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PH Money Matters: This Week in Washington

This Week in Washington for June 3, 2019

THE BIG PICTURE

On Wednesday, Special Counsel Robert Mueller made his first public statement regarding his investigation into Russian interference in the 2016 election. In a brief eight minute appearance, he indicated he did not plan to appear before Congress because “the report is my testimony.” Despite claims from the administration that his findings represented a total exoneration, the Special Counsel reiterated a line from his report that, “if we had confidence that the president clearly did not commit a crime, we would have said so,” adding that due to Justice Department policy, “charging the president with a crime was … not an option we could consider.” His statement fueled a new push among some Democrats to commence impeachment proceedings. While Speaker Nancy Pelosi has resisted such calls to date, over the weekend House Majority Whip Jim Clyburn said he believes the President will be impeached “at some point,” but emphasized that first Democrats must build the case.

On Thursday, the President announced plans via Twitter to impose a 5% tariff on imports from Mexico. The new tax will go into effect on June 10th, and will continue “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” According to the administration, the tariff level will rise by 5% each month until it reaches 25% on October 1st. White House Chief of Staff Mick Mulvaney noted however, that “we sincerely hope it does not come to that,” and said the White House had a “level of confidence that the Mexican government will be able to help us.”

Other highlights of last week include:

  • The President signaled his opposition to a second run by Roy Moore for the Senate in Alabama, saying that while he has “nothing against” him, he “cannot win, and the consequences” would be devastating.
  • Former Mississippi Senator Thad Cochran passed away on Thursday at the age of 81. Sen. Cochran had resigned in April of last year, citing health concerns.

LAST WEEK ON THE HILL

ON THE FLOOR

Disaster Aid Package Temporarily Stalls in House: The US$19.1B disaster aid package passed by the Senate before the Memorial Day weekend continued to linger in the House as three additional Congressmen lodged objections to the use of unanimous consent to pass the measure. The delay will likely be short-lived however, as once the House reconvenes on Monday after recess, the bill should easily be passed via a roll call vote. An effort to pass an extension of the National Flood Insurance Program similarly failed.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 3050: Rep. Bryan Steil (R-WI) introduced H.R. 3050, which would require the Securities and Exchange Commission to carry out a study of the 10 per centum threshold limitation applicable to the definition of a diversified company under the Investment Company Act of 1940.

S. 1463: Sen. David Perdue (R-GA) introduced S. 1463, which would establish a scorekeeping rule to ensure that increases in guarantee fees of Fannie Mae and Freddie Mac shall not be used to offset provisions that increase the deficit.

THIS WEEK ON THE HILL

Monday, June 3

House Appropriations Committee (Subcommittee on Financial Services and General Government) Hearing on “FY 2020 Appropriations Bill Markup”: 7:00 PM in HT-2 Capitol.

Tuesday, June 4

House Financial Services Committee Hearing on “Promoting American Jobs: Reauthorization of the U.S. Export-Import Bank”: 10:00 AM in 2128 Rayburn House Office Building.

Senate Banking Committee Hearing on “Confronting Threats From China: Assessing Controls on Technology and Investment, and Measures to Combat Opioid Trafficking”: 10:00 AM in 538 Dirksen Senate Office Building.

House Financial Services Committee Hearing on “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending”: 2:00 PM in 2128 Rayburn House Office Building.

Wednesday, June 5

Senate Banking Committee Hearing on “Nominations”: 10:00 AM in 538 Dirksen Senate Office Building.

THE REGULATORS

Federal Reserve Announces Schedule for Results of Stress Tests: On Friday, the Federal Reserve announced that results from the latest supervisory stress tests conducted as part of the Dodd-Frank Act will be released on Friday, June 21, and the results from the related Comprehensive Capital Analysis and Review (CCAR) will be released on Thursday, June 27. This year only the largest and most complex banks—generally those with total consolidated assets of US$250B or more—are subject to stress testing. As previously announced by the Board, less-complex banks will not be subject to the stress test during the 2019 cycle.

Regional Federal Reserve Banks United on Discount Rate in April: According to the summary of the discount rate meeting that was released on Tuesday, the Directors of all 12 regional Federal Reserve banks supported holding the discount lending rate at 3%, favoring a “patient” approach.

Federal Reserve’s Quarles Says Interest Rates Shouldn’t Be Used to Combat Bubbles: Speaking at a conference on Thursday, the Federal Reserve’s vice chairman for banking supervision, Randal Quarles, discussed his view that central banks shouldn’t use interest rates as a tool for avoiding financial meltdowns, saying “while there is evidence that financial vulnerabilities have the potential to translate into macroeconomic risks, a general consensus has emerged that monetary policy should be guided primarily by the outlook for unemployment and inflation and not by the state of financial vulnerabilities.”

Agencies Issue Final Rule Regarding the Treatment of Certain Municipal Obligations as High-Quality Liquid Assets: On Thursday, the Federal Reserve, FDIC, and OCC issued a final rule that will adopt without change the agencies’ interim final rule issued in August 2018, amending their liquidity coverage ratio (LCR) rules to treat certain municipal obligations as high-quality liquid assets (HQLA). The Economic Growth, Regulatory Relief, and Consumer Protection Act requires the agencies to treat a municipal obligation as HQLA under the LCR rule if that obligation is “liquid and readily-marketable” and “investment grade.”

FDIC Releases Quarterly Banking Profile: On Wednesday, the FDIC released its Quarterly Banking Profile, which showed that commercial banks and savings institutions insured by the FDIC reported aggregate net income of US$60.7B in the first quarter of 2019, up US$4.9B (8.7%) from a year earlier. The increase in net income was mainly attributable to a US$7.9B (6%) increase in net interest income. In a statement, Chairwoman Jelena McWilliams said, “The banking industry reported another positive quarter. The FDIC continues to encourage banks to maintain prudent risk management in order to support lending through this economic cycle.”

FDIC Chairwoman Discusses CRA Proposal and Small Dollar Loan Policy Timeline: FDIC Chairwoman Jelena McWilliams said that the regulatory agencies are working on a draft joint proposal to revamp the Community Reinvestment Act, and hope to release a “base document” in the next couple of weeks, with a more formal proposal to follow. She also noted that the FDIC has a draft proposal regarding small-dollar loans, which the agency would share with the Federal Reserve and OCC “in the next few days.”

SEC Commissioner Calls on Agency to Consider Crypto Products: In a speech, SEC Commissioner Hester Peirce called on the agency’s Division of Investment Management to consider ways to give investors new access to crypto products despite the risks involved because “the reality is that retail investors will get access . . . even if we do not allow them to do so through SEC-regulated products and venues,” adding that “it is not the Commission’s role to be the arbiter of what constitutes an appropriate investment or to act as an investment adviser.”

Plans to Privatize Fannie and Freddie Reportedly Being Finalized: The Treasury Department in consultation with the Federal Housing Finance Agency is reportedly finalizing a plan to privatize Fannie Mae and Freddie Mac, over a decade after the government took over the firms to save them from collapse during the financial crisis. The proposal will include a version of “recap and release” which would ensure they have adequate capital reserves which would allow them to absorb future losses without the need for a bail-out.

COMINGS AND GOINGS AT THE AGENCIES

Erin Schneider Named Director of SEC’s San Francisco Office: On Tuesday, the SEC announced that Erin Schneider had been named Director of the San Francisco Regional Office. Ms. Schneider joined the SEC staff in 2005 as a staff attorney in the San Francisco office. She was promoted to Assistant Regional Director of the Enforcement Division’s Asset Management Unit in 2012 and then to Associate Regional Director of the San Francisco office in 2015.

Sagar Teotia Named the SEC’s Acting Chief Accountant: On Thursday, the SEC named Sagar Teotia as the SEC’s Acting Chief Accountant following the departure of Wesley Bricker in June. Since 2017, Mr. Teotia has served as Deputy Chief Accountant, leading the accounting group.

THE COURTS

Federal Judge Rules Stay on Payday Lending Rule Will Remain on Hold: On Thursday, a federal judge in Texas ruled that a stay on the CFPB’s payday lending rule, first proposed in October 2016, would remain on hold while the agency reworks provisions.

OTHER NOTEWORTHY ITEMS

Lawmakers Urge Administration to Promote Blockchain: A bipartisan group of lawmakers wrote to Larry Kudlow, who heads the National Economic Council, urging him to host a forum on blockchain technology, and to include it on a list of technologies the administration plans to promote. They argued that “to continue its standing as a world leader in technological innovation, the United States should engage with policymakers, the private sector, and academia to promote the research and development of blockchain technology; explore its benefits for private and public use; collaborate on cross-sectoral policy, standard-setting, scalability, and implementation issues; and discuss potential regulatory approaches.”

IOSCO Sets Out Guidance on Regulating Trading of Crypto Assets: The International Organization of Securities Commissions (IOSCO) on Tuesday released a guidance for its members on ways to handle the “novel and unique” issues that result from oversight of cryptocurrency trading platforms. “IOSCO believes that fostering innovation should be balanced with the appropriate level of regulatory oversight,” the board said in its report, adding that, “while aspects of the underlying technology and operation of CTPs may be novel, if a CTP trades a crypto-asset that is a security and it falls within a regulatory authority’s jurisdiction, the basic principles or objectives of securities regulation... should apply.”