THE BIG PICTURE
Over the weekend, the President announced via Twitter that he had canceled a secret meeting with Taliban leaders and Afghanistan’s president that had been set to take place at Camp David. His decision to call off the negotiations was the result of a deadly suicide bombing in Kabul, which claimed the lives of 11 civilians and a U.S. service member. The President said the attack was carried out “in order to build false leverage” and precluded the ability to conduct “meaningful” peace talks.
On Sunday, former South Carolina governor and congressman Mark Sanford announced he would mount a primary challenge to President Trump. During an interview on Fox News Sunday, he lamented that “as a Republican Party, we have lost our way.” Sanford joins former Massachusetts governor Bill Weld and former congressman Joe Walsh in challenging the President for the Republican nomination.
Congress reconvenes this week following the August recess. Both chambers have a lengthy to-do list before the end of the year, including passing government funding bills to prevent a government shutdown and getting the National Defense Authorization Act across the finish line.
Other highlights of last week include:
- The jobs report was released on Friday showing the economy added 130,000 jobs in August, well below expectations amid fears of an economic downturn.
- Rep. Bill Flores (R-TX) announced on Wednesday that he would not seek another term in Congress.
- After stoking speculation that he was considering a run for governor of West Virginia in 2020, Sen. Joe Manchin (D-WV) announced on Tuesday that he is instead opting to remain in the Senate.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Subcommittee Field Hearing on “Examining Discrimination and Other Barriers to Consumer Credit, Homeownership, and Financial Inclusion in Texas”: On Wednesday, the Subcommittee on Oversight and Investigations held a field hearing in Houston, Texas. This hearing examined access to affordable housing, credit, and banking services in low and moderate income (“LMI”) neighborhoods. The witnesses addressed discrimination and other barriers to homeownership, credit access, and financial inclusion. The hearing examined, among other data, recently published research on wealth disparity and the perpetuation of systemic impediments to wealth building, homeownership, and economic opportunity. In addition, the hearing explored potential solutions that would promote financial inclusion and strengthen financial institutions that serve LMI communities, such as minority depository institutions (“MDIs”) and community development financial institutions (“CDFIs”).
- Belinda Everette, Director, Housing Initiative, NAACP Houston Branch
- Judson Robinson III, CEO and Chair, Houston Area Urban League
- Hua Sun, Professor, Iowa State University
- John Wong, Founding Chair, Asian Real Estate Association of America
- Dedrick Asante-Muhammad, Chief, Race, Wealth, and Community, National Community Reinvestment Coalition
- Noel Poyo, Executive Director, National Association of Latino Community Asset Builders
- Gary Lindner, President and CEO, PeopleFund
- Jeff Smith, President and CEO, Unity National Bank
- Raymond Ardoin, President, Board of Directors, Brentwood Baptist Church Federal Credit Union
- Jeungho “JP” Park, President and Chairman, Relationship BancShares, Inc.
- Celina Peña, Chief Advancement Officer, LiftFund
- George Johnson, CEO, George E. Johnson Development
SENATE BANKING COMMITTEE
Subcommittee Field Hearing on “Human Trafficking and its Intersection with the Financial System”: On Tuesday, the Subcommittee on National Security and International Trade and Finance held a field hearing in Omaha, Nebraska. Dan Murray, who previously served as the director of the Treasury’s Office of Illicit Finance, testified that evidence of increasing use of cryptocurrencies by illicit actors, including human traffickers, necessitates an increase of oversight and regulation in the digital space.
- The Honorable Douglas Peterson, Nebraska Attorney General
- Senator Julie Slama, State Senator, State of Nebraska
- Ms. Crysta Price, Director of the Human Trafficking Institute, Creighton University
- Mr. David Murray, Vice President for Product Development and Services, Financial Integrity Network
THIS WEEK ON THE HILL
Tuesday, September 10
Senate Banking Committee Hearing on “Housing Finance Reform: Next Steps”: 10:00 AM in 538 Dirksen Senate Office Building.
House Financial Services Committee Hearing on “A $1.5 Trillion Crisis: Protecting Student Borrowers and Holding Student Loan Servicers Accountable”: 10:00 AM in 2128 Rayburn House Office Building.
Wednesday, September 11
House Financial Services Committee (Subcommittee on Investor Protection, Entrepreneurship and Capital Markets) Hearing on “Examining Private Market Exemptions as a Barrier to IPOs and Retail Investment”: 10:00 AM in 2128 Rayburn House Office Building.
House Financial Services Committee (Subcommittee on National Security, International Development, and Monetary Policy) Hearing on “Examining the Macroeconomic Impacts of a Changing Climate”: 2:00 PM in 2128 Rayburn House Office Building.
Thursday, September 12
House Financial Services Committee (Task Force on Artificial Intelligence) Hearing on “The Future of Identity in Financial Services: Threats, Challenges, and Opportunities”: 9:30 AM in 2128 Rayburn House Office Building.
Senate Banking Committee Hearing on “Developments in Global Insurance Regulatory and Supervisory Forums”: 10:00 AM in 538 Dirksen Senate Office Building.
Treasury Submits Housing Reform Plan to the President: On Thursday, the Treasury released its plan to reform the housing finance system. The plan includes nearly 50 recommended legislative and administrative reforms to define a limited role for the Federal Government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system. It also emphasized that “after 11 years, time to bring the conservatorships [of Fannie Mae and Freddie Mac] to an end” and that “reform should not and need not wait on Congress.” Senate Banking Committee Chairman Mike Crapo (R-ID) released a statement on the plan, saying, “my preference is to fix the housing finance system through legislation and I look forward to working with all of my colleagues as we move forward.” In contrast, Ranking Member Sen. Sherrod Brown (D-OH) criticized the proposal and urged the President to “make it easier for working people to buy or rent their homes, not harder.”l
FSOC Convenes in Executive Session: On Wednesday, Treasury Secretary Steven Mnuchin convened a meeting of the Financial Stability Oversight Council. The Council discussed the development of its 2019 annual report and potential amendments to its interpretive guidance on nonbank financial company designations. The Council also heard a presentation from staff at the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, and the Conference of State Bank Supervisors regarding the growth of nonbank mortgage origination and servicing and potential related risks. In addition, the Council received an update from staff at Treasury, the Federal Reserve Board, and the Commodity Futures Trading Commission regarding the transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates, including the Secured Overnight Financing Rate (SOFR). Council members discussed existing efforts related to this transition and emphasized the importance of further attention by market participants and regulators to address any risks to the financial system that may arise related to LIBOR.
Federal Reserve Board Invites Comment on “Building Block Approach” Proposal: On Friday, the Federal Reserve Board invited public comment on a proposal to establish capital requirements for certain insurance companies supervised by the Board. The proposal builds on existing state-based insurance standards, while also establishing minimum capital requirements that are specific to the business of insurance. Under the proposed framework, known as the Building Block Approach (BBA), holding companies significantly engaged in insurance activities would be required to aggregate their state-based capital requirements into a consolidated requirement. The proposal would establish both minimum requirements and a buffer on top of the minimum. “The Building Block Approach looks to the well-known insurance capital standards from state regulators to establish minimum requirements,” Vice Chair for Supervision Randal Quarles said. “Banks and insurance companies can face materially different risks and this proposal takes that into account.”
Federal Reserve’s Quarles Discusses Refining the Stress Capital Buffer: On Thursday, Randal Quarles, who serves as the Fed’s vice chairman for supervision spoke at a European Central Bank event in Frankfurt, Germany. In his remarks, he noted that the agency is in the process of finalizing a “stress capital buffer” and discussed the Bank’s goal to “simplify our capital framework while maintaining the overall amount of capital in the U.S. banking system.” He also revealed that the Fed is considering whether the countercyclical capital buffer should be integrated into revisions to the annual stress tests faced by the largest financial institutions.
CFPB Releases Research on Tax Time Savings: On Tuesday, the CFPB released the results of a pilot study, Planning for tax-time savings, launched with the tax preparation company H&R Block, that shows that simple messages encouraging customers to use their prepaid card to save at tax time increased the likelihood that they would do so. “One of my priorities is to move the needle in the number of Americans who can cover a financial shock,” said Bureau Chief Kathy Kraninger. “There are many statistics underscoring the lack of savings, including a recent one by the Federal Reserve showing that 40 percent of Americans would turn to credit to cover a $400 emergency. As the Bureau continues to identify solutions to encourage consumers to save, the results from this study shows that even with small encouragement, consumers will save.”
CFPB to Host Symposium on September 19: On Friday, the CFPB announced that it will hold a symposium on behavioral law and economics on September 19 at 9 a.m. entitled Behavioral Economics and Consumer Financial Services Policy. The symposium is the second in a series announced earlier this year to explore consumer protections in today’s dynamic financial services marketplace. The series is aimed at stimulating a proactive and transparent dialogue to assist the Bureau in its policy development process, including possible future rulemakings. The first symposium, on June 25, covered the Dodd-Frank Act’s prohibition on abusive acts or practices.
IRS Releases Report on Identify Theft Investigations: The Treasury’s Inspector General for Tax Administration released a report on identity theft investigations, showing that, from Fiscal Year 2013 to Fiscal Year 2017, the number of identity theft investigations declined 75 percent. The inspector general noted that while “they remain a significant threat to tax administration” the agency “has shifted its resources to focus on more sophisticated and complex schemes.”
FDIC-Insured Institutions Report Net Income of $62.6 Billion in Second Quarter 2019: On Thursday, the FDIC released its report on banking performance in the second quarter. It showed that for the 5,303 commercial banks and savings institutions insured by the FDIC, aggregate net income totaled $62.6 billion in second quarter of 2019, an increase of $2.5 billion (4.1 percent) from a year earlier. The improvement in net income is attributable to a $4.9 billion (3.7 percent) increase in net interest income. In a statement, FDIC Chairwoman Jelena McWilliams said, “While the banking industry reported another positive quarter and the banking system remains strong, the FDIC continues to encourage prudent risk management in order to remain resilient through economic cycles.”
Agenda Announced for the CFTC’s September 9 Market Risk Advisory Committee Public Meeting: On Wednesday, CFTC Commissioner Rostin Behnam announced the agenda for the upcoming Market Risk Advisory Committee (MRAC) public meeting that will be held via teleconference on September 9, 2019. Commissioner Behnam is the sponsor of MRAC. At this meeting, the MRAC will receive a status report from the Interest Rate Benchmark Reform Subcommittee and vote on its recommendation regarding plain-English disclosure materials. The MRAC will also discuss other issues involving the transition from the London Inter Bank Offered Rate (LIBOR) to risk-free reference rates, including central counterparty (CCP) adjustments to discounting/price alignment interest and the clearing treatment for certain physically-settled swaptions.
Treasury’s OFAC Publishes Nicaragua Sanctions Regulations: On Tuesday, the Office of Foreign Assets Control (OFAC) issued regulations to implement Executive Order 13851 of November 27, 2018 (“Blocking Property of Certain Persons Contributing to the Situation in Nicaragua”). The regulations are being published in abbreviated form at this time for the purpose of providing immediate guidance to the public. OFAC intends to supplement this part 582 with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, general licenses, and statements of licensing policy.
COMINGS AND GOINGS AT THE AGENCIES
SEC Names Monique Winkler as Associate Regional Director in San Francisco Office: On Tuesday, the SEC announced that Monique Winkler had been named Associate Regional Director for enforcement in the San Francisco Regional Office. Ms. Winkler began working at the SEC’s Division of Enforcement as a staff attorney in the San Francisco office in 2008 and joined the division’s Public Finance Abuse Unit in 2010. She was promoted to Assistant Regional Director in 2015.
Federal Judge Throws Out Challenge to OCC Fintech Charter a Second Time: On Tuesday, a federal judge in DC dismissed the Conference of State Bank Supervisors’ suit to block the OCC from granting special purpose fintech charters, saying the organization “continues to lack standing and its claims remain unripe.” The same judge had dismissed a similar suit in April 2018 for largely the same reasons. Despite this, a parallel lawsuit filed by the New York Department of Financial Services was allowed to proceed in May.
OTHER NOTEWORTHY ITEMS
State Regulators Launch Investigation into Payroll Advance Apps: State regulators from New York and 10 other states have launched an investigation into payroll advance apps, which purport to be a safer and more affordable alternative for workers who are living paycheck to paycheck. NYDFS chief Linda Lacewell said that the investigation will “help determine whether these payroll-advance practices are usurious and harming consumers.”
IMF Chief Says Regulators Should Embrace Opportunities of New Technology: Current head of the IMF, and nominee to serve as the next president of the European Central Bank, Christine Lagarde discussed the opportunities of technological innovation during a speech at the European Parliament. In her remarks, she noted, “In the case of new technologies – including digital currencies – that means being alert to risks in terms of financial stability, privacy or criminal activities, and ensuring appropriate regulation is in place to steer technology towards the public good. But it also means recognizing the wider social benefits from innovation and allowing them space to develop.”