THE BIG PICTURE
The partial government shutdown continued as congressional leaders and the President remained locked into their positions. On Friday, the President teased a “major announcement” was forthcoming, and over the weekend revealed the outlines of an offer that would provide a three-year extension of DACA and TPS protections in exchange for US$5.7B in funding for a wall on the southern border. Democrats were quick to reject the offer, calling on the President and Majority Leader Mitch McConnell to reopen the government before negotiations on border security take place. In the meantime, the administration continued to recall furloughed federal employees to work without pay, including Farm Service Agency workers, food and drug safety inspectors, and IRS employees, in a bid to blunt the impact on average Americans. Nearly 400 industry groups urged the President and congressional leaders to end the shutdown which is causing “significant and in some cases lasting damage to families, businesses, and the economy as a whole.”
Tensions between the President and Speaker Nancy Pelosi continued to escalate last week. On Tuesday, Speaker Pelosi recommended the President delay the State of the Union address, or deliver it in writing, until the government reopens due to “security concerns” caused by the partial shutdown. In response, the President canceled the Speaker’s use of military planes for a congressional delegation trip to Brussels and Afghanistan where they had planned to meet with NATO commanders and US military leaders. The President’s announcement breached typical operational security protocol by revealing their travel itinerary to a war zone, and the group was forced to cancel alternate commercial travel due to the increased risk to both the group and troops on the ground. The President also decided to cancel a planned trip to the World Economic Forum in Davos, Switzerland by several of his cabinet members, “out of consideration” for the 800,000 federal workers affected by the shutdown.
The confirmation hearing for William Barr, the President’s nominee to serve as Attorney General, was held on Tuesday and Wednesday. Mr. Barr previously served as Attorney General under President George H.W. Bush from 1991–1993. He faced questioning from the Democrats on the Judiciary Committee on how he plans to handle the final report from Special Counsel Robert Mueller, pledging to provide “as much transparency as I can consistent with the law.” In response to questioning from Sen. Richard Blumenthal (D-IL) he indicated his view that indicting a sitting president would violate the Constitution had not changed. He is widely expected to be easily confirmed once his nomination is advanced to the full Senate.
The President met with top North Korean official, Kim Yong Chol, in the Oval Office for 90 minutes on Friday. Following their discussion, White House press secretary Sarah Sanders announced that a second summit with North Korean Leader Kim Jong Un was in the works for late February. The two leaders met for the first time in Singapore last June, however since then, negotiations between the two sides on denuclearization have stalled.
A deadly explosion in the Syrian city of Manbij killed four Americans and several others on Wednesday. The fatalities included two US service members, a defense contractor and a DoD civilian, while three additional US service members were injured. Over the weekend the President tweeted that he would be meeting the families of the fallen at Dover Air Force Base.
Congressman Steve King faced backlash for comments he made during an interview with the New York Times in which he questioned why the terms “white supremacist” and “white nationalist” had become “offensive.” The Republican Steering Committee decided unanimously not to seat Rep. King on any House Committees, and House Minority Leader Kevin McCarthy issued a statement calling the remarks “beneath the dignity of the Party of Lincoln and the United States of America.” On Tuesday the House voted nearly unanimously on a resolution condemning white nationalism.
Other highlights of last week include:
- A federal judge in Manhattan enjoined the administration from adding a citizenship question to the 2020 census, calling Commerce Secretary Wilbur Ross’s decision to include it as “arbitrary and capricious,” and describing Secretary Ross’s violation of the Administrative Procedures Act “egregious.”
- Republican Congressman Tom Marino, who represents Pennsylvania’s 12th District, announced his plans to resign from Congress and join the private sector, where he can “use both my legal and business experience to create jobs around the nation.” The move comes just two weeks after being sworn in, and will prompt a special election, which the Republicans are widely expected to win in a heavily Trump-supporting district.
- The Democratic field for 2020 continues to grow as two more sitting Senators joined the race. On Tuesday, Kirsten Gillibrand (D-NY) announced during an appearance on The Late Show with Stephen Colbert that she was launching a presidential exploratory committee. On Monday, Kamala Harris (D-CA) made her announcement during an appearance on Good Morning America.
- Senate Majority Whip Sen. John Thune (R-SD) announced that Sen. Mike Crapo (R-ID) will serve as chief deputy whip.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
No hearings held.
Committee Updates: On the Republican side, five freshman members were recommended to the House Financial Services Committee—Rep. Anthony Gonzalez (R-OH), Rep. John Rose (R-TN), Rep. Bryan Steil (R-WI), Rep. Lance Gooden (R-TX), and Rep. Denver Riggleman (R-VA). For the Democrats, 15 new members were recommended—Rep. Alexandria Ocasio-Cortez (D-NY), Rep. Tulsi Gabbard (D-HI), Rep. Katie Porter (D-CA), Rep. Ayanna Pressley (D-MA), Rep. Rashida Tlaib (D-MI), Rep. Al Lawson (D-FL), Rep. Cindy Axne (D-IA), Rep. Sean Casten (D-IL), Rep. Ben McAdams (D-UT), Del. Michael San Nicolas (D-Guam), Rep. Alma Adams (D-NC), Rep. Madeleine Dean (D-PA), Rep. Chuy Garcia (D-IL), Rep. Sylvia Garcia (D-TX), and Rep. Dean Phillips (D-MN).
SENATE BANKING COMMITTEE
No hearings held.
Committee Updates: Committee Chairman Mike Crapo (R-ID) welcomed the new members of the Committee: Senators Kevin Cramer (R-ND) and Martha McSally (R-AZ), and Senators Kyrsten Sinema (D-AZ) and Tina Smith (D-MN).
ON THE FLOOR
Russia Sanctions: On Thursday in a rebuke to the administration, the House voted 362-53 to pass a resolution of disapproval of Treasury’s decision to ease sanctions on three Russian companies that had previously been linked to Russian oligarch and ally of Russian President Vladimir Putin, Oleg Deripaska. A similar measure failed to pass the Senate on Wednesday, although 11 Republicans joined with the Democrats in supporting the resolution. Senate Banking Committee Ranking Member Sherrod Brown (D-OH) commented he was “concerned the deal allows Deripaska to profit financially,” adding that he was “frustrated that most of my Republican colleagues voted today to allow this deal to go forward.”
Government Funding: The House considered two stopgap spending bills - H.J. Res 27, which would have funded the government at current levels through February 1st, and H.J. Res 28, which would have funded them through February 28. Both failed to garner the requisite two-thirds majority needed for passage, and the President had threatened to veto both measures.
H.R. 116: The House voted 403-2, to suspend the rules and pass the “Investing in Main Street Act of 2019” which would amend the Small Business Investment Act of 1958 to increase the amount that certain banks and savings associations may invest in small business investment companies, subject to the approval of the appropriate Federal banking agency.
LEGISLATION INTRODUCED AND PROPOSED
Illegal Insider Trading: On Friday, Rep. Maxine Waters (D-CA) and Rep. Patrick McHenry (R-NC) who lead the House Financial Services Committee reintroduced H.R. 624, the Promoting Transparent Standards for Corporate insiders Act, bipartisan legislation which would require the Securities and Exchange Commission to consider certain types of amendments to Rule 10b5-1 that would ensure corporate insiders are unable to indirectly engage in illegal insider trading through changes to their trading plans. “Cracking down on fraud and abuse within our financial system is apolitical,” said Ranking Member McHenry. “I am glad to join Chairwoman Waters in this meaningful effort to help the SEC better understand illicit insider trading.”
THIS WEEK ON THE HILL
Wednesday, January 23rd
The House will consider the following pieces of financial services legislation under suspension of the rules:
- H.R. 624—Promoting Transparent Standards for Corporate Insiders Act (Sponsored by Rep. Maxine Waters)
- H.R. 502—FIND Trafficking Act (Sponsored by Rep. Juan Vargas)
- H.R. 56—Financial Technology Protection Act (Sponsored by Rep. Ted Budd)
Federal Reserve Board Launches Article Series on Financial Conditions and Concerns of Consumers and Communities: The Federal Reserve Board on Wednesday announced Consumer & Community Context, an article series that features original analysis about the financial conditions and experiences of consumers and communities, including traditionally underserved and economically vulnerable households and neighborhoods. The goal of the series is to increase public understanding of the financial conditions and concerns of consumers and communities.
CFPB Asks Congress for Clear Authority to Supervise for Compliance with the Military Lending Act: CFPB Director Kathy Kraninger announced that she had asked Congress to grant the CFPB clear authority to supervise for compliance with the Military Lending Act (MLA). In a statement she said that she had asked Congress to “explicitly grant the Bureau authority to conduct examinations specifically intended to review compliance with the MLA. The requested authority would complement the work the Bureau currently does to enforce the MLA.” The request follows former Acting Director Mick Mulvaney decision to suspend the examinations last August, citing a lack of authority.
SEC Brings Charges in Edgar Hacking Case: The Securities and Exchange Commission on Tuesday announced charges against nine defendants for participating in a scheme to hack into the SEC’s EDGAR system and extract nonpublic information to use for illegal trading. The SEC charged a Ukrainian hacker, six individual traders in California, Ukraine, and Russia, and two entities. The hacker and some of the traders were also involved in a similar scheme to hack into newswire services and trade on information that had not yet been released to the public. “International computer hacking schemes like the one we charged today pose an ever-present risk to organizations that possess valuable information,” said Enforcement Division Co-Director Stephanie Avakian, adding that the charges show “the SEC’s commitment and ability to unravel these schemes.”
Treasury Issues Final Rules and New Proposed Guidance on Eligibility for 20-Percent Deduction for Small and Mid-Size Businesses: On Friday, the Treasury issued final regulations and other guidance on a substantial provision of the Tax Cuts and Jobs Act, which allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct up to 20 percent of their qualified business income. The release comes after the agency received over 300 comments on a previous proposal, and included provisions which fix a glitch for those who own REITs. Secretary Steven Mnuchin issued a statement saying “the pass-through deduction will drive more investment in U.S. companies and higher wages for American workers.”
Comptroller Hopes to See Marijuana Banking Issues Resolved by 2020: Comptroller of the Currency Joseph Otting said on Wednesday that he hopes for greater clarify for banks regarding dealing with marijuana businesses, though admitted that “Congress is going to have to act at the national level to legalize marijuana if they want those entities involved… to utilize the banking system.” Despite that hurdle, he noted that, “if I’m a betting person, I’m like 25–30 percent maybe next year, but I would hope by 2020 we can get this issue resolved.”
Acting FHFA Director Stops Defending Constitutionality of Agency’s Structure: Recently appointed Acting Director of the Federal Housing Finance Agency, Joseph Otting, has dropped the agency’s defense of its structure’s constitutionality, in a brief filed with the Fifth Circuit on Monday, arguing that “to the extent the Court concludes it is necessary to reach the constitutional issue, FHFA will not defend the constitutionality of [the] for-cause removal provision and agrees ... that the provision infringes on the President's control of executive authority.”
Kansas City Federal Reserve President Discusses Interest Rates: Kansas City Federal Reserve President Esther George noted in a speech on Wednesday that the Fed should “proceed with caution and be patient as we approach our destination,” adding that “a pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run.”
CFTC Oversight of Cryptocurrency Exchanges on Hiatus Due to Shutdown: The CFTC’s oversight of the cryptocurrency market has ground to a halt as the majority of workers who typically oversee the derivatives markets have been furloughed. Registration applications, rules on swaps trading platforms, and action against market manipulators have all been impacted by the shutdown. Additionally, the agency’s efforts to finalize rules that would alter the classification of some exchanges are currently halted, potentially preventing them from being finalized before the end of current Chairman Chris Giancarlo’s term.
COMINGS AND GOINGS AT THE AGENCIES
OCC Announces New Chief Operating Officers as Part of Restructuring Effort: On Thursday, the OCC announced that Morris Morgan, who has worked for the agency since 1985, will be named as the COO, a newly created position that was introduced “as part of changes to the agency's executive-reporting structure that result in greater coordination and integration of the agency’s bank supervision activities.”
Search for World Bank Nominee Continues: The White House shot down rumors that the President’s daughter Ivanka, was under consideration to be nominated to head the World Bank, instead revealing that she is overseeing the search for a candidate. Current president Jim Yong Kim announced last week that he planned to resign before the end of his current five year term.
Supreme Court Declines to Hear Case on Constitutionality of CFPB Structure: On Monday the Supreme Court declined a petition to consider the constitutionality of the single-director leadership structure of the Consumer Financial Protection Agency.
OTHER NOTEWORTHY NEWS
British Parliament Rejects Prime Minister’s Brexit Deal: The British Parliament voted overwhelmingly to reject Prime Minister Theresa May’s Brexit deal by 432-202, in a historic defeat for the government. The deal had been the result of two years of negotiations with the European Union to set the terms for the UK’s exit, scheduled to take place by March 29th. Ms. May survived a no-confidence vote later in the week, increasing uncertainty about the path forward.
Following the vote, Rep. Patrick McHenry, Ranking Member of the House Financial Services Committee, reached out to Treasury, the Federal Reserve, and other agencies, for an updated assessment on how the UK’s withdrawal could impact markets.
Legislators Call on Financial Institutions to Describe Steps Taken to Assist Customers Affected by Shutdown: On Friday, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, wrote to the heads of financial services industry trade associations and the largest credit reporting agencies to call on them to describe what their institutions and member companies are doing to help consumers affected by the partial government shutdown. She requested a written response by no later than January 25th. Similarly, Sen. Elizabeth Warren (D-MA) wrote a letter to several bank CEO’s asking them to provide “full details about the services that are actually available to affected workers and businesses.”
Gary Cohn Speaks Out Against Shutdown: Gary Cohn, who previously served as Director of the National Economic Council and chief economic advisor to the President before resigning last year, said in an interview last week that he felt the shutdown was “completely wrong” and was “confused as to what the White House's strategy is on this.”
Senator Elizabeth Warren Calls on Treasury to Release Details of Calls with Big Banks Last Year: On Friday, Sen. Elizabeth Warren (D-MA), wrote a letter to Treasury Secretary Steven Mnuchin calling on him to release details regarding his phone calls with six of the largest financial institutions in December. At the time, Treasury released a statement confirming the banks had “ample liquidity.” Warren noted the “calls sought to assuage a concern, the liquidity of banks, that neither banking regulators nor executives had publicly indicated was a problem.”
Legislators Press HUD Secretary on Agency Actions to Help Those Impacted by Shutdown: In a letter, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) called on HUD Secretary Ben Carson to detail the agency’s efforts to “reduce the harm to people” who rely on HUD programs, noting that “low-income Americans … should not be held hostage to … unrelated shutdown demands.” Similarly, House Financial Services Committee Chairwoman Maxine Waters (D-CA) wrote to Secretary Carson to express “concerns about HUD’s failure to ensure appropriate responses to emergency situations and adequate funding for housing programs that affect HUD-assisted families, homeless assistance providers and private landlords.”
Wyoming State Legislators Introduce Blockchain Bill: Wyoming lawmakers introduced House Bill 0185 on “Corporate Stock-Certificate Tokens,” which would authorize corporations to issue certificate tokens in lieu of stock certificates, which would be “kept in an electronic data format that comprises the information… entered into a DLT or other secure, auditable database.” Wyoming has in recent months sought to establish a regulatory sandbox for DLT and other crypto-related ventures.