Money Matters: This Week in Washington

This Week in Washington for June 5, 2017

June 05, 2017

Dina Ellis and Casey Miller

THE BIG PICTURE

Neither the House nor the Senate was in session last week. Both chambers will return this week and will be in session for the rest of June and most of July, with the exception of the Fourth of July holiday week. This likely will be the busiest period for the 115th Congress, as it is the first year after an election and Congress is working with a new administration that is eager to address its priorities. Both chambers will be in recess during the month of August and things will likely slow down after that, other than addressing the impending debt ceiling.

While Congress was away:

President Trump Pulls U.S. Out of Paris Climate Agreement: President Trump announced on June 1st that the U.S. would be withdrawing from the Paris climate change agreement, which is an agreement signed by 195 members of the United Nations Framework Convention on Climate Change (UNFCCC) that deals with greenhouse gas emissions mitigation, adaptation, and finance starting in the year 2020. There was a divide in the administration regarding whether to withdraw from the agreement, with Environmental Protection Agency Director Scott Pruitt wanting to leave and first daughter Ivanka Trump on the side of wanting to stay in. The decision is infuriating America’s allies and could destabilize the agreement that was entered into by every country except for Nicargua and Syria.

James Comey to Testify in Senate: Former FBI director James Comey is expected to testify publicly before the Senate Intelligence Committee on June 8th regarding his accusations that President Trump urged him to end his investigation into former national security adviser Michael Flynn’s ties to Russia. His testimony, if permitted, will be part of a hearing on Russian interference in the 2016 presidential election. At this time it is unclear if the President will invoke Executive Privilege with respect to his private conversations with Director Comey.

Through a series of letters exchanged between Members, the House Permanent Select Committee on Intelligence also approved subpoenas for former national security adviser Michael Flynn and President Trump’s longtime personal attorney Michael Cohen. The subpoenas are issued as part of the panel’s investigation into Russia’s interference in the 2016 presidential election.

LAST WEEK ON THE HILL

House Financial Services Chairman Jeb Hensarling (R-TX) Offered Revised CHOICE Ac: Financial Services Chairman Jeb Hensarling submitted a new version of the Financial CHOICE Act, a Dodd-Frank overhaul. The main difference in this version is that the controversial provision repealing the so-called Durbin Amendment addressing debit card interchange has been removed. The Durbin Amendment, which required a cap on debit card transaction fees charged to merchants, was a key component of the Dodd-Frank reform efforts. The revised CHOICE Act retains the other key components including repealing the Volcker Rule and the Department of Labor’s Fiduciary Duty Rule as well as major changes to the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve. The House is expected to vote on the legislation this week and then it will face significant challenges in the Senate.

Democrats Push Back on Flood Insurance Proposals: Republicans are beginning to see some opposition from Democrats on their measure to reauthorize the National Flood Insurance Program, which expires in September. Rep. Emanuel Cleaver (D-MO), Ranking Member on the Housing and Insurance Subcommittee, said that there are some parts that they will have “difficulty embracing.” Democrats want the program to be reauthorized for at least 10 years; the Republican bill only reauthorizes it for five. Rep. Cleaver also wants the program’s US$24.6B debt to be forgiven. Both sides of the aisle want to reduce the debt without raising premiums; however, the White House has proposed increasing premiums as part of its FY18 budget request. Despite differences, Rep. Cleaver said he is “optimistic” that they can agree on a bill.

Chairman and Ranking Member of Senate Banking Announce Sanctions Legislation: Senate Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) announced on June 1st a bipartisan agreement on legislation to strengthen and expand current U.S. sanctions on Russia. According to a Committee statement, “Russia remains a hostile, recalcitrant power, deploying its military, cyber-enabled information espionage activities, and economic tactics to harm the United States and drive a wedge between it and its allies.”

Ranking Member Brown Sends Letter to Treasury Department Secretary Steven Mnuchin Regarding Potential Conflicts and the Trump Organization: Senate Banking Committee Ranking Member Sherrod Brown sent a letter to Secretary Mnuchin on May 30th, reiterating concerns he expressed in a March 2nd letter and following Secretary Mnuchin’s testimony before the Committee on May 18th. Primarily, Senator Brown asked whether the Trump Organization business partners, investors, and associates have been or would be vetted by Treasury for potential conflicts with certain federal laws and regulations related to sanctions, anti-corruption, anti-money laundering, or other similar concerns.

NEXT WEEK ON THE HILL

Tuesday, June 6

Senate Banking, Housing, and Urban Affairs Committee, Nomination Hearing, 10:00AM, 538 Dirksen Senate Office Building

• Mr. Kevin Allen Hassett to be Chairman of the Council of Economic Advisers; and

• The Honorable Pamela Hughes Patenaude to be Deputy Secretary of Housing and Urban Development.

Wednesday, June 7

Senate Finance Committee, Nomination Hearing, 10:00AM, 215 Dirksen Senate Office Building

• Eric D. Hargan, To Be Deputy Secretary Of Health And Human Services

• David Malpass, To Be An Under Secretary Of The Treasury

• Brent James McIntosh, To Be General Counsel For The Department Of The Treasury

House Financial Services Committee, Hearing, “Flood Insurance Reform: A Taxpayer’s Perspective”, 10:30AM, 2128 Rayburn House Office Building

Thursday, June 8

Senate Banking, Housing, and Urban Affairs Committee, Hearing, “Fostering Economic Growth: The Role of Financial Institutions in Local Communities”, 10:00AM, 538 Dirksen Senate Office Building

• Ms. Dorothy A. Savarese, Chairman, President & CEO, The Cape Cod Five Cents Savings Bank, on behalf of the American Bankers Association

• Mr. Steve Grooms, President & CEO, 1st Liberty Federal Credit Union, on behalf of the National Association of Federally-insured Credit Unions

• Mr. R. Scott Heitkamp, President & CEO, ValueBank, on behalf of the Independent Community Bankers of America

• Mr. Dallas Bergl, CEO, INOVA Federal Credit Union, on behalf of the Credit Union National Association

• Mr. John Bissel, President & CEO, Greylock Federal Credit Union

• Mr. Adam Levitin, Professor of Law, Georgetown University Law Center

House Financial Services Subcommittee on Terrorism and Illicit Finance, Hearing, “Virtual Currency: Financial Innovation and National Security Implications",

10:00AM, 2128 Rayburn House Office Building

House Appropriations Committee, Hearing, “Department of Housing and Urban Development- Budget Hearing”, 10:00AM, 2358-A Rayburn House Office Building

• Witness: The Honorable Ben Carson; Secretary, Department of Housing and Urban Development

House Appropriations Committee, Hearing, “Commodity Futures Trading Commission- Budget Hearing”, 10:00AM, 2362-A Rayburn House Office Building

• Witness: J. Christopher Giancarlo: Acting Chairman, Commodity Futures Trading Commission

THE REGULATORS

Federal Reserve Asset Holdings to Decrease: peaking to the Economic Club of New York, Federal Reserve Governor Jerome Powell suggested that the balance sheet of the Fed could decrease by as much as US$2T, giving three hypothetical examples of reserve levels: US$100B, US$600B, and $1T. The reserve balances currently are around US$2.2T. According to Powell, “The eventual level of demand for reserves is less certain but is highly likely to exceed pre-crisis levels when reserve balances averaged only about US$15B.”

Fed Announces Changes to Electronic Check Rules: The Federal Reserve announced on May 31st that it is finalizing changes to its rules relating to the collection of electronic checks, including extending the same guarantees as paper checks to electronic checks. To encourage same-day settlement terms for electronic checks, the Fed is also keeping the same-day settlement rule that applies to paper checks. According to a Fed statement, “The final amendments … reflect the evolution of the nation’s check-collection system from one that is largely paper-based to one that is virtually all electronic.”

Fed Announces Release Date for Stress Test Results: On June 1st, the Federal Reserve announced that it will publish the stress test results mandated by the Dodd-Frank Act on June 22nd. Its more consequential stress testing results from the Comprehensive Capital Analysis and Review (CCAR) will be released on June 28th. CCAR is an annual exercise undertaken by the Fed to evaluate whether large bank holding companies have forward-looking capital planning processes that account for their unique risks and are supported by sound risk-measurement and management practices.

Regulators Issue Guidance on Appraiser Licensing: The Federal Reserve, National Credit Union Administration, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued joint guidance on May 31st regarding the availability of cross-state appraiser licensing agreements. The regulators advised that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 allows state appraiser licensing agencies to issue temporary licenses to appraisers licensed in another state. The agencies are also calling on states to use any available tools to address the shortage of licensed appraisers in rural areas.

No Decision on Congressional Review Act (CRA) Anytime Soon: Despite the fact that Senator Pat Toomey (R-PA) has been leading a charge to use the CRA to strike down guidance from federal agencies, the Government Accountability Office (GAO) has said that it will be months before they reach a decision on whether the CRA can be used against guidance and bulletins. The CRA can be used to claw back within 60 days regulations issued by agencies, but Senator Toomey wants to use the law to repeal guidance, such as that related to “leveraged lending” and CFPB guidance related to auto loans made indirectly through dealerships.

June Rate Hike Appears to be Still on Track: Federal Reserve Governor Lael Brainard indicated on May 30th that economic data point to a rebound in U.S. consumption after a weak first quarter and is strong enough to warrant another interest rate hike in June. In a speech to the New York Association for Business Economics, Brainard said that “with continued strength in the labor market, economic activity regaining momentum, and a brighter outlook abroad, it would be appropriate soon to see the federal funds rate moving closer to its neutral level.” However, she said she may “reassess the expected path of the federal funds rate in the future” depending on unemployment and inflation rates.

Department of Labor Officials Holds Closed Door Meeting With Lobbyists: Lobbyists representing groups such as the American Bankers Association, the Securities Industry and Financial Markets association, the Financial Services Roundtable, and the Investment Company Institute met with Department of Labor officials on May 30th to express strong concerns following Secretary Alexander Acosta’s announcement that he will let the agency’s Fiduciary Duty Rule take effect on June 9. This is the first of two closed-door meetings the Department is expected to hold on the rule; the second will be with Fiduciary Duty Rule supporters.

Securities and Exchange Commission Seeks Input on “Fiduciary” Standard: In a statement made on June 1st, SEC Chairman Jay Clayton asked for public input on how the agency could develop standards of conduct for investment advisors and brokers. The statement came following the Department of Labor’s announcement that its “fiduciary rule” would take effect on June 9th. Clayton stated that he “welcome[s] the Department of Labor’s invitation to engage constructively as the Commission moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers, and related matters.”

OTHER NOTEWORTHY ITEMS

Public Company Accounting Oversight Board (PCAOB) Approves New Reporting Standards: The four members of PCAOB unanimously adopted an auditor reporting standard to provide more relevant information to investors by allowing auditors to give a more nuanced diagnosis of a firm’s financial help. According to PCAOB Chairman James Doty, “The new auditing standard before the Board today is the first significant change to the standard for auditor’s report in more than 70 years.” The standard is expected to make the auditor’s report easier to read, to clarify the auditor’s role and responsibilities, and to give additional information about the auditor.

***

Paul Hastings’ government relations team is monitoring these issues. We help our clients craft strategies to address federal legislation and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.