THE BIG PICTURE
With the midterm elections rapidly approaching, President Trump sought to keep immigration issues in the headlines last week. He focused his attention throughout the week on the caravan of migrants from Central America which is currently traveling by foot through Mexico, announcing plans to deploy as many as 15,000 active duty troops to the border to deal with what he termed a crisis. The move was criticized as a political stunt by some on the left, who pointed out that the would-be asylum seekers were nearly 1,000 miles away from the southern border. President Trump also discussed new policy proposals, saying that he is “finalizing a plan” which would deny asylum claims from individuals who entered the country illegally.
President Trump raised eyebrows among constitutional scholars on Wednesday when he claimed in an interview that he could end birthright citizenship for children of non-citizens, which is enshrined in the fourteenth amendment, via executive order. House Speaker Paul Ryan disagreed with the President, saying “you obviously cannot do that” with an executive order, adding that it would require a “very, very lengthy constitutional process.” Speaker Ryan indicated however that he agreed with the President’s greater aim of ending “unchecked illegal immigration.” The President hit back at Ryan, calling for him to focus on holding the House majority in the midterms instead of commenting on an issue “he knows nothing about.”
Pundits and politicians on both ends of the political spectrum went into overdrive speculating about potential outcomes of the midterm election. House Minority Leader Nancy Pelosi declared confidently in an interview that the Democrats “will win,” adding that “it’s going to be a great night for America.” While polling has suggested that Democrats have a fair chance of retaking control of the House of Representatives, the outlook for the Senate is much more in question, with many incumbent red-state Democrats facing tougher odds. However, following the upset of the 2016 election, organizers on both sides are taking nothing for granted and working to mobilize voters, particularly in several tight races in swing districts.
Other highlights of last week include:
- The President and First Lady traveled to Pittsburgh on Tuesday to pay their respects to the victims of the shooting at Tree of Life Synagogue last weekend, the largest anti-Semitic attack in U.S. history. The funerals for the 11 victims were staggered throughout the week.
- The October jobs report was released on Friday, showing another strong month for the economy, with 250,000 new jobs and an unemployment rate of 3.7%.
- Following a plunge in the stock market, President Trump described it as “a little pause” and suggested that the market was awaiting the results of the midterm elections.
LAST WEEK ON THE HILL
Congress remained in recess.
THIS WEEK ON THE HILL
Congress remains in recess, and will be back in session on Tuesday, November 13th.
Federal Reserve Invites Public Comment on New Framework that Relaxes Rules for 11 Regional Banks: The Federal Reserve Board on Wednesday invited public comment on a framework that would significantly reduce regulatory compliance requirements for regional banks with assets between US$100B and US$250B, implementing portions of the bank deregulation law signed by President Trump in May. Under the framework, the banks, deemed a lower risk, would be released from enhanced capital and liquidity rules. Fed Governor Lael Brainard expressed concern over the proposal, saying she feared it would “weaken the buffers that are core to the resilience of our system.” The proposal drew criticism from some progressives, including Sen. Sherrod Brown (D-OH), who serves as ranking member on the Senate Banking Committee, who said the administration “continues to fail hardworking Americans by weakening protections that guard taxpayers from big bank risk.”
Federal Reserve Finalizes Rule on Bank Ratings System: On Friday, the Federal Reserve finalized a rule adopting a new rating system for large financial institutions, which will go into effect February 1, 2019. The rule applies to domestic bank holding companies and non-insurance, non-commercial savings and loan holding companies with total consolidated assets of US$100B or more, and foreign banking organizations of US$50B or more. The rating system will assign component ratings for capital planning and positions, liquidity risk management and positions, and governance and controls, and introduces a new rating scale.
FDIC Chairman Signals Caution Toward Nontraditional Banks: Speaking at a conference on Thursday, FDIC Chairman Jelena McWilliams expressed her view that, “We need to be very careful about allowing firms that are not traditional banks or don’t look like traditional banks into the banking space.”
SEC Commissioner Calls for More Predictability in Corporate Penalties: In remarks at a securities enforcement conference on Thursday, SEC Commissioner Robert Jackson called for the agency to increase transparency and predictability in its determination of fines against companies. He called the lack thereof “really, really a problem,” adding that it was not good for the bar or the market. He voiced his view that the SEC should release a “robust and meaningful” statement on the issue.
SEC Proposes Disclosure Improvements for Variable Annuities and Variable Life Insurance Contracts: The SEC announced on Tuesday that it has voted to propose rule changes designed to improve disclosure for investors about variable annuities and variable life insurance contracts. The proposal is intended to help investors better understand these contracts’ features, fees, and risks, and to more easily find the information they need to make an informed investment decision. The proposal would newly permit these contracts to use a summary prospectus to provide disclosures to investors. This document would be a concise, reader friendly summary of key facts about the contract.
SEC Adopts Rules to Modernize Property Disclosures Required for Mining Registrants: The SEC announced on Wednesday that it has voted to adopt amendments to modernize the property disclosure requirements for mining registrants, and related guidance, under the Securities Act of 1933 and the Securities Exchange Act of 1934. The amendments will provide investors with a more comprehensive understanding of a registrant’s mining properties, which should help them make more informed investment decisions. “The final rules will modernize the Commission’s mining property disclosure regime by improving the quality and reliability of information provided to investors and by harmonizing disclosures with international standards, including removing the restriction on disclosure of mineral resource estimates that may have placed U.S. registrants and investors at a disadvantage,” said SEC Chairman Jay Clayton.
SEC Issues Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants: The SEC announced on Wednesday that it has voted to issue a statement setting forth the Commission’s position, for a limited time period, that certain actions with respect to specific provisions of its Business Conduct Standards for Security-Based Swap (SBS) Dealers and Major Security-Based Swap Participants will not provide a basis for a Commission enforcement action. Chairman Jay Clayton said, “Market participants have raised concerns about documentation implementation issues that may arise when SBS Entities are registered with both the Commission and the CFTC, and today’s statement is intended to provide those market participants appropriate time to assess and update their documentation.”
SEC Adopts Rules That Increase Information Brokers Must Provide to Investors on Order Handling: The SEC announced on Friday that it has voted to adopt amendments that will require broker-dealers to disclose to investors new and enhanced information about the way they handle investors’ orders. Specifically, the Commission has amended Rule 606 of Regulation NMS to require a broker-dealer, upon a request of a customer who places a “not held” order (e.g., an order in which the customer gives the firm price and time discretion), to provide the customer with a standardized set of individualized disclosures concerning the firm’s handling of the customer’s orders. The new disclosures will, among other things, provide the customer with information about the average rebates the broker received from, and fees the broker paid to, trading venues.
SEC Enforcement Division Issues Report on FY 2018 Results: The SEC released its annual report on Friday which highlighted its ongoing efforts to protect investors and market integrity, and detailed several significant actions and initiatives that took place in FY 2018. Quantitatively, the SEC brought a diverse mix of 821 enforcement actions, including 490 standalone actions, and returned US$794M to harmed investors. A significant number of the SEC’s standalone cases concerned investment advisory issues, securities offerings, and issuer reporting/accounting and auditing, collectively comprising approximately 63 percent of the overall number of standalone actions. The SEC also continued to bring actions relating to market manipulation, insider trading, and broker-dealer misconduct, with each comprising approximately 10 percent of the overall number of standalone actions, as well as other areas. Additionally it obtained judgments and orders totaling more than US$3.945B in disgorgement and penalties, up 4% from FY2017.
Agencies Propose Rule to Update Calculation of Derivative Contract Exposure Amounts under Regulatory Capital Rules: Three federal banking agencies on Tuesday invited public comment on a proposal to update their standards for how firms measure counterparty credit risk posed by derivative contracts under the agencies’ regulatory capital rules. The proposed changes are designed to better reflect the current derivatives market and incorporate risks observed during the 2007-2008 financial crisis. The proposal, jointly issued by the Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, would provide the “standardized approach for measuring counterparty credit risk,” also known as “SA-CCR” as an alternative approach to the agencies’ current exposure methodology, or CEM, for calculating derivative exposure under the agencies’ regulatory capital rules. SA-CCR better reflects the current derivatives market and would provide important improvements to risk sensitivity, resulting in more appropriate capital requirements for derivative contracts exposure.
CFPB Employee Union Files Grievance Complaint: The union which represents CFPB employees filed a grievance against the agency over its failure to provide a workplace “free of discrimination.” The complaint follows the controversy surrounding the associate policy director in charge of supervision, enforcement and fair lending Eric Blankenstein, whose old blog posts containing racially offensive language, have recently come to light. In the grievance, the union said that “under a totality of the circumstances, Mr. Blankenstein’s statements and refusal to disavow them in a meaningful way creates, at a minimum, an environment that appears to be exclusionary.”
FHFA to Release Annual Actuarial Report: Insiders in the mortgage industry are anticipating the release of the FHFA’s annual actuarial report, which will reveal whether the agency’s reverse mortgage program threatens the capital reserve ratio.
OTHER NOTEWORTHY ITEMS
HUD Reports Homeless Veteran Rates Are Falling: On Thursday, HUD released a report that revealed the number of veterans experiencing homelessness had fallen by 5.4%, cutting in half what the figure had been in 2010. VA Secretary Robert Wilkie noted that “homelessness is part of a continuum of issues that we face on a daily basis,” adding that drug addiction and psychological issues exacerbate the problem.
New York State Department of Financial Services Grants Another BitLicense: On Thursday, bitcoin ATM operator Coinsource announced that they had become the 12th crypto-company to be granted a BitLicense from the New York State Department of Financial Services. Coinsource is the first bitcoin ATM provider to receive a license. General counsel Arnold Spencer boasted that the company’s BTMs are convenient, adding “we do our account opening and compliance in real-time.”
Freddie Mac Posts Third Quarter Income: On Wednesday, Freddie Mac reported that it earned US$2.6B in comprehensive income for Q3, a slight increase from its Q2 haul of US$2.4B. Freddie CEO Donald Layton said in a statement, “as we look back on our 10 years in conservatorship, these results make clear that Freddie Mac is a transformed company that plays a key role in reforming and improving America’s housing finance system.”