Administrator of the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs: Neomi Rao, currently a George Mason University law professor, was confirmed by a vote of 54-41 to serve as President Trump’s regulatory czar. She will oversee most federal rulemaking.

Randal Quarles Nominated to serve as Vice Chair for Supervision at Federal Reserve: The White House announced that President Trump will nominate Randal Quarles to the Federal Reserve Board. Quarles currently runs private investment firm Cynosure Group. He was previously a partner at private equity firm the Carlyle Group, and served as Undersecretary of the Treasury for George W. Bush. Senate Banking Committee Ranking Member Sherrod Brown blasted the nomination.

Russ Behnam Nominated as CFTC Commissioner: Russ Behnam, currently serving as Senior Counsel to Agriculture Committee Ranking Member Debbie Stabenow (D-MI), has been nominated as a CFTC Commissioner. Two Republican nominees, Dawn Stump and Brian Quintenz, are awaiting confirmation, as is Acting Chairman J. Christopher Giancarlo as head of the agency. Commissioner Sharon Bowen has announced plans to step down from her post.

Federal Deposit Insurance Corporation (FDIC) Nominee Withdraws Name: Jim Clinger has withdrawn his name from consideration for Chairman of the FDIC. Clinger cited family issues as his reason for withdrawing.

OTHER NOTEWORTHY ITEMS

British-American Business Council Gives Recommendations for Free Trade: In a set of recommendations for conversations on a U.S.-U.K. free trade agreement, the British-American Business Council said that the countries should look into uniting their financial services industries “under one regulatory umbrella” and developing a new mechanism for resolving investment disputes.

Consulting Firm Milliman Says Private Flood Insurance Cheaper: According to a report released by consulting firm Milliman, private companies could offer a significant number of homeowners less expensive flood insurance premiums than the National Flood Insurance Program in Texas, Florida, and Louisiana. The findings were offered as Congress is debating the reauthorization of the National Flood Insurance Program and is considering opening the market to greater private competition.

On another note related to flood insurance, House Financial Services Committee Chairman Jeb Hensarling is expected to drop his controversial proposal to phase out National Flood Insurance Program coverage for new construction in areas at high risk of flooding.

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