THE BIG PICTURE
President Trump’s former personal lawyer Michael Cohen pled guilty to lying to Congress, his second plea in four months, as part of a deal with special counsel Robert Mueller. The statements at issue involve Mr. Cohen’s testimony to the Senate and House Intelligence Committees regarding the company’s efforts to build a Trump Tower in Moscow. He had initially represented that conversations with contacts in Russia ended early in the campaign, and that he had limited discussion with Trump family members regarding the project. On Friday however, he revealed that those statements were false, and that work on the so-called “Moscow Project” had continued well into the campaign, as late as June of 2016, and that he had briefed Trump family members more frequently. The President, who has repeatedly denied having any business interests in Russia, told reporters following the plea that Mr. Cohen was a “weak person” who was lying “to get a reduced sentence.”
House leadership contests continued to take place last week, and on Wednesday Democrats voted overwhelmingly, 203-32, to nominate Nancy Pelosi as Speaker. Rep. Pelosi (D-CA) has faced a minor rebellion from some of the newly-elected members, who have called for a change in leadership and more opportunities at the Committee level. While she has fended off a real challenger so far, she will need 218 votes in January to secure the Speakership when it comes to the full House vote. Rep. Hakeem Jeffries (D-NY) narrowly defeated fellow Congressional Black Caucus member Rep. Barbara Lee (D-CA) in the race to become House Democratic Caucus chair. On Thursday, Rep. Cheri Bustos (D-IL) was elected as Chair of the DCCC. Rep. Sean Maloney (D-NY), had also been a candidate for the post but due to a severe infection, was forced to drop out of the race..
President Trump attended the G-20 summit in Buenos Aires, Argentina. While he had originally planned to hold a meeting with Russian President Vladimir Putin, shortly after he departed Washington he announced via Twitter that it had been canceled, citing the naval standoff between Russia and the Ukraine. On the sidelines of the meeting, the President held a signing ceremony with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto for the U.S. Mexico Canada Agreement, or USMCA. The President heralded the agreement as ensuring “a future of prosperity and innovation,” although approval by Congress, particularly with Democrats retaking the majority in the House, is not a foregone conclusion. On Saturday, President Trump met with Chinese leader Xi Jinping and agreed to a 90-day ceasefire in trade tensions, with the U.S. agreeing to not raise tariff levels from 10% to 25%.
Amid recent volatility in the stock market, the President has taken the unusual step of publicly voicing his criticism of Federal Reserve Chairman Jerome Powell, who he selected to lead the Bank last year. In an interview the President said that he was “not even a little bit happy” with Mr. Powell, and described the Fed’s decision to raise interest rates as an obstacle to his agenda, saying that “I’m doing deals, and I’m not being accommodated by the Fed.” Chairman Powell defended the Fed’s policies in a speech on Wednesday, explaining that “our gradual pace of raising interest rates has been an exercise in balancing risks.”
Over the weekend, it was announced that former President George H.W. Bush had passed away, aged 94, in Houston. Tributes poured in from figures across the political spectrum who remembered the 41st President for his selfless patriotism, integrity, and love of family. He will lie in state at the Capitol, and the President has declared December 5th to be a national day of mourning.
Other highlights of last week include:
- The plea agreement between Paul Manafort and special counsel Robert Mueller fell apart last week after Mr. Manafort was accused of violating the terms by repeatedly lying to investigators. Mr. Manafort could now face retrial, additional charges, and harsher sentencing.
- On Monday, NASA’s Mars lander, InSight, successfully landed down on the planet, after a 300-million mile journey that took over six months, and a complicated, nerve-wracking landing that was dubbed “seven minutes of terror” by those on the ground at the jet propulsion laboratory.
- Republican Cindy Hyde-Smith defeated Democrat Mike Espy in the Mississippi special election runoff held last Tuesday. With her victory, the Republican control of the Senate is finalized with a 53-47 majority.
- Senator Tim Scott (R-SC) announced his opposition to Thomas Farr, the controversial nominee to serve as a federal judge for the Eastern District of North Carolina, essentially ending his chances for confirmation as Senator Jeff Flake (R-AZ) has also voiced his intention to vote against Mr. Farr.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
No hearings held. On Friday, Rep. Patrick McHenry (R-NC) was formally named ranking member for the Committee next term, alongside incoming Chairwoman Maxine Waters (D-CA).
SENATE BANKING COMMITTEE
Hearing Entitled “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform”: On Thursday the full Committee held a hearing to evaluate the regulatory scheme of the Bank Secrecy Act in terms of efficiency in reporting and effectiveness of enforcement. Ranking Member Sherrod Brown (D-OH) remarked in the hearing that the Committee “want[ed] to assess whether there are ways to responsibly update and strengthen the current anti- money laundering framework, including through new measures to require beneficial ownership information.”
- Mr. Kenneth A. Blanco, Director, Financial Crimes Enforcement Network (FinCEN), U.S. Department of Treasury
- Mr. Steven D’Antuono, Section Chief, Financial Crimes Section, Federal Bureau of Investigation (FBI)
- Ms. Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs, Office of the Comptroller of the Currency
ON THE FLOOR
CFPB Nomination Advances for Confirmation Vote: The Senate voted 50-49 on party lines to advance the nomination of Kathy Kraninger to lead the CFPB. A final confirmation vote is expected this week. If confirmed, Ms. Kraninger would replace Acting Director Mick Mulvaney.
Senate Republicans Block Mueller Bill from Vote: An effort to force a vote on a legislative proposal to protect special counsel Robert Mueller that was championed by Senators Jeff Flake (R-AZ), Chris Coons (D-DE), and Cory Booker (D-NJ) was blocked by Senator Mike Lee (R-UT), who cited constitutionality concerns. Senator Flake vowed to continue to raise the issue, and try again. He has pledged to not vote for any judicial nominees until the bill receives a vote, frustrating his fellow republicans and potentially stymying some nominations in the current congress.
Yemen Resolution: On Wednesday, the Senate voted 63-37 to advance a resolution that would end U.S. support for the Saudi-led forces in Yemen’s civil war. The vote sent a sharp message to the President, which has continued to voice support for the Saudis, and threatened a veto of the measure shortly before the vote took place.
Flood Insurance Extension: With the November 30th deadline for the National Flood Insurance Program looming, lawmakers scrambled to come up with another short-term extension plan. A five-year extension bill championed by House Financial Services Chairman Jeb Hensarling (R-TX) passed the House earlier in November, but was rejected by the Senate. On Thursday, both the House and Senate passed another short-term extension, through December 7th, to avoid a lapse in the program. President Trump signed the extension over the weekend. Sen. John Kennedy (R-LA) described himself as “guardedly optimistic,” a six-month extension could be passed in December.
LEGISLATION INTRODUCED AND PROPOSED
House Republicans Unveil Tax Bill: On Monday, House Republicans released a 297 page tax bill that includes expired tax “extenders,” disaster tax relief and technical corrections to the Tax Cuts and Jobs Act. The bill was praised by retiring Senate Finance Chairman Orrin Hatch (R-UT) for including policies he championed such as the “Retirement Enhancement and Savings Act,” and noted that he looked forward to determining next steps for the package.
THIS WEEK ON THE HILL
Wednesday, December 5
House Financial Services Hearing on “The National Debt: Washington, We Have a Spending Problem”: 10:00 AM in 2128 Rayburn House Office Building.
House Financial Services (Housing and Insurance Subcommittee) Hearing on “Oversight of the Federal Housing Administration”: 2:00 PM in 2128 Rayburn House Office Building.
Senate Banking Committee Hearing on “Oversight of Pilot Programs at Fannie Mae and Freddie Mac”: 10:00 AM in 538 Dirksen Senate Office Building.
Thursday, December 6
Senate Banking Committee Hearing on “Proxy Process and Rules: Examining Current Practices and Potential Changes”: 10:00 AM in 538 Dirksen Senate Office Building.
House Financial Services Full Committee Hearing on “A Legislative Proposal to Provide for a Sustainable Housing Finance System: The Bipartisan Housing Finance Reform Act of 2018”: 10:00 AM in 2128 Rayburn House Office Building.
CFTC’s LabCFTC Releases Primer about Smart Contracts: The CFTC’s LabCFTC released “A CFTC Primer on Smart Contracts.” This primer is part of LabCFTC’s effort to engage with innovators and market participants on a range of financial technology (FinTech) topics, and follows on a 2017 primer on virtual currencies and the agency’s recent FinTech Forward conference. “Smart contracts are being used to drive further automation in our markets and may have an impact across a range of economic activities,” said LabCFTC Director Daniel Gorfine. “This primer is focused on explaining smart contracts, exploring how they may impact our markets and highlighting potentially novel risks and challenges.”
CFTC Chairman Urges Firms to Embrace New Benchmack: In a speech on Thursday, CFTC Chairman Chris Giancarlo encouraged companies to embrace the new Secured Overnight Financing Rate (SOFR) and transition away from the London Interbank Offered Rate (LIBOR) which has been the source of rigging scandals in the last few years, saying “the forward course for the U.S. markets is clear — it is away from LIBOR toward SOFR.”
Federal Reserve Releases Inaugural Financial Stability Report: On Wednesday, the Federal Reserve released its inaugural Financial Stability Report, which summarized the Board’s framework for assessing the resilience of the U.S. financial system and presented their current assessment in a bid to promote understanding and increase transparency. The report detailed a range of near-term risks including ongoing international trade tensions with China, Brexit and euro-area fiscal challenges, and high levels of corporate debt, which could all create an environment where investors become more risk averse, leading to a “particularly large” drop in the stock market. The report warned that “even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and international financial markets and strains in institutions.”
Atlanta Fed President Warns of Risk in Fintech: Speaking at a conference, Atlanta Federal Reserve Bank President Raphael Bostic remarked that he fears fintech entrepreneurs aren’t cognizant enough of the inherent risk in innovation, saying “I’ve talked to a lot of innovators in this job, and almost none of them has risk at the top of what they’re thinking about,” adding he worries “there may not have been sufficient due diligence about what are the protections we have in place to make sure that you’re not exposing the whole system.”
Fed Vice Chair Emphasizes Importance of Business Investment in Productivity Growth: Speaking at a conference on Tuesday, Federal Reserve Vice Chairman Richard Clarida discussed his view that business investment is an important factor in productivity growth, noting that “if the pickup in productivity growth that we have seen in recent quarters is to be sustained,” more investment will be necessary.
FTC Chair Discusses Federal Privacy Legislation: On Monday during a hearing before the Senate Commerce Consumer Protection Subcommittee, FTC Chairman Joe Simons noted that overriding state laws “might be the way to go” in regards to federal privacy legislation. Commissioner Christine Wilson concurred, saying that while she is normally wary, she feels preemption is warranted because “businesses need clarity and predictability.” Democratic Commissioner Rohit Chopra disagreed, warning that he felt “broad preemption would be a huge mistake” as some states may want a higher standard than could be legislated at the federal level.
FHFA Announces Maximum Conforming Loan Limits for 2019: On Tuesday, the FHFA announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2019. In most of the U.S., the 2019 maximum conforming loan limit for one-unit properties will be US$484K, an increase from US$453K in 2018.
Treasury Designates Iran-Based Financial Facilitators of Malicious Cyber Activity and for the First Time Identifies Associated Digital Currency Addresses: On Wednesday, the Treasury Department’s Office of Foreign Assets Control (OFAC) took action against two Iran-based individuals who helped exchange digital currency (bitcoin) ransom payments into Iranian rial on behalf of Iranian malicious cyber actors involved with the SamSam ransomware scheme that targeted over 200 known victims. OFAC also identified two digital currency addresses associated with these two financial facilitators. Over 7,000 transactions in bitcoin, worth millions of U.S. dollars, were processed through these two addresses—some of which involved SamSam ransomware derived bitcoin. Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker said that “we are publishing digital currency addresses to identify illicit actors operating in the digital currency space. Treasury will aggressively pursue Iran and other rogue regimes attempting to exploit digital currencies and weaknesses in cyber and AML/CFT safeguards to further their nefarious objectives.”
Treasury Announces Establishment of Canada-Mexico-United States Financial Regulatory Forum: On Friday, the Department of the Treasury announced the establishment of the Canada-Mexico-United States Financial Regulatory Forum. The forum will provide an annual venue for Canada, Mexico, and the United States to share information and exchange views on cross-border issues, emerging financial sector developments, financial stability risks, and regulatory practices with the ultimate goal of advancing regulatory cooperation.
Two Celebrities Charged With Unlawfully Touting Coin Offerings: The SEC announced it had settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). These are the SEC’s first cases to charge touting violations involving ICOs. Mayweather and Khaled’s promotions came after the SEC issued its DAO Report in 2017 warning that coins sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws. Without admitting or denying the findings, Mayweather and Khaled agreed to pay disgorgement, penalties and interest. “Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements,” said Enforcement Division Co-Director Steven Peikin.
SEC Chair Discusses Cryptocurrency Concerns: Speaking at a conference, SEC Chairman Jay Clayton discussed his concerns over the ease with which cryptocurrencies can be stolen or manipulated on exchanges. He explained his view that “[the necessary] safeguards don’t exist in many of the markets where digital currencies trade.”
SEC to Consider Issuing a Request for Comment on Quarterly Reports: On Wednesday, the SEC is set to vote on “whether to issue a Request for Comment on the nature and content of quarterly reports and earnings releases issued by reporting companies.” The move follows an August tweet from President Trump in which he called on the agency to study whether biannual disclosure requirements “would allow greater flexibility & save money.” SEC Chairman Clayton previously indicated he didn’t anticipate the requirement changing for big companies “anytime soon.”
SEC Adopts FAIR Act Rules Promoting Research Reports on Investment Funds: The SEC adopted rules and amendments designed to promote research on mutual funds, exchange-traded funds, registered closed-end funds, business development companies, and similar covered investment funds. These changes reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public companies. The Commission took this action in furtherance of the mandate in the Fair Access to Investment Research Act of 2017 (FAIR Act).
OCC Reduces Assessments for Regulated Banks and Savings Associations: The OCC on Friday announced that it will reduce assessments on national banks, federal savings associations, and federal branches and agencies of foreign banks for 2019. The change—which takes effect with the March 31, 2019, assessment—will reduce the marginal rates in its General Assessment Fee Schedule by 10 percent. The agency anticipates the change will reduce total assessments collected by the agency by more than US$90M in 2019. The reduction in marginal rates reflects cost savings in the OCC’s operations and projections of the OCC’s costs and revenue. In a statement, Comptroller Otting said “the agency has demonstrated it can reduce its costs by operating more effectively and efficiently while still ensuring the federal banking system operates in a safe, sound, and fair manner.”
COMINGS AND GOINGS AT THE AGENCIES
Michele Bowman Sworn in at Fed: On Monday, Michelle Bowman was formally sworn in as a member of the Federal Reserve, bringing their number to five. The nominations of Nellie Liang and Marvin Goodfriend remain pending.
Quarles Appointed to Lead Financial Stability Board: On Monday, the international Financial Stability Board appointed Randal Quarles, Governor and Vice Chairman for Supervision at the Federal Reserve, as its new Chair for a three-year term. Mr. Quarles succeeds Bank of England governor Mark Carney, who has led the FSB for the last seven years.
Regional Director of the SEC’s San Francisco Office, to Leave the Agency After Over 16 Years of Service: The SEC announced on Thursday that Jina Choi, Director of the agency’s San Francisco Regional office, will leave the agency at the end of this month after more than 16 years of service. Ms. Choi began her SEC tenure as a staff attorney and rose through the ranks to her leadership position, assuming the role of Director in 2013.