THE BIG PICTURE
Majority Whip Steve Scalise (R-LA) Shot in Attack on Congressional Republicans: Washington was rocked after gunman opened fire at the Republican congressional baseball team’s practice on June 14, striking four people, including Representative Steve Scalise. The tragedy shocked Republicans and Democrats and united the parties in anguish, with Speaker Paul Ryan (R-WI) saying “for all the noise and all the fury, we are one family.”
Several congressional activities were postponed in light of the shooting, including a GOP meeting on the budget, which will likely happen this week. The congressional baseball game, which is an important event that brings together the Capitol Hill community, went on as scheduled on June 15. The Democrats continued their winning streak, with an 11-2 victory.
Senate Approves New Sanctions for Iran and Russia: On June 15, the Senate voted 98-2 for new sanctions on Iran and Russia. This includes the power of Congress to block President Trump from rolling back penalties against Russia. It is unclear whether the White House will accept the sanctions deal, as President Trump has repeatedly dismissed the idea of Russia meddling in the 2016 Presidential election. The sanctions target Iran’s ballistic missile development, support for terrorism, weapons transfers and human rights violations.
Treasury Releases Report of Recommendations: On June 12, the Treasury Department released a report recommending changes to bank regulations. This is the first report in a series in response to an Executive Order issued by President Trump to evaluate financial regulations. Among other recommendations, the report:
- Calls for a bigger FSOC role in supervision and coordination.
- Gives FSOC “the authority to appoint a lead regulator on any issue on which multiple agencies may have conflicting and overlapping regulatory jurisdiction.”
- Asks that Congress reduce redundancy in regulatory regime, including consolidation.
- Recommends exempting community banks with less than $10B in assets from the Volcker Rule, Basel III requirements, and possibly the Collins Amendment of Dodd-Frank (established a minimum capital floor for all institutions).
- Includes significant Reforms to mortgage rules, including qualified mortgage rule
- Changes Living Will requirements, including:
- Changing threshold for compliance from $50B to matched revised threshold for application of enhanced prudential standards
- Formalizing a change of living will process to two-year cycle
- Removing FDIC from the process and make it an objective process
- Recommends raising the stress testing requirements for federally insured credit unions to $50B in assets (currently at $10B).
- Calls for regulatory “off-ramp” from all capital and liquidity requirements, and the Volcker rule, for institutions that agree to hold a “sufficiently high” level of capital.
- Recommends CFPB Director be removable at will by President or restructured to independent commission and subject to appropriations.
Some of the recommendations can be done through regulations, without Congress. The report shows that the Treasury Department, which traditionally has little regulatory authority, is attempting to expand the scope of its authority. Federal Reserve Chair Janet Yellen called the report “complicated” but said that she was encouraged that it supports many of the regulatory pillars implemented after the financial crisis. According to Yellen, “[the report] underscores the importance of capital, liquidity, stress testing, and resolution planning and having a safe and sound banking system, which are views that I and my colleagues have long espoused.”
Financial Services Committee Ranking Member Maxine Waters slammed the report, calling it an “attack on protections for consumers, investors, and retirees.” Senate Banking Committee Ranking Member Sherrod Brown was similarly critical of the report.
President Trump Confirms He is Under Investigation: President Trump tweeted on June 16 that he is the target of a “Witch Hunt,” saying “I am being investigated for firing the FBI Director by the man who told me to fire the FBI Director!” The tweet likely refers to Deputy Attorney General Rod Rosenstein.
Attorney General Jeff Sessions Testifies Before Senate Intelligence Committee: Attorney General Jeff Sessions testified on June 13 before the Senate Intelligence Committee, vehemently denying that he had anything to do with Russian meddling in the 2016 Presidential election, calling the idea that he colluded with the Russians an “appalling” lie. Sessions refused to talk about his conversations with President Trump about the Russia investigation or the firing of former FBI Director James Comey, beyond what was in the Rosenstein-prepared recommendation memo.
Another Court Rules Against travel Ban: A three-judge panel on the Ninth Circuit Court of Appeals has ruled against President Trump’s revised Executive Order restricting travel from six predominantly Muslim countries. The ruling will likely be appealed to the Supreme Court, which is currently considering a similar case from the Fourth Circuit Court of Appeals.
ALSO ON THE HILL LAST WEEK
HOUSE FINANCIAL SERVICES COMMITTEE
Committee Marks up Flood Insurance Legislation: On June 15, the House Financial Services Committee marked up legislation reauthorizing the National Flood Insurance Program. In his opening statement, Committee Chairman Jeb Hensarling (R-TX) said that the Committee needed to listen to the voice of the taxpayer because the program is $26B in debt. Ranking Member Maxine Waters (D-CA) said that the Republican bills would restrict coverage, increase costs, and open the door to “cherry picking” by the private sector. The first round of bills reauthorizing the program, which included H.R. 2868 and H.R. 2874, were reported out favorably.
Though some concessions have been made and some industry groups now support the legislation, the National Association of Home Builders opposes a provision that would phase out coverage for new construction in high-risk areas. The American Bankers Association (ABA) also urged lawmakers to delete a provision in the bills that would eliminate coverage for homes with excessive lifetime claims. In a letter, the ABA said that the elimination of that provision could lead to a foreclosure crisis.
As talks on the legislation continue in the House and the Financial Services Committee marks up their bills, Senate Banking Chairman Mike Crapo (R-ID) said that he and Ranking Member Sherrod Brown (D-OH) are close to an agreement to reauthorize the program. Senators Robert Menendez (D-NJ) and John Kennedy (R-LA), both of whom are from flood-prone states, are leading a bipartisan group of Senators in introducing their own legislation to reauthorize the program. That legislation would freeze interest on flood insurance debt, which they say would free up $400M a year to help with mitigation and affordability assistance.
SENATE BANKING COMMITTEE
Ranking Member Brown Open to Easing Regulations for Midsize Banks: Speaking at a hearing on economic growth, Senator Sherrod Brown (D-OH) said that he is open to offering regulatory relief to regional banks. The statement comes after the Treasury Department released recommendations related to financial services regulations. Banking Chairman Mike Crapo (R-ID) said that he is “encouraged by a number of specific recommendations for midsized and regional banks.”
Group of House Republicans Urge Ways and Means Chairman Kevin Brady (R-TX) to Maintain Carried Interest Status Quo: Twenty-two Republicans, led by Rep. Richard Hudson (R-NC), sent a letter to Chairman Kevin Brady, urging him not to offset rate cut costs by increasing taxes on carried interest, which gets preferred treatment as a long-term investment. According to the letter, “changing that characterization as it relates to carried interest capital gains would arbitrarily punish investors in real estate, venture capital, private equity, and other partnerships by treating their gains differently than those of other investors.”
THIS WEEK ON THE HILL
Wednesday, June 21
House Financial Services Committee, Markup, “Continuation of the Markup of H.R. 1422, H.R. 1558, H.R. 2246, H.R. 2565, H.R. 2868, H.R. 2875, and H.R. 2874,” 10:00am, 2128 Rayburn House Office Building
House Financial Services Subcommittee on Monetary Policy and Trade, Hearing, “Monetary Policy v. Fiscal Policy: Risks to Price Stability and the Economy,” 2:00pm, 2128 Rayburn House Office Building
Thursday, June 22
Senate Banking Committee, Hearing, “Fostering Economic Growth: Regulator Perspective,” 10:00am, 538 Dirksen Senate Office Building
- The Honorable Jerome H. Powell, Member, Board of Governors of the Federal Reserve System;
- The Honorable Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation;
- The Honorable J. Mark McWatters, Acting Chairman, National Credit Union Administration;
- Mr. Keith A. Noreika, Acting Comptroller, Office of the Comptroller of the Currency;
- Mr. Charles G. Cooper, Commissioner, Texas Department of Banking, on behalf of the Conference of State Bank Supervisors.
Senate Agriculture Committee, Hearing, “Nomination of J. Christopher Giancarlo,” 9:30am, 328A Russell Senate Office Building
Friday, June 23
House Financial Services Subcommittee on Terrorism and Illicit Finance, Hearing, “The Exploitation of Cultural Property: Examining Illicit Activity in the Antiquities and Art Trade,” 9:15am, 2128 Rayburn House Office Building
Consumer Financial Protection Bureau (CFPB) Seeks Input on Prepaid Card Rule: On June 15, the CFPB proposed further changes to its final rule on prepaid cards and also asked for public comment on whether to delay implementing the rule for a second time. The rule requires financial institutions to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, give consumers free and easy access to account information, and provide protections if credit is offered.
State Treasurers Speak out on Fiduciary Duty Rule: Thirteen state treasurers from both sides of the aisle have urged Department of Labor Secretary Alexander Acosta not to roll back the Obama administration’s Fiduciary Duty Rule. Parts of the rule, which requires broker-dealers to not take into account commission and fees when providing retirement advice, went into effect on June 9. The state treasurers said that the rule was justified by “substantial” evidence, despite the fact that it has been challenged by certain business groups and some Republicans.
Securities and Exchange Commission (SEC) to Consider New Rule for New York Stock Exchange Listings: The SEC is scheduled to decide by June 29, or at least start proceedings on, whether companies will be able to list on the New York Stock Exchange without completing a traditional initial public offering (IPO). This move would appeal to certain cash-rich startups that have ample cash such that they don’t require additional capital associated with an IPO.
Acting Comptroller of Currency Will Recuse Himself from Firm-Specific Matters: Acting head of the Office of the Comptroller of Currency (OCC) Keith Noreika will recuse himself from matters involving 80 financial institutions, law firms, and other companies that had dealings with his previous law firm, Simpson Thacher & Bartlett LLP.
Consumer Groups Ask Federal Communications Commission (FCC) to Take Action on Robocalls: Six consumer advocacy groups asked the FCC on June 12 to launch an investigation into robocalling by Navient Solutions, LLC to student loan debtors. The groups said the calls are “abusive” and that Navient is “deliberately engaged in a campaign of harassing and abusing consumers.”
Former SEC Commissioner Speaks Out on IPO Dearth: Former SEC Commissioner Paul Atkins said on June 12 that regulatory costs are a major hindrance to companies going public, noting that executives, investors, and others “all take into account the cost of doing business and regulations.” Atkins is now CEO of Patomak Global Partners, LLC. SEC Chairman Jay Clayton has said that he sees “meaningful room for improvement” in helping companies go public and making the move more attractive for businesses.
NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES
President Trump Nominates New Federal Deposit Insurance Corporation (FDIC) Chairman: President Donald Trump announced on June 16 that he intends to nominate House aide James Clinger as a member of the FDIC. Clinger will be chairman of the board once Martin Gruenberg's term ends in late November. Clinger recently left the House Financial Services Committee, where he served as Chief Counsel. He has spent a combined 20 years on the Committee, also serving as Senior Banking Counsel and Assistant Staff Director.
President Trump Nominates Dawn DeBerry Stump as Commissioner of Commodity Futures Trading Commission: President Trump nominated former derivatives industry lobbyist Dawn DeBerry Stump to be a Commissioner on the CFTC. Stump launched her consulting firm Stump Strategic last year. She previously worked as a senior staffer on the Senate Agriculture Committee.
Securities and Exchange Commission Names Stephanie Avakian and Steven Peikin as Co-Directors of Enforcement: The Securities and Exchange Commission announced that Acting Director of the Division of Enforcement Stephanie Avakian and former federal prosecutor Steven Peikin have been named Co-Directors of the Division of Enforcement. The Division of Enforcement is the agency's largest unit with more than 1,200 investigators, accountants, trial attorneys, and other professionals. Ms. Avakian was named Acting Director of the SEC’s Division of Enforcement in December 2016 after serving as Deputy Director of the Division since June 2014. Mr. Peikin was most recently Managing Partner of Sullivan & Cromwell’s Criminal Defense and Investigations Group.
OTHER NOTEWORTHY ITEMS
Supreme Court Rules in Fair Debt Collection Practices Act Case: The Supreme Court last week decided Henson, et al v. Santander Consumer USA. At issue in the case was whether Santander qualified as a debt collector for purposes of the Fair Debt Collection Practices Act. The Court ruled that Santander did not, and that the plaintiff was using “quite a lot of speculation” in arguing that Santander, a creditor who buys delinquent debt for pennies on the dollar, should fall under the Fair Debt Collection Practices Act. The law does not apply directly to creditors, but plaintiffs argued that it should apply in cases where the creditor does not originate the loan being collected. The Court rejected this argument. See also Paul Hastings StayCurrent.
Financial Industry Regulatory Authority (FINRA) Announces New Program: FINRA announced last week its Innovation Outreach Initiative to “foster an ongoing dialogue with the securities industry that will help FINRA better understand financial technology (fintech) innovations and their impact on the industry.” The goal is to better track fintech developments across the rapidly changing industry to “support innovation in the industry while maintaining investor protection and market integrity,” according to Robert W. Cook, FINRA President and CEO.
The announcement from FINRA follows the Commodity Futures Trading Commission’s launch of LabCFTC, which will create a hub for the agency to engage with fintech innovators, and the OCC’s developments of a new fintech charter.
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.