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PH Money Matters: This Week in Washington

This Week in Washington for April 1, 2019

THE BIG PICTURE

The Justice Department announced on Monday that it was reversing position and would no longer defend the constitutionality of the Affordable Care Act in a court challenge seeking to invalidate the entire law. The move marks a renewed push on the part of the President to repeal and replace the law. Later in the week he pledged that the GOP would become “the party of health care” and, if the law is struck down by the Supreme Court, to introduce a “far better” plan. Health care reform was central to several 2018 campaigns, and some Republicans expressed reluctance to reignite the fight leading up to 2020. Senator Susan Collins (R-ME), who is up for reelection, said that “to advocate for invalidating a duly enacted law is a mistake, in my view.”

In response to Congressional Democrats’ requests for the release of Special Counsel Robert Mueller’s report, Attorney General William Barr wrote in a letter on Friday that he planned to release the “nearly 400 page long” report by “mid-April, if not sooner” once he completed a review to redact sensitive portions. Following the release of Barr’s summary of the report, which exonerated the President on the allegation of collusion, Republicans on the House Intelligence Committee called for Chairman Adam Schiff (D-CA) to resign his position. The President chimed in, saying that given Rep. Schiff had spent two years “lying and leaking,” he should resign from Congress. Schiff defended himself by recounting a series of contacts between Russia and those in the President’s orbit, saying, “You might think it is OK. I don’t.”

Other highlights of last week include:

  • Amid a surge in border crossings, the President threatened on Friday via Twitter to close parts of the southern border unless Mexico “immediately stop[s] ALL illegal immigration.”
  • The President issued a memo on Wednesday directing the Treasury Department to develop a plan to end the government’s conservatorship of Fannie Mae and Freddie Mac, but adding that the “administration wants to work with Congress to achieve comprehensive reform.”
  • On Monday, Senator Tom Udall (D-NM) announced that he would not run for reelection in 2020, pledging to “find new ways to serve New Mexico and our country after I finish this term.”
  • Rep. José E. Serrano (D-NY) announced that he had been diagnosed with Parkinson’s disease and therefore would not seek reelection in 2020.
  • Linda McMahon announced on Friday that she would resign her position as head of the Small Business Administration and transition to a role supporting the President’s reelection campaign

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing on “The Administration of Disaster Recovery Funds in the Wake of Hurricanes Harvey, Irma, and Maria”: On Tuesday, the Subcommittee on Oversight and Investigations held a hearing to consider the administration of disaster recovery funds and the discussion draft of the “Reforming Disaster Recovery Act of 2019.”

  • Fernando Gil Enseñat, Secretary of Housing, Puerto Rico
  • Jeremy Kirkland, Counsel to the Inspector General, U.S. Department of Housing and Urban Development
  • Daphne Lemelle, Executive Director, Harris County Community Services Department
  • Marion Mollegen-McFadden, Senior Vice President, Enterprise Community Partners

Markup: On Tuesday, the Committee met to mark up five pieces of legislation intended to crack down on foreign corruption, uphold consumer protections, increase access to the financial system, protect retirement savers, and address the national homelessness crisis, ultimately advancing all of them.

  • H.R. 389: the “Kleptocracy Asset Recovery Rewards Act,” advanced by voice vote
  • H.R. 1500: the “Consumers First Act,” as amended, advanced by a vote of 34-26
  • H.R. 1595: the “Secure and Fair Enforcement Banking Act of 2019,” as amended, advanced by a vote of 45-15
  • H.R. 1815: the “SEC Disclosure Effectiveness Testing Act,” as amended, advanced by a vote of 33-26
  • H.R. 1856: the “Ending Homelessness Act of 2019,” as amended, advanced by a vote of 32-26

SENATE BANKING COMMITTEE

Hearing on “Chairman’s Housing Reform Outline: Part 1”: On Tuesday, the Committee met for the first of two days of hearings on Chairman Mike Crapo’s plan to reform mortgage giants Fannie Mae and Freddie Mac and return them to private ownership. The Committee received input on the Reform Outline from six different stakeholders and thought leaders representing a variety of perspectives.

  • Ms. Sue Ansel, President and CEO, Gables Residential, on behalf of The National Multifamily Housing Council and the National Apartment Association
  • Mr. Edward J. DeMarco, President, Housing Policy Council
  • Mr. Greg Ugalde, Chairman of the Board, National Association of Home Builders
  • Dr. Mark M. Zandi, Chief Economist, Moody’s Analytics
  • Mr. Hilary O. Shelton, Washington Bureau Director and Senior Vice President for Advocacy and Policy, NAACP
  • Mr. Adam Levitin, Professor of Law, Georgetown University Law Center

Hearing on “Chairman’s Housing Reform Outline: Part 2”: On Wednesday, the Committee convened a second hearing to “continue the conversation about the state of our housing finance system, and how we can set it on a permanent, sustainable course that protects taxpayers and fosters greater competition.”

  • Mr. Michael Bright, President and CEO, The Structured Finance Industry Group
  • Mr. Robert D. Broeksmit, President and CEO, Mortgage Bankers Association
  • Ms. Lindsey Johnson, President, U.S. Mortgage Insurers
  • Mr. Vince Malta, President Elect, National Association of Realtors
  • Ms. Carrie Hunt, Executive Vice President of Government Affairs and General Counsel, National Association of Federally-Insured Credit Unions
  • Mr. Michael D. Calhoun, President, Center for Responsible Lending

ON THE FLOOR

Veto Override Fails: On Tuesday, the House voted 248-181 to override the President’s veto of H.J. Res. 46, which would have overturned his February decision to declare a national emergency and direct federal funds toward the construction of a wall on the southern border. The vote failed to meet the 2/3 threshold necessary to succeed.

Gender Pay Gap: On Wednesday, the House passed H.R. 7, the “Paycheck Fairness Act,” a bill intended to close the gender pay gap. The final tally was 242-187 after seven Republicans joined with all 235 Democrats in supporting the measure. Rep. Rosa DeLauro, who sponsored the measure, described it as a “game changer.”

Condemnation of Transgender Military Ban: On Thursday, the House passed a resolution condemning the administration’s ban on transgender individuals serving in the military by a vote of 238-185. The resolution described the ban as causing harm to “our national security by undermining our ability to recruit and retain the talented personnel.”

LEGISLATION INTRODUCED AND PROPOSED

H.R. 1856: On Tuesday, House Financial Services Committee Chairwoman Maxine Waters (D CA) reintroduced the “Ending Homelessness Act of 2019,” which would “appropriate $13.27 billion in mandatory emergency relief funding over five years to several critical federal housing programs and initiatives, providing the resources that these programs need to effectively address the homelessness crisis in America.”

H.R. 1909: On Wednesday, Rep. Steve Chabot (R-OH) introduced a bill to “require the Securities and Exchange Commission to revise rules relating to general solicitation or general advertising to allow for presentations or other communication made by or on behalf of an issuer at certain events.”

H.R. 1982: Rep. Joe Morelle (D-NY) joined his colleagues, Representatives Gwen Moore (D WI), Tom Reed (R-NY), and Grace Meng (D-NY), to lead the introduction of the “National Women’s Hall of Fame Commemorative Coin Act of 2019.” This legislation directs the production of a variety of commemorative coins, the proceeds of which will go towards an endowment fund to provide long-term financing for the operations of the National Women’s Hall of Fame.

H.R. 1975: On Thursday, Rep. John Katko (R-NY) introduced the “Cybersecurity Advisory Committee (CSAC) Authorization Act of 2019.” This bipartisan legislation establishes a Cybersecurity Advisory Committee comprised of highly skilled cybersecurity professionals responsible for protecting enterprises in every major business sector.

H.R. 1988: On Friday, Rep. David Scott (D-GA) introduced the “Protecting Affordable Mortgages for Veterans Act of 2019” in the House of Representatives. This bipartisan legislation provides a technical fix critical to maintaining liquidity in the veteran home loan market and ensuring continued access to affordable VA mortgages. 

THIS WEEK ON THE HILL

Monday, April 1

Senate Agriculture Committee “Business Meeting: Nomination of Heath P. Tarbert”: 5:30 PM in S-216, President’s Room.

Tuesday, April 2

Senate Banking Committee Hearing on “The Application of Environmental, Social, and Governance Principles in Investing and the Role of Asset Managers, Proxy Advisors, and Other Intermediaries”: 10:00 AM in 538 Dirksen Senate Office Building.

House Financial Services Committee Hearing on “The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing”: 10:00 AM in 2128 Rayburn House Office Building.

House Financial Services Committee (Subcommittee on Housing, Community Development and Insurance) Hearing on “The Affordable Housing Crisis in Rural America: Assessing the Federal Response”: 2:00 PM in 2128 Rayburn House Office Building.

Wednesday, April 3

House Financial Services Committee “Member Day Hearing”: 10:00 AM in 2128 Rayburn House Office Building.

House Financial Services Committee (Subcommittee on Investor Protection, Entrepreneurship and Capital Markets) Hearing on “Putting Investors First: Reviewing Proposals to Hold Executives Accountable”: 2:00 PM in 2128 Rayburn House Office Building.

THE REGULATORS

CFTC Finalizes Rule on De Minimis Exception in 3-2 Vote: On Monday, the CFTC voted 3-2 to adopt the final rule for the de minimis exception for swaps entered into by Insured Depository Institutions (IDIs) in connection with loans to customers. “This proposal will allow small and medium size commercial borrowers – manufacturers, home builders, agricultural cooperatives, community hospitals and small municipalities - to conduct prudent risk management that is difficult for them under the current rule,” said CFTC Chairman J. Christopher Giancarlo. The two Democratic commissioners dissented, with Commissioner Rostin Behnam issuing a statement criticizing the decision as “creat[ing] risks and uncertainties that may harm the very financial institutions that the new rule purports to help.”

CFTC Provides Further Brexit-Related Market Certainty: On Monday, the CFTC passed by unanimous vote a provision to provide greater certainty to the global marketplace in the event of a “no-deal Brexit” precipitated by the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union without a negotiated withdrawal agreement. Chairman J. Christopher Giancarlo said in a statement that the Commission was taking an “important step to bring certainty to the global derivatives markets. Consistent with actions already taken by U.S. prudential regulators, we are providing regulatory certainty regarding the transfer of uncleared legacy swaps to facilitate global swaps market participants’ needs in the event” of a no-deal Brexit.

CFTC Issues Report on Impact of Automated Orders in Futures Markets: On Wednesday, the CFTC’s Market Intelligence Branch in the Division of Market Oversight issued a report that analyzed the entering of orders manually and automatically in commodity futures markets in the United States to determine how technological change is affecting futures trading. They found that (1) the percentage of automatically placed orders has increased for all commodity futures markets; (2) automated orders are smaller in size than manual orders and their resting times are shorter than the resting times of orders placed manually; (3) automated orders are almost always limit orders; and (4) although the level of automation has increased steadily each year, historical volatility of end-of-day prices did not exhibit the same trend.

CFTC Unanimously Approves Project KISS Rulemakings to Ease Regulatory Burdens: On Thursday, the CFTC announced that it had unanimously approved two final rule amendments to simplify registrants’ obligations. Chairman J. Christopher Giancarlo said that “by reducing the unnecessary complexity and prescriptiveness of these rules, we are providing additional flexibility for market participants, without reducing the effectiveness of our rules.”

Fed and FDIC Complete Review of 2017 Living Wills Filed by 14 Regional Banks: On Friday, the Federal Reserve Board and the Federal Deposit Insurance Corporation announced that they had completed their evaluation of the 2017 resolution plans (commonly referred to as living wills) for 14 domestic banks and issued their expectations for the firms’ next plan submissions. The agencies revealed that they had not identified any deficiencies or shortcomings in the firms’ 2017 resolution plans.

Federal Reserve Board Releases Additional Information on Its Stress Testing Program: On Thursday, the Federal Reserve released a document providing additional information on its stress testing program in a bid to increase transparency and public understanding of the Fed’s stress tests. The document, with roughly 80 pages and more than 30 tables, provides significantly more information on the stress test models than has previously been released, including (1) ranges of loss rates, projected using the Federal Reserve’s models, for loans that are grouped by distinct risk characteristics; (2) portfolios of hypothetical loans with loss rates projected by the Federal Reserve’s models; and (3) enhanced descriptions of the Federal Reserve’s models.

SEC’s Investor Advisory Committee Approves Recommendation to Require Companies to Release Workforce Information: The SEC’s Investor Advisory Committee approved a recommendation that the SEC require publicly traded companies to reveal more information about the their workforces, such as diversity, safety, and information on pay and productivity as so-called human capital metrics. While Chairman Clayton expressed reluctance to mandate such reporting due to differences between industries, he conceded that “investors would be better served by understanding the lens through which each company looks at its human capital.”

SEC May Reduce Penalties for Firms That Reveal Internal Interviews from Investigations: SEC Enforcement Division Co-Director Steven Peikin spoke at a conference in Phoenix on Monday and told an audience that companies who cooperate with the agency may receive reduced penalties, or even avoid action altogether, if they cooperate and share information that makes “life easier.” He said that if companies don’t reveal the outcomes of internal investigation interviews, they “can’t expect to get full cooperation credit.”

SEC and the U.K. Financial Conduct Authority Sign Updated Supervisory Cooperation Arrangements: On Friday, the SEC and the U.K. Financial Conduct Authority (FCA) reaffirmed their commitment to continue close cooperation and information sharing in the event of the U.K.’s withdrawal from the European Union. SEC Chairman Jay Clayton met with FCA CEO Andrew Bailey and signed two updated Memoranda of Understanding to ensure the continued ability to cooperate and consult with each other regarding the effective and efficient oversight of regulated entities across national borders.

Treasury’s Under Secretary for Terrorism and Financial Intelligence Embarks on Southeast Asia Trip: On Monday, Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker began a trip to Southeast and South Asia. Over eight days, Under Secretary Mandelker will engage with high-level government officials in Malaysia, Singapore, and India, as well as private-sector and industry stakeholders, to discuss shared efforts to counter illicit financial threats that could compromise the integrity of the global financial system.

Treasury Releases Updated Advisory Highlighting Risks for Maritime Petroleum Shipping Community in Syria: On Monday, the Treasury Department’s Office of Foreign Assets Control (OFAC) updated its Advisory to the Maritime Petroleum Shipping Community to highlight risks associated with shipments to Syria. This advisory updates the Treasury Department’s November 20, 2018 Advisory to include additional guidelines and risks associated with facilitating the shipment of petroleum destined for Syrian government-owned and -operated ports, including petroleum of Iranian origin. It adds dozens of new vessels involved in illicit oil shipments, including 16 shipping to Syria and more than 30 engaging in ship-to-ship transfers, and highlights concerns with shipments of petroleum from Iran.

Treasury Disrupts Large-Scale Front Company Network Transferring Millions to the IRGC and Iran’s Ministry of Defense: On Tuesday, the Treasury Department’s Office of Foreign Assets Control (OFAC) took action against 25 individuals and entities, including a network of front companies based in Iran, UAE, and Turkey, that have transferred over one billion dollars and euros to the Islamic Revolutionary Guard Corps (IRGC) and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL), in addition to procuring millions of dollars’ worth of vehicles for MODAFL. Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker noted that the action “again exposes to the international community the dangerous risks of operating in an Iranian economy that is deliberately opaque.”

FHA to Tighten Underwriting Standards: Amid falling average borrower credit scores, the FHA plans to update its algorithm and begin classifying a higher number of loans as “high risk.” The move will force the loans to meet more stringent underwriting standards and could reduce the ability of first-time home buyers to obtain a mortgage.

FDIC Announces New Members of the Advisory Committee on Community Banking: On Thursday, the FDIC announced the selection of six new members of its Advisory Committee on Community Banking, which has been providing advice and recommendations to the FDIC on a broad range of community bank policy and regulatory matters since it was established in 2009. The new additions include: Dick Beshear, Chairman, President & CEO, First Security Bank and Trust Company, Oklahoma City, Oklahoma; Keith Epstein, EVP & CEO, Roxboro Savings Bank, Roxboro, North Carolina; Bruce Kimbell, President & CEO, First Community Bank of the Heartland, Clinton, Kentucky; Thomas Leavitt, President & CEO, Northfield Savings Bank, Northfield, Vermont; Lori Maley, President & CEO, Bank of Bird-in-Hand, Bird-in-Hand, Pennsylvania; and Cathy Stuchlik, Chairwoman & President, Clackamas County Bank, Sandy, Oregon.

FDIC Board Proposes Changes to Recordkeeping Requirements for Deposit Insurance Determinations:On Friday, the FDIC approved proposals to amend two rules to simplify the process for making insurance determinations in the event a bank is placed into receivership. Chairwoman Jelena McWilliams said in a statement that the proposed amendments “are intended to provide improvements and to better balance the benefits of the rules with the burdens, provide limited relief where appropriate, and improve clarity, while still ensuring the FDIC will have access to the information it needs.”

COMINGS AND GOINGS AT THE AGENCIES

Federal Reserve Names New Chief Operating Officer: On Friday, the Federal Reserve Board announced the appointment of Patrick McClanahan as chief operating officer, effective April 29. Mr. McClanahan succeeds Don Hammond, who retired earlier this year after having served as COO since 2012.

SEC Names Jeffrey Dinwoodie as Senior Counsel and Policy Advisor for Market and Activities-Based Risk: On Monday, the SEC announced that Jeffrey Dinwoodie had been appointed as Senior Counsel and Policy Advisor for Market and Activities-Based Risk. The newly created position will manage and coordinate the agency’s efforts to identify, monitor, and respond to market risks—including activities-based risks—affecting the U.S. capital markets.

FDIC Names Nick Podsiadly as General Counsel: On Tuesday, FDIC Chairwoman Jelena McWilliams announced the appointment of Nick Podsiadly as General Counsel. Mr. Podsiadly will start on April 8 and will replace Charles Yi; he currently serves as the Deputy General Counsel and Senior Vice President for Fifth Third Bancorp.

SEC Names Danae Serrano as Ethics Counsel: On Tuesday, the SEC announced that Danae Serrano had been named as the agency’s Ethics Counsel. Ms. Serrano has served as Acting Ethics Counsel since December 2018.

Fannie Mae Names Hugh Frater as Next CEO: On Wednesday, Fannie Mae announced that it has appointed interim CEO Hugh Frater as Chief Executive Officer effective March 26. In addition to his role as CEO, Mr. Frater will remain on the Board of Directors, where he has served since 2016.

THE COURTS

Supreme Court Sides with SEC in Fraud Case: On Wednesday, the Supreme Court ruled 6-2 in Lorenzo v. SEC, upholding sanctions against an investment banker who had been found guilty of duping customers. The ruling found that individuals can be liable in fraud cases if they disseminate false and/or misleading statements even if they did not specifically make the statements themselves. “Congress intended to root out all manner of fraud in the securities industry,” Justice Stephen Breyer wrote for the majority. Justices Clarence Thomas and Neil Gorsuch dissented from the opinion, while Justice Brett Kavanaugh did not participate in the case.

OTHER NOTEWORTHY ITEMS

GAO Report Recommends Stronger Oversight by the FTC and CFPB to Prevent Future Data Breaches:On Tuesday, findings were released of a GAO report containing recommendations resulting from an investigation requested by Sen. Elizabeth Warren (D-MA) and Rep. Elijah Cummings (D-MD) in the wake of the massive Equifax breach in 2017. These recommendations include giving the FTC stronger civil penalty authority and that the CFPB should “reassess its prioritization of examinations to address.” Warren and Cummings issued a joint statement, saying, “We need to give the FTC more tools to crack down on consumer data abuses and the CFPB needs to do its job, hold these firms accountable, and protect consumers.”

Larry Kudlow Calls on Fed to Cut Interest Rates: Larry Kudlow, who serves as Director of the National Economic Council, called on the Fed to “immediately” cut interest rates by half a percentage point, describing the economy as “fundamentally quite healthy” and characterizing the Fed’s actions as “probably overdone.” The President echoed the sentiment in a tweet criticizing the Fed for “mistakenly raised interest rates, especially since there is very little inflation.”

House Members Request Briefing on Artificial Intelligence from FinCEN: On Thursday, 14 members of the House Financial Services Committee sent a letter to FinCen requesting a briefing on artificial intelligence and its potential uses in catching money launderers and terrorists. “Congress must be well informed on how to encourage innovation in this space and guide regulations that best encourages banks to cooperate and implement the tools now at their disposal,” said Rep. Gregory Meeks (D-NY). Rep. Trey Hollingsworth (R-IN) added, “This is an opportunity for us to catch more bad actors with lower costs to businesses through this advanced technology, rather than continue with the same antiquated approach.”