THE BIG PICTURE
The Supreme Court released a number of high-profile 5-4 decisions during the last week of their term, all along ideological lines. In a victory for the President, on Monday, the Court upheld the third iteration of his travel ban, affirming the President’s broad authority relating to matters of national security. Writing for the majority Justice Roberts took the opportunity to formally repudiate the court’s infamous decision in Korematsu, which upheld the detention of Japanese-Americans during WWII. In a fiery dissent, Justice Sotomayor decried that “new [national security] window dressing cannot conceal an unassailable fact: the words of the President and his advisers create the strong perception that the Proclamation is contaminated by impermissible discriminatory animus against Islam and its followers.” On Wednesday, the Court dealt a blow to public-sector unions, ruling 5-4 in Janus v. AFSCME that they cannot force employees who elect not to join to pay “fair share fees,” saying that to do so was unconstitutional under the First Amendment.
On Wednesday, Justice Anthony Kennedy, 81, announced his plans to retire effective July 31st, giving President Trump the opportunity to appoint a second Justice and tip the balance of the Court for generations to come. Justice Kennedy was appointed by President Reagan in 1988 and has served as the Court’s swing vote in recent years, becoming the deciding vote in cases involving issues championed by liberals, including gay rights, abortion, and the death penalty. The President and Senate Majority Leader Mitch McConnell have already voiced their intention to begin the process of identifying a successor immediately with plans to confirm “this fall.” Senate Democrats, with the memory of McConnell’s treatment of Merrick Garland, President Obama’s nominee to replace Antonin Scalia, still fresh in their minds, immediately began calling for him to follow the same election year rule. However with Republicans in control of the Senate, there is likely little the Democrats can do to similarly stall the process.
On Tuesday, another round of primaries were held in the run-up to the November midterms. In a surprising upset, House Democratic Caucus Chairman Joe Crowley was defeated by challenger and political newcomer Alexandria Ocasio-Cortez in New York’s 14th District. In South Carolina, Republican Governor Henry McMaster, who was backed by the President, was able to hold off challenger John Warren in the Republican runoff. In New York’s 11th District, Republican Rep. Dan Donovan defeated challenger former Rep. Michael Grimm. Grimm had attempted a political comeback following his felony conviction. Donovan will now face Army vet Max Rose, who ran unopposed in the Democratic primary. Former Massachusetts Governor and Republican presidential nominee Mitt Romney won the Republican Senate primary in Utah, almost guaranteeing him a Senate seat in the fall.
Other highlights of last week include:
- The House voted 226-183 along party lines to pass a nonbinding resolution demanding the Justice Department produce documents related to the Russia probe.
- On the heels of his summit with North Korean leader Kim Jong Un, President Trump is planning another high profile meeting, this time with Russian President Vladimir Putin on July 16 in Helsinki, Finland. Their meeting will come just days after President Trump attends the NATO summit in Brussels.
- In the aftermath of the shooting at the Capital-Gazette office in Annapolis, Maryland which left five dead, the President, who frequently spars with members of the media, affirmed that, “Journalists, like all Americans, should be free from the fear of being violently attacked while doing their jobs.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing entitled “Oversight of the Federal Government’s Approach to Lead-Based Paint and Mold Remediation in Public and Subsidized Housing”: On Tuesday, the Subcommittee on Housing and Insurance held a hearing to examine how the Federal Government, through the Department of Housing and Urban Development’s (HUD) programs, remedies unsafe living conditions caused by lead-based paint and mold for many individuals and families that live in public and subsidized housing. Subcommittee Chairman Sean Duffy (R-WI) noted that the hearing was “essential to gain valuable insight on how best to use both the private and public sector to protect our youth from lead poisoning and dangerous mold. Mold impacts those relying on public housing in every part of the country, including large urban areas like New York City and rural parts of Wisconsin,” adding that “the fact that kids live in houses filled with these poisonous substances is outrageous.” During the hearing, Jeremy Kirkland discussed an audit of HUD’s oversight, which revealed that “HUD lacked adequate policies, procedures, and controls for monitoring public housing agencies for compliance with its lead requirements.”
- Mr. Jeremy Kirkland, Acting Deputy Inspector General, Office of Inspector General, U.S. Department of Housing and Urban Development
- Ms. Karen McKeown, State Health Officer and Administrator, Division of Public Health, Wisconsin Department of Health Services
- Mr. Jeffery K. Patterson, Chief Executive Officer, Cuyahoga Metropolitan Housing Authority on behalf of Council of Large Public Housing Authorities
- Ms. Rachel Fee, Executive Director, New York Housing Conference, Inc.
- Ms. Emily A. Benfer, Esq., Distinguished Visiting Scholar and Senior Fellow, Solomon Center for Health Law and Policy, Yale Law School
- Ms. Julie Brewen, Chief Executive Officer, Housing Catalyst
Hearing entitled “International and Domestic Implications of De-Risking”: On Tuesday, the Subcommittee on Financial Institutions and Consumer Credit held a hearing to examine the key drivers of de-risking, review the ongoing effects of de-risking, and consider regulatory and legislative opportunities for Congress and the Administration to ensure equal and consistent access to the financial system. Subcommittee Chairman Blaine Luetkemeyer (R-MO) expressed his view that the “overly-punitive supervisory and examination tactics employed by federal financial regulators that came in the wake of the financial crisis have had dramatic implications on the availability of financial products and services in all of our communities.”
- Mr. Michael E. Clements, Director, Financial Markets and Community Investment, Government Accountability Office
- The Honorable Sue E. Eckert, Adjunct Senior Fellow, Center for a New American Security
- Ms. Gabrielle Haddad, Chief Operating Officer, Sigma Ratings Inc.
- Mr. John Lewis, Senior Vice President, Corporate Affairs and General Counsel, United Nations Federal Credit Union on behalf of the National Association of Federally-Insured Credit Unions
- Ms. Sally Yearwood, Executive Director, Caribbean-Central American Action
Hearing entitled “Oversight of the Department of Housing and Urban Development”: On Wednesday, the full Committee held a hearing to examine the U.S. Department of Housing and Urban Development (HUD) and its execution of federal housing policy. Committee Chairman Jeb Hensarling (R-TX) applauded Secretary Carson, and criticized Ranking Member Maxine Waters, calling for those who “daily promote diversity to respect diversity of opinion, which is the single most important form of diversity in a free and democratic society.”
- The Honorable Ben Carson, Secretary, U.S. Department of Housing and Urban Development
SENATE BANKING COMMITTEE
Hearing entitled “Legislative Proposals to Increase Access to Capital”: On Tuesday, the full Committee held a hearing to discuss legislative proposals that will encourage capital formation and reduce burdens for smaller businesses and communities. Among the bills considered were S. 1117, the Consumer Financial Choice and Capital Markets Protection Act; S. 3004, the Small Business Audit Correction Act; S.2765, the RBIC Advisers Relief Act of 2018; S.588, the Helping Angels Lead Our Startups (HALOS) Act. In his opening remarks, Ranking Member Sherrod Brown (D-OH) expressed his concern that some of the proposals would “undermine investor protections and transparency.”
- Mr. Raymond J. Keating, Chief Economist, Small Business & Entrepreneurship Council
- Professor Mercer E. Bullard, Butler Snow Lecturer and Professor of Law, The University of Mississippi School of Law
- Mr. Chris Daniel, Chief Investment Officer of the City of Albuquerque, New Mexico, on behalf of the Government Finance Officers Association.
Hearing entitled “Legislative Proposals to Examine Corporate Governance”: On Thursday, the full Committee held a hearing to discuss legislative proposals to improve corporate governance. Among the bills considered was S.2756, the Fair Investment Opportunities for Professional Experts Act. Chairman Mike Crapo (R-ID) sought the perspective of the witnesses, on “whether there are ways to modify these bills to gain bipartisan support.” Ranking Member Sherrod Brown (D-OH) lamented that “corporate boards and executives focus more on preserving their jobs and maximizing their compensation than on investing in their companies and workers.”
- Mr. Thomas Quaadman, Executive Vice President, U.S. Chamber Center of Capital Markets Competitiveness
- Ms. Darla C. Stuckey, President and CEO, Society for Corporate Governance
- Professor John C. Coates, IV, John F. Cogan, Jr. Professor of Law and Economics, Harvard Law School
- Mr. Damon A. Silvers, Policy Director and Special Counsel, American Federation of Labor and Congress of Industrial Organizations.
ON THE FLOOR
Senate Passes Farm Bill with Flood Insurance Provision: On Thursday, the Senate passed a farm bill, which included a six-month reauthorization of the National Flood Insurance Program. The program is set to expire July 31st however, and with final enactment of the Farm Bill uncertain, legislators are looking for alternate vehicles for a shorter-term extension. Sen. John Kennedy (R-LA) pledged that “we're not going to let this program expire.” House Financial Services Chairman Jeb Hensarling (R-TX) criticized the decision to include the provision in the Farm Bill as “one of the uniquely bad ideas I’ve heard.”
House Passes Three Financial Services Bills and Defense Spending Bill
- H.R. 5783: The Cooperate with Law Enforcement Agencies and Watch Act of 2018, sponsored by Rep. French Hill (R-AR), passed by a 379-4 vote. The bill would provide a safe harbor for financial institutions that maintain a customer account at the request of a Federal or State law enforcement agency.
- H.R. 435: The Credit Access and Inclusion Act of 2017, sponsored by Rep. Keith Ellison (D-MN), passed by voice vote. The bill would amend the Fair Credit Reporting Act to allow the reporting of certain positive consumer-credit information to reporting agencies.
- H.R. 6069: The Fight Illicit Networks and Detect Trafficking Act, sponsored by Rep. Juan Vargas (D-CA), passed by a voice vote. The bill would direct the Government Accountability Office (GAO) to report on the use of virtual currencies and online marketplaces in sex and drug trafficking.
- H.R. 6157: Department of Defense Appropriations Act, 2019, sponsored by Rep. Kay Granger (R-TX), passed by a 359-49 vote. The US$675B bill included a provision barring the Pentagon from business with Chinese telecom companies ZTE and Huawei.
LEGISLATION INTRODUCED AND PROPOSED
S. 3139: Senate Banking Committee Chairman Mike Crapo (R-ID), Ranking Member Sherrod Brown (D-OH), and Sen. Tammy Duckworth (D-IL), introduced on Tuesday legislation intended to enhance rail transit safety. The Transit Rail Inspection Practices Act, or “TRIP” Act, would ensure State safety programs are providing sufficient oversight of rail transit systems through inspections. The legislation stems from the Committee’s ongoing oversight work and recommendations from a Government Accountability Office (GAO) study requested by Senator Duckworth.
S. 3164: Senators Doug Jones (D-AL) and Dean Heller (R-NV) introduced S. 3164, the Privacy Notification Technical Clarification Act which is intended to modernize the privacy notification process of auto lenders and increase consumers’ access to lender privacy policies.
H.R. 6220: Rep. Maxine Waters (D-CA), introduced H.R. 6220, the Restoring Fair Housing Protections Eliminated by HUD Act of 2018, which she explained was intended to restore several fair housing protections that she feels HUD Secretary Ben Carson has eliminated.
THIS WEEK ON THE HILL
No hearings to be held as Congress is on recess in observance of the Fourth of July holiday.
Federal Reserve, FDIC, and OCC Release List of Distressed or Underserved Communities: On Monday, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency released the 2018 list of distressed or underserved nonmetropolitan middle-income geographies, where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration under the community development definition.
Federal Reserve and FDIC Seek Comment on Proposed 2019 Resolution Plan Guidance: On Friday, the FDIC and Federal Reserve announced that they are seeking public comment on revised resolution plan guidance for the eight largest, most complex U.S. banks. The proposed guidance would apply beginning with the July 1, 2019 resolution plan submissions of the firms. The proposed guidance is largely similar to the guidance issued by the agencies in April 2016, with updates to the agencies' expectations for how a firm's resolution strategy should address derivatives and trading activities, and the firm's payment, clearing, and settlement (PCS) activities.
NEC Director Discusses Hopes for Interest Rate Setting: During an interview with Fox Business, National Economic Council Director Larry Kudlow broke from precedent and discussed his view on the Federal Reserve’s interest rate setting, saying “my hope is they . . . will move very slowly [in raising rates].”
CFTC Proposes Amendments to Ease Regulatory Burdens for Self-Regulatory Organizations: The CFTC announced on Thursday that it had unanimously approved proposed amendments to its regulations to simplify obligations imposed on a self-regulatory organization (SRO) when carrying out its financial surveillance program for futures commission merchants (FCMs). The proposed amendments to Regulation 1.52 revise certain minimum standards that an SRO must maintain in its financial surveillance program over FCMs to ensure their compliance with the CFTC rules and regulations, as well as those of the SRO. The proposal is a result of the CFTC’s Project KISS initiative, which requested public input on simplifying and modernizing the agency’s regulations to make them less burdensome and costly, while maintaining their regulatory benefits.
SEC and CFTC Announce Approval of New MOU: The SEC and CFTC announced Thursday that the two agencies have approved a Memorandum of Understanding (MOU) that will help ensure continued coordination and information sharing between the two agencies. The MOU updates and enhances a 2008 MOU to make it more relevant in the current market environment and promote efficiency in rulemaking, regulatory oversight, and enforcement. “Today’s interrelated markets demand that the SEC and CFTC work together to provide a coherent and coordinated approach to regulation”, said SEC Chairman Jay Clayton. “This MOU confirms our agencies’ commitment to working together as partners with distinct missions—all to the benefit of investors, as well as other market participants.”
SEC Expands the Scope of Smaller Public Companies that Qualify for Scaled Disclosures: The SEC voted on Thursday to adopt amendments to the “smaller reporting company” (SRC) definition to expand the number of companies that qualify for certain existing scaled disclosure accommodations. The new smaller reporting company definition enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The final rules also expand the definition to include companies with less than $100 million in annual revenues, if they also have either no public float or a public float that is less than $700 million. “I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply,” said SEC Chairman Jay Clayton.
SEC Proposes Whistleblower Rule Amendments: The SEC voted 3-2 on Thursday to propose amendments to the rules governing its whistleblower program. The whistleblower program was established in 2010, and after nearly seven years of experience administering the whistleblower program, the SEC has identified various ways in which the program might benefit from additional rulemaking. The proposed rules would, among other things, provide the Commission with additional tools in making whistleblower awards to ensure that meritorious whistleblowers are appropriately rewarded for their efforts, increase efficiencies in the whistleblower claims review process, and clarify the requirements for anti-retaliation protection under the whistleblower statute. Democratic Commissioner Kara Stein criticized the proposal, saying “the commission can reduce the award if, in its sole discretion, it thinks the award is ‘too large,’” and questioned whether the agency had the authority to enact them.
SEC Proposes New Approval Process for Exchange-Traded Funds: On Thursday, the SEC unanimously voted to propose a new rule and form amendments intended to modernize the regulatory framework for exchange-traded funds (ETFs), by establishing a clear and consistent framework for the vast majority of ETFs operating today. ETFs that satisfy certain conditions would be able to operate within the scope of the Investment Company Act of 1940 and to come to market without applying for individual exemptive orders. The proposal would therefore facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors.
SEC Adopts Targeted Changes to Public Liquidity Risk Management Disclosure: The SEC voted 3-2 to adopt amendments to public liquidity-related disclosure requirements for certain open-end funds. Under the amendments, funds would discuss in their annual or semi-annual shareholder report the operation and effectiveness of their liquidity risk management programs. This requirement replaces a pending requirement that funds publicly provide a quantitative end-of-period snapshot of historic aggregate liquidity classification data for their portfolios on Form N-PORT. Democratic Commissioner Kara Stein criticized the move, saying “Hiding information from investors and the marketplace is not good for anyone.”
SEC Chairman Clayton Invites Main Street Investors to ‘Tell Us’ About Their Investor Experience: On Friday, SEC Chairman Jay Clayton invited Main Street investors from around the country to ‘Tell Us’ about their investor experience through roundtable discussions in several cities. In these roundtables, Main Street investors will be able to speak directly with Chairman Jay Clayton and senior SEC staff about our efforts to enhance retail investor protection and promote choice and access to a variety of investment services and products. The roundtables will be held Monday, July 9th in Miami, Thursday, July 12th in Washington D.C., Tuesday, July 17th in Philadelphia, and Wednesday, July 25th in Denver.
COMINGS AND GOINGS AT THE AGENCIES
Jeff Wrase to Replace Outgoing Staff Director of Senate Finance Committee: Jeff Wrase will replace the outgoing staff director of the Senate Finance Committee, Jay Khosla. Mr. Khosla is headed to Senate Majority Leader Mitch McConnell’s office, where he will be assuming the role of chief economic policy counsel.
OTHER NOTEWORTHY ITEMS
Senate Democrats Call for Review of Stock Buybacks: In a letter to SEC Chairman Jay Clayton, 19 Democratic Senators called for him to revisit the rules governing stock buybacks given the uptick following the passage of the tax reform bill. The Senators wrote that “while we are troubled by the magnitude of stock buybacks and the consequences for employees and communities, we are even more disturbed by the dramatic increase in stock sales by corporate insiders following the announcement of a buyback.”
HUD Authorizes Hurricane Irma Recovery Funding: HUD Secretary Ben Carson and Florida Governor Rick Scott announced a US$616M Community Development Block Grant to “enable communities to build new affordable housing and to replace homes lost in the wake of last year's hurricane season.”