THE BIG PICTURE
The government shut down briefly after midnight on February 9, as Senator Rand Paul (R-KY) single-handedly blocked a bipartisan two-year deal from reaching a vote. However, the Senate advanced a package funding the government through March 23 later in the morning and the House voted at 5:30 am. The deal increases spending by US $300B on both defense and nondefense programs, including an extension of the National Flood Insurance Program. The President announced he had signed the bill on Twitter.
On Tuesday, the House moved on two fronts to address sexual harassment, both by voice vote. They first approved changes to their internal rules on sexual harassment, including a ban on sexual relationships between members and their aides. They also passed a bipartisan bill to revamp the Congressional Accountability Act, which Democratic Rep. Jackie Speier (D-CA) says will “empower survivors.” The bill will require “climate surveys” to establish the scope of harassment in Congress, as well as giving interns the same protections as staff and require members to foot the bill for any settlements. The bill now heads to the Senate.
The Democratic retreat, already relocated from the Eastern Shore to the Capitol as the budget deal remained in limbo, was overshadowed on Wednesday by Minority Leader Nancy Pelosi’s (D-CA) marathon 8 hour and 7 minute filibuster-style speech from the House floor in which she told the stories of various “DREAMers” and demanded the House vote on a deal to protect DACA recipients.
Senate Majority Leader Mitch McConnell (R-KY) announced on the Senate floor that he will allow a debate on DACA and border security, in “a process that is fair to all sides” by moving to a bill without underlying immigration text. There is no guarantee of passage however, and House Speaker Paul Ryan has offered no commitment on introducing any Senate-passed bipartisan bill in the House.
After announcing early in the day that “it [would] be released soon,” the President reversed course later on Friday and blocked the release of House Intelligence Committee Democrat’s memo rebutting claims made in the so-called “Nunes Memo” which was declassified and released on February 2, alleging surveillance abuse by F.B.I. officials. White House Counsel Don McGahn released a statement saying “Although the President is inclined to declassify the…Memorandum, because the Memorandum contains numerous properly classified and especially sensitive passages, he is unable to do so at this time.”
Other highlights of last week include:
- Key White House Aide, Staff Secretary Rob Porter, announced his resignation on Wednesday following reports of domestic abuse involving both of his ex-wives. He was followed by speechwriter David Sorenson, who also resigned on Friday following accusations of abuse from his ex-wife.
- Following extreme volatility in their value of late, the World Bank Group President Jim Yong Kim sounded wary of cryptocurrencies in a speech this week, saying “we are also looking at it, but I’m told the vast majority of cryptocurrencies are basically Ponzi schemes.”
- After his acquittal on federal corruption charges, Senator Robert Menendez (D-NJ) has resumed his position as the Ranking Member on the Senate Foreign Relations Committee, with Senator Benjamin Cardin (D-MD) returning to his position as Ranking Member on the Small Business and Entrepreneurship Committee. It remains to be seen however, whether the Senate Ethics Committee will investigate him now that the federal case is over.
- The White House announced the President will be unveiling his infrastructure proposal on Monday, February 12, “which will outline a plan that will generate at least US$1.5T of investment, cut the burdensome regulatory process from 10 years to 2, and provide funding for projects in rural America.”
- The U.S. Court of Appeals for the District of Columbia issued a unanimous decision in favor of the Loan Syndications and Trading Association, declaring them to be exempt from a Dodd-Frank risk retention requirement.
- Rep. Emanuel Cleaver (D-MO) spoke out regarding the Bitcoin Foundation and the Chamber of Digital Commerce, calling for these entities to do more in efforts to prevent extremist groups from using cryptocurrency to fund campaigns of hate and violence.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Committee Holds Hearing on “The Annual Report of the Financial Stability Oversight Council”: On February 6, the full Committee held a hearing on “The Annual Report on the Financial Stability Oversight Council (FSOC).” The purpose of the hearing was to receive the 2017 Annual Report from Secretary of the Treasury, Steven Mnuchin. The FSOC annual report is mandated by the Dodd-Frank Act. In the 2017 Report, FSOC identified several potential emerging threats and vulnerabilities: “ongoing, structural vulnerabilities; cybersecurity; asset management products and activities; managing vulnerabilities in an environment of low, but rising, interest rates; changes to financial market structure and implications for financial stability and global economic and financial developments.” During the hearing Secretary Mnuchin was pressed on the Administration’s inaction on the Russia sanctions passed by Congress.
SENATE BANKING COMMITTEE
Executive Session to Consider Nominations and Subcommittee Organization
- Jelena McWilliams was approved to be chairwoman of the FDIC by voice vote, with Senator Elizabeth Warren (D-MA) requesting her dissent be recorded.
- Marvin Goodfriend was approved in a 13-12 party-line vote as a Federal Reserve Board Member, however with Senator John McCain (R-AZ) out receiving treatment and Senator Rand Paul (R-KY) indicating he will likely be a “no”, Dr. Goodfriend is unlikely to fare well in the full Senate vote. In a statement Senator Sherrod Brown (D-OH) said, “ While Dr. Goodfriend at the nomination hearing paid lip service to Fed independence and its mandate to fight unemployment, it ultimately rang hollow given his years advocating the opposite.”
- Thomas Workman was approved to be the insurance member of the Financial Stability Oversight Council.
Committee Holds Hearing on “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission” on February 6, the Senate Committee on Banking, Housing and Urban Affairs held a hearing on the oversight role of the CFTC and SEC related to cryptocurrencies. Clayton and Giancarlo emphasized the need for a unified approach, with Clayton saying, “We should all come together, the federal banking regulators, the CFTC and SEC—there are states involved as well—and have a coordinated plan for dealing with the virtual currency trading market.” Witnesses included:
ON THE FLOOR
House Passes Mortgage Choice Act: On February 8, the House passed H.R. 1153, introduced by Rep. Bill Huizenga (R-MI), legislation intended to preserve consumer choice and help more Americans—especially those with low- and moderate-incomes and first time homebuyers—achieve the dream of homeownership. However, due to strong opposition from Sen. Elizabeth Warren (D-MA), this legislation seems likely to stall. Rep. Maxine Waters (D-CA) also registered her opposition in a statement, saying, “While some of my colleagues on the other side of the aisle have forgotten those days, I haven’t. I remember how predatory lenders targeted unsuspecting homebuyers by hiding fees and obscuring loan costs, tricking them into exploding mortgages, and locking them into loans that they really couldn’t afford. … The last thing Congress should do is to open the door to a return to these fraudulent and harmful policies. And yet that’s exactly what H.R. 1153 would do.”
Other financial services legislation passed includes:
- H.R. 4771, Small Bank Holding Company Relief Act, sponsored by Rep. Mia Love (R-UT), would make it easier for community banks to raise additional capital by issuing debt, providing sensible regulatory relief to small financial institutions while also preserving important safety and soundness measures. Rep. Maxine Waters (D-CA) Ranking Member of the Committee on Financial Services gave a statement in opposition saying, “This bill is another Republican-led measure to roll back appropriately tailored policies to regulate the financial services sector that ignores the hard-learned lessons of the catastrophic 2008 financial crisis.” ”
LEGISLATION INTRODUCED AND PROPOSED
Draft Banking Bill Released: Senator Doug Jones (D-AL), co-sponsored his first banking bill along with Senator Tom Cotton (R-AR) to clarify commercial real estate lending rules by providing a clear definition for loans requiring larger capital allocations, referred to as high volatility commercial real estate (HVCRE) loans. The bill is a companion to legislation which passed the House in November, H.R. 2148 (115).
THIS WEEK ON THE HILL
Wednesday, February 14
House Financial Services Committee, Hearing entitled “Legislative Proposals Regarding Derivatives” 2:00 PM in 2128 Rayburn House Office Building
House Financial Services Committee, Hearing entitled “Examining the Current Data Security And Breach Notification Regulatory Regime” 10:00 AM in 2128 Rayburn House Office Building
Senate Finance Committee, Hearing entitled “The President’s Fiscal Year 2019 Budget” 10:30 AM in 215 Dirksen Senate Office Building
Thursday, February 15
House Financial Services Committee, Hearing entitled “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime” 2:00 PM in 2128 Rayburn House Office Building
House Financial Services Committee, Hearing entitled “Examining De-risking and its Effect on Access to Financial Services” 10:00 AM in 2128 Rayburn House Office Building
Friday, February 16
House Financial Services Committee, Hearing entitled “Evaluating CFIUS: Administration Perspectives” 10:00 AM in 2128 Rayburn House Office Building
Senate Finance Committee, Hearing entitled “Trade Enforcement and Infrastructure: Safeguarding our Industrial Base from Present and Future Challenges” 9:45 AM
House Will Vote on Two Pieces of Financial Services Legislation on February 14
- H.R.3299, Protecting Consumers' Access to Credit Act of 2017, sponsored by Rep. Patrick McHenry (R-NC), the bill would amend the Revised Statutes, the Home Owners' Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act to state that bank loans that are valid when made as to their maximum rate of interest in accordance with federal law shall remain valid with respect to that rate regardless of whether a bank has subsequently sold or assigned the loan to a third party.
- H.R.3978, TRID Improvement Act of 2017, sponsored by Rep. French Hill (R-AR), the bill would amend the Real Estate Settlement Procedures of 1974 to modify disclosure requirements applicable to mortgage loan transactions. Specifically, the disclosed charges for any title insurance premium shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by either state regulation or the title company rate filings.
SEC Office of Compliance Inspections and Examinations Announces 2018 Examination Priorities: Of particular interest this year will be matters involving critical market infrastructure, duties to retail investors, and developments in cryptocurrency, initial coin offerings, and secondary market trading. This year, OCIE's examination priorities are broken down into five categories: (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs.
FDIC Issues List of Banks Examined for CRA Compliance: On February 5, the Federal Deposit Insurance Corporation (FDIC) issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in November 2017.
FDIC Releases Economic Scenarios for 2018 Stress Testing: On February 6, the Federal Deposit Insurance Corporation (FDIC) released the economic scenarios that will be used by certain financial institutions with total consolidated assets of more than US$10B for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Agencies Seek Comment on Proposed Amendments to Swap Margin Rule: Five federal agencies propose to amend swap margin requirements to conform with recent rule changes that impose new restrictions on certain qualified financial contracts (QFCs) of systemically important banking organizations. Under the proposed amendments, legacy swaps entered into before the applicable compliance date would not become subject to the margin requirements if they are amended solely to comply with the requirements of the QFC Rules.
Treasury Sanctions Individuals Destabilizing the Eastern Democratic Republic of the Congo: On February 5, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned four individuals who have engaged in destabilizing activities responsible for prolonging the conflict in the Democratic Republic of Congo (DRC) and contributing to widespread poverty, chronic food insecurity, and population displacement. As a result of today's actions, all of the designated persons' assets within U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
FINRA Releases 2018 Regulatory and Examination Priorities Letter: FINRA released its annual letter identifying their top priorities for the coming year. This year’s priorities include: fraud, high-risk firms and brokers, operational and financial risks, sales practice risks, market integrity, and new rules.
U.S. Warns Lenders in Veterans Mortgage Program: 9 lenders are at risk of being booted from a mortgage bond program, following a warning on their “loan churning” practices by Ginnie Mae. They were informed in an announcement that they must stop targeting military veterans their families for risky mortgage refinancing.
Senate Democrats Call on CFPB to Take More Active Role in Equifax Investigation: Following reports that under temporary Director Mulvaney the Consumer Financial Protection Bureau has declined to engage in a vigorous investigation into the unprecedented data breach which left 145 million American’s sensitive information exposed, a group of 31 Senate Democrats wrote to Mulvaney, stating "The responsibility of consumer reporting agencies as custodians of consumers' personal and financial information is of paramount importance to us and our constituents.”
CFPB Issues Request for Information Regarding Bureau Enforcement Processes: The Bureau on Tuesday issued a request for information seeking public comment on how best to achieve meaningful burden reduction or other improvement to the processes used by the Bureau to enforce Federal consumer financial law (enforcement processes) while continuing to meet the Bureau’s statutory objectives and ensuring a fair and transparent process for parties subject to enforcement authority.
IRS Looking into Cryptocurrency Accounts as Part of Tax Evasion Cases: The IRS has formed a team of 10 investigators to work international crime cases and to identify tax evaders using cryptocurrencies. Chief Don Fort says “It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion.”
President Trump Receives Briefing on Derivatives: The President met on Wednesday with CFTC Chairman Giancarlo in the Oval Office to receive a briefing on derivatives. .
COMINGS AND GOINGS AT THE AGENCIES
Jerome H. Powell sworn in as Chairman of the Board of Governors of the Federal Reserve System: Jerome H. Powell on Monday took the oath of office as Chairman of the Board of Governors of the Federal Reserve System, succeeding Janet L. Yellen. The oath was administered by Vice Chairman Randal K. Quarles in the Board Room.
Kirsten Sutton Mork Named Chief of Staff at CFPB: Mick Mulvaney, Acting Director of the Consumer Financial Protection Bureau, announced that he has named Kirsten Sutton Mork to be chief of staff. Mr. Mulvaney said “I worked with Kirsten during my tenure as a member on the House Financial Services Committee and can attest to her in-depth financial policy expertise, proven track record of developing and implementing strategic initiatives, and ability to manage a team.”
Tim Pawlenty Steps Down From Financial Services Roundtable: Amid speculation that he may stage a run for another term as Minnesota’s governor, Tim Pawlenty has stepped down from his role as CEO of the Financial Services Roundtable. He is expected to meet with donors and operatives in Minneapolis next week to further explore his potential political future.
Scott Garrett Being Considered for Job at SEC: Following his failed bid to lead the Export-Import bank, former Rep. Scott Garrett is rumored to be in line for a job at the SEC’s office of general council.