Financial Services Report

Our Take
During the campaign, it was said by some that Donald Trump is the wrong answer to the right question.   Regardless, it was clear – both from the primaries and then in the general – that a big section of the American public was incredibly frustrated with the institutions of governments and were prepared to elect someone willing to be different.    
 
Last Tuesday, the President came to Capitol Hill and by many accounts gave the first “Presidential” speech of his tenure.   Depending on where you sit, this was either a necessary reset or an appropriate look forward.  Either way, the purpose was to refocus the political capital that the President needs to spend to accomplish the very lofty objectives he campaigned on.   However, by the end of the weekend it appears as if the White House is going to add another item to Congress’ already packed agenda.  

As an institution Congress moves slowly, as was the intention of our framers.   While the politics of today’s America may crave more immediate action, the reality is that our current system of government works on compromise and incremental change.   Perhaps this will not always be the case, but for now it is worth reflecting in this reality as one considers all of the initiatives Congress is endeavoring to accomplish.   Health Care reform was a quagmire for then first-lady Clinton, and apparently is still quite complicated.   Tax Reform historically takes multiple years to accomplish, and while there is some general consensus surrounding the parameters of a Dodd-Frank regulatory relief bill that process is still at its inception and will have to take a backseat to the Flood Insurance bill.  
 
While the voters may have wanted to “blow up the system” with their decision to elect President Trump, they are still left with the traditional Congress.   Over the next couple of months we will witness how that institution reacts to the current political climate but those watching for movement on their pet issues should remember that this Congress isn’t really moving any slower than normal, despite what some pundits may say.
 
 
Looking Ahead
 
Near Term

• Comptroller Curry, CFPB Director Cordray are among the speakers at the LendIt conference taking place on Monday and Tuesday in New York City.  
• The Senate Banking Committee is set to mark up a series of securities bills on Thursday.
• The Housing and Insurance Subcommittee holds a hearing on Thursday to initiate the Flood Insurance bill.

Further Out

• The FOMC meets on March 14^th and is widely expected to approve the first of what could be as many of three interest rate hikes this year. 

The Past Week

Legislative Branch
House
Financial Services GOP Targets FSOC in New Report
On Tuesday, Republicans on the House Financial Services Committee released a new report on the Financial Stability Oversight Council (FSOC) arguing that the body’s process for evaluating firms is “arbitrary and inconsistent.” The report found that FSOC did not obey its own guidance in the “systemically important” designation process and that criteria were evaluated differently depending on the firm evaluated. FSOC – which met for the first time under the leadership of Treasury Secretary Steven Mnuchin last week – has long been a target of the panel and would be subject to accountability reforms under Committee Chairman Jeb Hensarling’s (R-TX) Financial CHOICE Act.
 
Luetkemeyer Announces Optimistic Timeleine for Dodd-Frank Replacement
On Wednesday, while speaking before a conference of the Credit Union National Association (CUNA), Rep. Blaine Luetkemeyer (R-MO), the Chairman of the Financial Institutions Subcommittee shared his belief that the Chairman Jeb Hensarling’s (R-TX) Dodd-Frank replacement, the Financial CHOICE Act, will be passed by the House over the course of the “next two to three months.” Saying that that the legislation is “essentially ready to go,” but that it is behind flood insurance reauthorization in the Committee’s queue, he went on to add that the bill will continue to maintain a sole directorship at the CFPB, though one that serves at the will of the president.  Interestingly, he added his belief that the Senate would be the chamber to put forward a bipartisan Commission at the CFPB as a compromise to the CHOICE Act.  
 
New Dem Coalition Urges Trump to Focus on Campaign Pledges
On Tuesday, in advance of his address before the Congress, the leadership of the New Democrat Coalition – a group of moderate  pro-growth House Democrats – wrote a letter to President Trump urging him to fulfill his campaign promises, and to use the speech to offer concrete examples of how he intended to deliver on infrastructure investment, tax reform, or improving the Affordable Care Act. The letter noted that New Dems were willing to work across the aisle on policy, but that President Trump’s “lack of a more focused and conciliatory approach” has made those efforts difficult.
 
Senate
Carson Confirmed
On Thursday morning, the Senate vote 58-41 to confirm Dr. Ben Carson as the next Secretary of Housing and Urban Development.   Senator Elizabeth Warren (D-MA) voted against Carson after initially voting for his nomination at the Committee, and her change of heart was perhaps in response to the strong reaction from the left that her vote at the Committee level received.  Interestingly,   Senator Sherrod Brown (D-OH), voted for Carson both at Committee and on the Senate floor.
 
 
Grassley Says HUD Programs Need Better Oversight
On Thursday, Senate Judiciary Committee Chairman Sen. Chuck Grassley (R-IA) said that the oversight protocols were lacking for a federal tax-credit program helping individuals afford rental housing. Basing his comments on a recently released Government Accountability Office (GAO) report, Sen. Grassley argued that neither the Internal Revenue Service, nor the Department of Housing and Urban Development (HUD), “seem to know whether a multibillion-dollar program for low-income housing has worked as intended.” According to the senator, future GAO reports will look more closely at the cost of the low-income housing tax credit (LIHTC) projects, including syndicator earnings and construction fees.
 
Brown Asks Treasury to Review Whether Trump’s Business Ties Violate Sanctions
On Thursday, Senate Banking Committee Ranking Member Sen. Sherrod Brown (D-OH) wrote to newly-installed treasury Secretary Steven Mnuchin asking for the Treasury Department to assess whether President Trump’s business dealings with Russia and other countries violate any current sanction programs or anti-terrorism laws. Sen. Brown writes that Treasury should “independently assess” any risks associated with the Trump Organization’s investments and that the President’s “refusal to disclose his business dealings” has led to uncertainty over his company’s international relationships.
 
Select Highlights from the Administration
Department of Labor
After OMB Completes Review, DOL Proposes Delay to Fiduciary Rule
The Department of Labor officially proposed a delay to the implementation of the fiduciary rule after the Office of Management and Budget (OMB) completed its review of the proposal early last week. The delay is to last only 60 days rather than the 180-day interval that was originally pushed for by the financial services industry. The Labor Department will accept public comments on the proposed delay for 15 days following its official publication in the Federal Register and officials will be racing to review the comments and resubmit the delay before the April 10^th date that the rule effectively goes “live.”
 
Consumer Financial Protection Bureau (CFPB)
CFPB Releases Monthly Report Highlighting Credit Reporting Complaints; Releases Separate Report on Credit Reporting
On Tuesday, the Consumer Financial Protection Bureau (CFPB) released its monthly snapshot of complaints, bringing the total number of complaints handled by the agency to 1.1 million. Among the report’s highlights were an uptick in complaints coming from the state of Louisiana and those against credit reporting companies. Overall, debt collection remained the most-complained-about service for the consumer watchdog. Later in the week, the agency released a separate report detailing the 185,000 credit report complaints it had received. Among its conclusions were directions to one reporting agency to make changes to its quality-control process and that there are “widespread problems” with the information given to credit reporting companies.
 
Federal Reserve
Yellen Strongly Hints Rate Rise in March
On Friday, Federal Reserve Chair Janet Yellen signaled that a raise of the federal funds rate will likely come in the Federal Open Market Committee’s meeting later this month. In comments at the Executives’ Club of Chicago, Yellen said that the FOMC will evaluate whether employment and inflation are staying “in-line with our expectations,” and that if so, “a further adjustment of the federal funds rate would likely be appropriate.” She added that continued strong economic performance will likely lead to additional increases of the rate later this year.
 
Powell: Faster Payments Task Force Report to Come Later This Year
On Friday, Federal Reserve Governor Jerome Powell said that he expects to release the final findings of the Fed’s faster payments task force “around the middle of this year.” In a speech at Yale University, Powell sought to temper enthusiasm of using blockchain technology, which also serves as the basis for the Bitcoin digital currency, saying that a “thorough analysis” of how the technology fits into the current regulatory environment is necessary. However, he added that he hopes central banks can forgo paper records by issuing digital currencies through blockchain.  
 
Office of the Comptroller of the Currency (OCC)
Curry Defends Special-Purpose Charters for Fintech
On Wednesday, Comptroller of the Currency Tom Curry took questions at a fintech conference on the recently proposed OCC plan to allow certain fintech firms to apply for special purpose bank charters. In his remarks, Curry said that the OCC is “very certain” that the charters are legally permissible and that consumer protections will be similar to those provided by national banks. In order to qualify for the charter, applicants will need to fulfill at least one core bank functions and may be required to fulfill other requirements as stipulated by the agency.  The OCC is expected to release its special purpose charter before the end of the month.
 
Department of the Treasury
Mnuchin Sees Tax Reform by August
On Thursday, Treasury Secretary Steven Mnuchin outlined an optimistic timeline for the Republican overhaul of the tax code, saying that he hoped for reform before Congress takes its summer break in August. Republicans have thus far been divided in whether or not the tax reform package will include the so-called border-adjustment tax, which benefits American manufacturing at the expense of retailers and other importers. From a timing perspective, tax reform would seemingly come after efforts to complete a spending bill for the remainder of the fiscal 2017 year, appropriations bills for the fiscal 2018 year, and a replacement for the Affordable Care Act.
 
White House
Trump Withdraws Bipartisan Pair of CFTC Nominees
On Thursday, the White House withdrew the nominations of Brian Quintenz and Chris Brummer to become the next commissioners for the Commodity Futures Trading Commission (CFTC). Quintenz, a Republican, and Brummer, a Democrat, were nominated twice by then-President Obama, including a re-nomination in January so that they would be eligible in the new session of Congress. The White House did not comment on the decision to withdraw the nominations.