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PH Money Matters: This Week in Washington

This Week in Washington for February 26, 2018

THE BIG PICTURE

The aftermath of the mass shooting at Stoneman Douglas High School in Florida continued to dominate the news this week. On Tuesday, President Trump announced that he had directed the DOJ to work towards issuing regulations banning bump stocks. On Wednesday, President Trump held a listening session at the White House with survivors from Florida, Sandy Hook, and other mass shooting incidents, where he voiced his controversial opinion that arming teachers could be a viable solution. He was widely panned in the press when cameras captured his talking points, which included a reminder to say “I hear you.” The President announced on Twitter that “I will be strongly pushing Comprehensive Background Checks with an emphasis on Mental Health. Raise age to 21 and end sale of Bump Stocks! Congress is in a mood to finally do something on this issue - I hope!” Meanwhile, student survivors-turned-activists are planning marches to advocate for stricter gun control legislation in cities around the country next month, dubbed the “March for Our Lives.”

On the Russia front, Tuesday, attorney Alex van der Zwaan, who happens to be the son-in-law of Russian billionaire German Khan, pled guilty to lying to prosecutors in Special Counsel Robert Mueller’s investigation. The lies in dispute related to conversations he had with Richard Gates, a former Trump aide and protégé of former Trump campaign chair Paul Manafort, over their work on a Ukrainian political dispute. A sentencing hearing has been scheduled for April.

A few days later, on Friday, Richard Gates entered into his own plea deal, pleading guilty to one count of conspiracy against the United States and one count of making false statements to the FBI, becoming the third former Trump aide to flip and cooperate with Special Counsel’s investigation. The plea came on the heels of a new indictment issued on Thursday against Paul Manafort and Mr. Gates which contained 32 counts of allegations of a series of tax, financial, and bank fraud crimes. Many expect Mr. Gates’ cooperation to increase pressure on Mr. Manafort to cut a deal, however he continues to maintain his innocence, releasing a statement disparaging Mr. Gates’ choice saying “I had hoped and expected my business colleague would have had the strength to continue the battle.”

Other highlights of last week include:

  • Marco Rubio participated in a contentious town hall focused on gun policy which was hosted by CNN on Wednesday, where he was confronted by survivors and made news by announcing that he supports raising the legal age limit for purchasing an AR-15 style gun to 21.
  • On Tuesday, the Supreme Court declined to hear a hedge fund’s appeal challenging the government’s profits relating to its conservatorship of Fannie Mae and Freddie Mac. The next day they issued a unanimous ruling in Digital Realty Trust v. Somers that limits the whistleblower protections under Dodd-Frank to those individuals who report violations to the SEC.
  • President Trump spoke at the Conservative Political Action Conference (CPAC) on Friday where he repeated his call to arm teachers, joked about his bald spot, mentioned newly unveiled sanctions on North Korea, and rallied his right-wing base.

LAST WEEK ON THE HILL

The Hill was quiet during the Presidents’ Day recess.

THIS WEEK ON THE HILL

Note: Members of the House have been advised that there will be no votes held on Wednesday, February 28 and Thursday, March 1 to accommodate Rev. Billy Graham lying in honor in the U.S. Capitol Rotunda. The Senate will remain in session.

Tuesday, February 27

House Financial Services Committee, hearing entitled “Monetary Policy and the State of the Economy” at 10:00 A.M. in Room 2128 Rayburn House Office Building.

  • The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System

House Committee on Small Business, hearing entitled “How Red Tape Affects Community Banks and Credit Unions: A GAO Report” at 2:00 P.M. in Room 2360 Rayburn House Office Building.

  • Mr. Michael Clements, Director, Financial Markets and Community Investment, United States Government Accountability Office

Wednesday, February 28

Senate Committee on Commerce, Science, & Transportation, “Executive Session,” at 9:45 A.M. in Room 106 Dirksen Senate Office Building. The Executive Session will consider President Trump’s FTC nominees:

  • Nomination of Joseph Simons, of Virginia, to be a Federal Trade Commissioner, Chairman Designate
  • Nomination of Noah Joshua Phillips, of Maryland, to be a Federal Trade Commissioner
  • Nomination of Christine Wilson, of Virginia, to be a Federal Trade Commissioner
  • Nomination of Rohit Chopra, of New York, to be a Federal Trade Commissioner
    .

Thursday, March 1

Senate Banking Committee, hearing entitled “The Semiannual Monetary Policy Report to the Congress” at 10:00 A.M. in Room 538 Dirksen Senate Office Building.

  • The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System

THE REGULATORS

Federal Reserve’s Dudley Warns of Speculative Mania in Cryptocurrency Market: New York Federal Reserve President William Dudley issued a warning at a briefing on Thursday, saying “There is a bit of a … speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous, because I don’t really see what the actual true underlying value of some of these cryptocurrencies actually is in practice.”

Securities and Exchange Commission Votes to Delay Mutual Fund Regulations: On Wednesday the SEC voted to extend by six months, the deadline by which open-end funds must comply with certain elements of the Commission’s liquidity risk management program rule. The new compliance date will provide funds additional time to complete implementation of the final rule’s classification requirement, along with specified other elements that are tied to the classification requirement. Chairman Jay Clayton stated, “Today’s Commission action is a measured step designed to help preserve key market oversight and investor protection benefits of the Commission's liquidity rule, while addressing certain concerns that have been raised since adoption.”

SEC Adopts Statement and Interpretive Guidance on Public Company Cybersecurity Disclosures: Following recent large scale data breaches and hacks, on Tuesday, the SEC voted unanimously to approve a statement and interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. The guidance “reinforces and expands” guidance released in 2011, and provides the Commission’s views about public companies’ disclosure obligations under existing law, it also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context. Not all of the Commissioners felt the guidance went far enough, with Commissioner Kara Stein releasing a statement saying “the Commission has ignored pleas from issuers, investors, market participants, and members of Congress to do more … seven years since the staff guidance was released, despite dramatic increases in cyberattacks and their related costs, there have been almost imperceptible changes in companies’ disclosures. This to me strongly suggests that guidance alone is inadequate.”

CFTC and U.K. FCA Sign Arrangement to Collaborate on FinTech Innovation: The Commodity Futures Trading Commission and the U.K.’s Financial Conduct Authority announced on Monday the signing of an arrangement that commits the regulators to collaborating and supporting innovative firms through each other’s FinTech initiatives – LabCFTC and FCA Innovate. The Fintech Arrangement follows the creation of FCA Innovate in October 2014 and LabCFTC in May 2017. In announcing the arrangement, CFTC Chairman J. Christopher Giancarlo said “The FCA’s Project Innovate is the gold standard for thoughtful regulatory engagement with emerging technological innovation … therefore, I am delighted to join Andrew Bailey in this arrangement to demonstrate our cross-Atlantic commitment to facilitating market-enhancing innovation and sharing best practices in FinTech engagement.”

CFTC Staff Extends to February 2021 No-Action Relief for Derivative Swap Businesses: On Tuesday, the Commodity Futures Trading Commission’s Division of Market Oversight announced the extension of time-limited no-action relief to entities submitting swaps for clearing by derivatives clearing organizations operating under CFTC exemptive orders or no-action relief provided by CFTC staff. The relief represents a renewal of an exemption that had expired in January.

CFPB Acting Director Rebukes Sen. Elizabeth Warren (D-MA): In a letter responding to Sen. Warren’s January inquiry over the Bureau’s lenient oversight of the payday loan industry (which insinuated it may have something to do with prior campaign donations received) acting Director Mick Mulvaney ignored the questions posed and instead admonished Sen. Warren on civil discourse saying, “civil discourse rests upon our reciprocal understanding that no matter how strongly we may disagree on matters of policy, we are motivated by principle and our mutual desire to serve the American people to the best of our abilities.”

Treasury Releases Report to the President on Orderly Liquidation Authority: On Wednesday the Treasury released a report regarding its review and recommendations on the Orderly Liquidation Authority (OLA). Treasury described its recommendations as ensuring that taxpayers are protected by strengthening the bankruptcy procedure for a failed financial company and retaining OLA in very limited circumstances with significant reforms. Secretary Steven Mnuchin said, “the bankruptcy reforms that we propose will make the shareholders, management, and creditors of a financial company bear any losses from its failure. The policy of this Administration is clear: we will not tolerate taxpayer-funded bailouts.” Not everyone was happy with the report however, with House Financial Services Chairman Rep. Jeb Hensarling (R-TX) saying “[the report] regrettably does not recommend repealing OLA … Dodd-Frank’s Orderly Liquidation Authority expressly enables taxpayer funded bailouts; it does not prevent them,” arguing the move would enshrine the “too big to fail” notion of big financial institutions.

Treasury Announces Largest North Korean Sanctions Package Ever: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced on Friday the largest North Korea-related sanctions tranche to date, aimed at disrupting North Korean shipping and trading companies and vessels to further isolate the regime and advance the U.S. maximum pressure campaign. The action targets one individual, 27 entities, and 28 vessels located, registered, or flagged in North Korea, China, Singapore, Taiwan, Hong Kong, Marshall Islands, Tanzania, Panama, and Comoros. Treasury, along with the U.S. Department of State and U.S. Coast Guard, also issued an advisory alerting the public to the significant sanctions risks to those continuing to enable shipments of goods to and from North Korea.

CFPB Issues Request for Information on External Engagements: On Wednesday, the Consumer Financial Protection Bureau issued a Request for Information about the Bureau’s external engagements. The Bureau is seeking comments and information from interested parties on ways to engage the public and receive feedback on the work of the agency. This is the fifth in a series of RFIs announced as part of Acting Director Mick Mulvaney’s call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers. This RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

OTHER NOTEWORTHY ITEMS

State Bankers Associations Urge End to Credit Union Tax Exemption: In a Letter to Sen. Orrin Hatch (R-UT), 52 state bankers associations argued that the time had come to end the tax-exempt status enjoyed by credit unions, saying “There is no reason why the largest credit unions, which act and look just like the taxpaying banks they compete with, should be completely free of income taxation. This creates a market distortion where the tax code effectively subsidizes one financial services entity (the largest credit unions) over another (the smaller community bank).”

Department of Education Issues Request for Information on Student Loan Bankruptcy Discharges: On Tuesday the Department of Education issued a request for public comment on “Evaluating Undue Hardship Claims in Adversary Actions Seeking Student Loan Discharge in Bankruptcy Proceedings.” Their stated goal is to ensure that the congressional mandate to except student loans from bankruptcy discharge except in cases of undue hardship is appropriately implemented while also ensuring that borrowers for whom repayment of their student loans would be an undue hardship are not inadvertently discouraged from filing and adversary proceeding in their bankruptcy case. The “undue hardship” standard has meant that few bankrupt individuals have been able to wipe out their debt.

House Representatives Urge Confirmation of Export Import Bank Nominees: A bipartisan group of 68 Representatives signed a letter urging Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY), to move to confirm four nominees to the board of the Export-Import Bank of the United States. The letter detailed the deleterious effects of the lack of a quorum, “In FY2017, EXIM was only able to authorize US$2.4B in loans, guarantees and insurance, supporting just 2,412 exporters, 40,000 U.S. jobs, and US$7.4B in U.S. export sales. This is a sharp decline from FY2014 when EXIM had a quorum and was able to approve US$20.5B in loans, guarantees and insurance, supporting 3,563 exporters, 165,000 U.S. jobs, and US$27.5B in U.S. export sales.”