This Week in Washington for June 29, 2020
By Dina Ellis
THE BIG PICTURE
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Coronavirus cases in the United States surpassed 2.5 million last week, as daily infections hit record highs. States across the South and West are facing a surge in cases, causing several Governors to pause or backtrack reopening plans as soaring case counts threaten to overwhelm local healthcare systems. While the increase is partly due to expanded testing, a significant amount of community spread persists. New York, New Jersey, and Connecticut issued a travel advisory requiring visitors from areas with high transmission rates to quarantine for 14 days upon arrival in an effort to protect their progress in containing the outbreak. Dr. Anthony Fauci urged younger Americans to take the virus seriously and to view safety precautions as a part of a greater “societal responsibility.”
The Trump and Biden presidential campaigns continue to chug along in the shadow of the pandemic. Given the outlook for the rest of the summer, the DNC announced they would significantly scale back their nominating convention, planning a mostly virtual event in order to safeguard public health as Joe Biden accepts the nomination in Milwaukee. Former 2016 Republican presidential candidate Carly Fiorina said in an interview that she plans to back Biden in 2020.
Other highlights of last week include:
The Supreme Court handed the administration a win on immigration, ruling 7-2 that asylum seekers do not have a right to appeal removal decisions in federal court before deportation.
The House voted 232-180 to pass legislation that would grant statehood to Washington D.C. and give residents of the District long-sought voting rights in Congress. The measure is likely dead on arrival in the Senate but marks the first time either chamber has voted to elevate D.C. to the 51st state.
The President signed an Executive Order placing additional restrictions on H-1B visas and other guest worker programs.
An additional 1.5 million workers filed for unemployment last week, as the economic hardship caused by the pandemic persists across the country.
LAST WEEK ON THE HILL
Schatz Leads Senators in Calling on Fed to Suspend Payments to Shareholders during the Pandemic: On Wednesday, Sen. Brian Schatz (D-HI) led a group of senators in calling on the Federal Reserve to require banks to suspend dividend payments to shareholders as the economy struggles to recover from the ongoing COVID-19 crisis. The senators urged Fed Chair Jerome Powell and Vice Chair Randal Quarles to ensure banks conserve capital now, so that they can continue lending if the economic fallout from the pandemic turns more severe.
Bipartisan Group Calls on Fed, Treasury to Prevent Foreclosures and Protect Jobs: On Wednesday, a group of 100 representatives led by Congressmen Van Taylor (R-TX), Denny Heck (D-WA), Andy Barr (R-KY), and Al Lawson (D-FL) urged Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell to provide economic support to the commercial real estate (CRE) market, especially businesses with Commercial Mortgage-Backed Security (CMBS) debt, and the hundreds of thousands of Americans they employ. The lawmakers requested that the Treasury and the Federal Reserve consider targeted economic support to bridge the temporary liquidity deficiencies facing commercial real estate borrowers created by the COVID-19 pandemic.
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “
Jay Clayton, Chairman, U.S. Securities and Exchange Commission
Committee Dems Urge HUD and FHFA to Amend Policies That Are Reducing Access to Mortgage Credit for People of Color: On Thursday, Committee Chairwoman Rep. Maxine Waters (D-CA), along with Rep. Wm. Lacy Clay (D-MO) and Rep. Juan Vargas (D CA), sent a letter to HUD Secretary Ben Carson and FHFA Director Mark Calabria, calling on the agencies to amend their policies, which penalize loans that go into forbearance prior to being insured by the Federal Housing Administration or purchased by Fannie Mae or Freddie Mac.
Waters Condemns Deregulatory Rulemakings at SEC during the Pandemic: On Thursday, Committee Chairwoman Rep. Maxine Waters sent a letter to SEC Chairman Jay Clayton, reiterating her call for the agency to halt rulemakings unrelated to the pandemic. Waters wrote, “During these difficult times, the SEC under your leadership has pushed a deregulatory agenda, including rules that would rollback critical investor safeguards, limit shareholder rights, and deprive the market of important information precisely at a time when it is needed most,” and urged Clayton “to immediately halt further consideration of the following rulemakings that threaten to leave investors and our markets more vulnerable to financial instability.”
SENATE BANKING COMMITTEE
Hearing on “
Kimberly Reed, President and Chairman of the Board of Directors, Export-Import Bank of the United States
House Energy and Commerce Committee Hearing on “
Anthony Fauci, M.D., Director, National Institute for Allergy and Infectious Diseases, National Institutes of Health
ADM Brett Giroir, M.D., Assistant Secretary for Health, U.S. Department of Health and Human Services
Stephen Hahn, M.D., Commissioner, U.S. Food and Drug Administration
Robert Redfield, M.D., Director, Centers for Disease Control and Prevention
ON THE FLOOR
Senate Dems Block Republican Backed Police Reform Bill: On Wednesday, Senate Democrats blocked the police reform bill introduced by Sen. Tim Scott (R-SC), declining to engage in floor debate on the measure, which they criticized as not going nearly far enough to create meaningful reform.
Senate Confirms 200th Judicial Nominee: On Thursday, the Senate voted 52-48 to approve the nomination of Cory Wilson to the U.S. Court of Appeals for the Fifth Circuit. With Wilson’s confirmation, there are no judicial vacancies at the appellate level for the first time in four decades. The confirmation was the 200th under President Trump, reflecting the President and Senate Majority Leader Mitch McConnell’s focus on the judiciary.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 7290: Rep. Denny Heck (D-WA) introduced H.R. 7290, which would modify the cost sharing requirement of the Defense Community Infrastructure Program and to temporarily expand eligibility for Department of Defense impact aid and authorize additional amounts to provide such aid.
H.R. 7298: Rep. Bobby Scott (D-VA) introduced H.R. 7298, which would extend the period for obligations or expenditures for amounts obligated for the National Disaster Resilience competition.
H.R. 7309: Rep. Lloyd Doggett (D-TX) introduced H.R. 7309, which would prohibit certain assistance for inverted domestic corporations.
H.R. 7312: Rep. John Garamendi (D-CA) introduced H.R. 7312, which would reauthorize the HOME Investment Partnerships Program.
S. 3802: Sen. Ted Cruz (R-TX) introduced S. 3802, the Ending Medical Censorship and Cover Ups in China Act of 2020, which would require the imposition of sanctions with respect to censorship and related activities against citizens of the People's Republic of China.
S. 4089: Sen. Dick Durbin (D-IL) and Rep. Jerry Nadler (D-NY) introduced S. 4089, the Protecting Employees and Retirees in Business Bankruptcies Act, a bicameral bill, which would curb abuses that deprive employees and retirees of their earnings and retirement savings when businesses file for bankruptcy.
THIS WEEK ON THE HILL
Tuesday, June 30
Senate Banking Committee Hearing on “
House Financial Services Committee Hearing on “
Federal and State Regulatory Agencies Issue Examiner Guidance for Assessing Safety and Soundness: On Tuesday, the Federal Reserve, FDIC, NCUA, and OCC in conjunction with the state bank and credit union regulators issued examiner guidance to promote consistency and flexibility in the supervision and examination of financial institutions affected by the COVID-19 pandemic. The interagency guidance instructs examiners to consider the unique, evolving, and potentially long-term nature of the issues confronting institutions due to the pandemic and to exercise appropriate flexibility in their supervisory response.
Financial Regulators Modify Volcker Rule: On Thursday, the Federal Reserve, CFTC, FDIC, OCC, and SEC finalized a rule modifying the Volcker rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The final rule is broadly similar to the proposed rule from January. Like the proposal, the final rule modifies three areas of the rule by: streamlining the covered funds portion of rule; addressing the extraterritorial treatment of certain foreign funds; and permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address. The rule will be effective on October 1.
Agencies Finalize Amendments to Swap Margin Rule: On Thursday, the Federal Reserve, FCA, FDIC, FHFA, and OCC finalized changes to their swap margin rule to facilitate the implementation of prudent risk management strategies at banks and other entities with significant swap activities. Under the final rule, entities that are part of the same banking organization generally will no longer be required to hold a specific amount of initial margin for uncleared swaps with each other, known as inter-affiliate swaps. The final rule will give firms additional flexibility to allocate collateral internally and support prudent risk management and safety and soundness. To help transition from LIBOR to alternative reference rates, the final rule allows swap entities to amend legacy swaps to replace the reference to LIBOR or other reference rates that are expected to end without triggering margin exchange requirements. The final rule also clarifies that swap entities may conduct risk-reducing portfolio compression or make certain other non-substantive amendments to their legacy swap portfolios without altering their legacy status.
Federal Reserve Board Releases Results of Stress Tests for 2020: On Thursday, the Federal Reserve released the results of its stress tests for 2020 and additional sensitivity analyses that the Board conducted in light of the coronavirus pandemic. In the three downside scenarios, the unemployment rate peaked at between 15.6% and 19.5%. In aggregate, loan losses for the 34 banks ranged from US$560B to US$700B in the sensitivity analysis and aggregate capital ratios declined from 12.0% in the fourth quarter of 2019 to between 9.5% and 7.7% under the hypothetical downside scenarios. Under the U- and W-shaped scenarios, most firms remain well capitalized, but several would approach minimum capital levels. In light of these results, the Board took several actions to ensure large banks remain resilient despite the economic uncertainty caused by the coronavirus. For the third quarter of this year, the Board is requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. The Board is also requiring banks to re-evaluate their longer-term capital plans.
SEC Extends Relief for Virtual Meetings of Fund Boards: The SEC announced that it is extending conditional relief from the in-person voting requirements for fund boards that it originally provided in March 2020. That relief will now extend at least through December 31, 2020. The extension is designed to provide flexibility to boards of registered funds and business development companies (funds) that may continue to face challenges meeting in person.
SEC and DOJ Antitrust Division Sign Memorandum of Understanding: On Monday, the SEC and DOJ’s Antitrust Division signed an interagency Memorandum of Understanding (MOU) to foster cooperation and communication between the agencies with the aim of enhancing competition in the securities industry. “As competition is embedded in our securities laws, there are many policy areas where the missions of the SEC and DOJ’s Antritrust Division align, but where our respective areas of expertise differ,” said SEC Chairman Jay Clayton. “By formalizing the exchange of knowledge between our agencies, we aim to foster even greater collaboration and cooperation to ensure that we maintain the efficient and competitive markets that American investors rely on.”
SBA and Treasury Announce Transparency Regarding the Paycheck Protection Program: After initially declining to provide information about recipients of Paycheck Protection Program funds, the U.S. Small Business Administration and Department of the Treasury have agreed with the bipartisan leaders of the U.S. Senate Small Business Committee to make public additional data regarding the Paycheck Protection Program (PPP). SBA will disclose the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and loan amount ranges. For loans below US$150,000, totals will be released, aggregated by zip code, by industry, by business type, and by various demographic categories.
OCC Interim Final Rule Reduces Assessments in Response to COVID-19: On Monday, the OCC approved an interim final rule (IFR) that will reduce assessments due to be paid to the OCC on September 30, 2020. “Banks have played an important role in the national response to COVID-19,” acting Comptroller Brian Brooks said. “As a result, many banks took on significant volumes of additional assets while providing relief to their customers as part of these federal programs. Banks should not be penalized by these efforts to support our national recovery. This interim final rule provides temporary relief against the adverse impact of COVID 19 on our nation’s banks that continue to be critical to our economic strength and recovery.”
CFPB Takes Steps to Address GSE Patch: On Monday, the CFPB issued two Notices of Proposed Rulemaking (NPRMs) to address the impending expiration of the Government Sponsored Enterprises Patch (GSE Patch). The GSE Patch is scheduled to expire in January 2021. “The GSE patch's expiration will facilitate a more transparent, level playing field that ultimately benefits consumers through promoting more vigorous competition in mortgage markets,” said CFPB Director Kathleen Kraninger, adding, “The bureau is proposing to replace the patch with a price-based approach to QM loans to preserve consumer access to mortgage loans while also making sure consumers have the ability to repay them.” Sen. Sherrod Brown (D-OH) slammed the timing saying, “Putting out a proposal to reshape access to affordable mortgages in the middle of a pandemic guarantees that this rule will not have the thoughtful look that it deserves.”
CFPB Issues Interim Final Rule on Loss Mitigation Options: On Tuesday, the CFPB issued an interim final rule (IFR) that will make it easier for consumers to transition out of financial hardship caused by the COVID-19 pandemic and easier for mortgage servicers to assist those consumers. The IFR makes it clear that servicers do not violate Regulation X by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower. Normally, with certain exceptions, Regulation X would require servicers to collect a complete loss mitigation application before making an offer. The IFR also provides servicers relief from certain requirements under Regulation X that normally would apply after a borrower submits an incomplete loss mitigation application.
CFPB Issues Interpretive Rule on Method for Determining Underserved Areas: On Tuesday, the CFPB issued an interpretive rule to provide guidance to creditors and other persons involved in the mortgage origination process about the way in which the Bureau determines which counties qualify as “underserved” for a given calendar year. The interpretive rule describes the Home Mortgage Disclosure Act (HMDA) data that will instead be used in determining that an area is “underserved” for purposes of the standard described in Regulation Z. This interpretation supersedes the outdated methodology set forth in the commentary to Regulation Z.
COMINGS AND GOINGS AT THE AGENCIES
National Institutes of Health Director Francis Collins Joins Coronavirus Task Force: On Wednesday, NIH Director Francis Collins announced he had joined the White House’s Coronavirus Task Force.
Supreme Court Narrows SEC’s Disgorgement Powers: On Monday, in an 8-1 ruling, the Supreme Court said that the SEC could win disgorgement in federal court, finding that it constitutes “equitable relief” as long as the amount does not exceed the wrongdoer’s illicit profits and is returned to victims. The Court cautioned, however, that the disgorgement amounts could not go further than restitution.
D.C. Circuit Orders Flynn Case Dismissed: On Wednesday, the D.C. Circuit Court of Appeals ordered a district court judge to dismiss the felony false-statement case against former national security advisor Michael Flynn.
OTHER NOTEWORTHY ITEMS
NYDFS Launches Series of Virtual Currency Initiatives: On Wednesday, New York’s Superintendent of Financial Services Linda Lacewell proposed a new conditional licensing framework that makes it easier for start-ups to enter the New York market. DFS also announced final guidance regarding licensees’ ability to self-certify the use of new coins and established an approach by which DFS will provide a list of approved coins that all licensees can easily adopt.
Paul Hastings’ Government Relations team is monitoring these issues. We help our clients craft strategies to address federal legislative and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.