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Financial Services Report

December 7, 2016

Our Take
As the 114th Congress draws to a close, historians may look back to deem it the least productive Congress ever, as it will conclude having been in session for only about 115 days this year.   More frustratingly, despite having a few major legislative victories, it appears that Congress has decide to punt many of its most critical obligations into next year.   However, this may be an example of “being darkest before dawn” as the calendars for next year look very different.   While there isn’t necessarily a correlation between Congress being in session and being productive, the gears are clearly being set in motion for the potential for a very productive (or perhaps depending your politics, a very busy) 2017.   Congressional Republicans, emboldened by their legislative majorities and their hold on the Administration for the first time in eight years are angling for sweeping reforms in health care, tax and financial services regulation.  How these agenda items are being prioritized appears to still be a work in progress.  But with a Leader for the Democrats in the Senate – one who is equally comfortable making a deal or blocking it – the order in which these items come up could be almost as important as their individual substance.

Looking Ahead

Near Term

  • The House and Senate race towards the exits as they seek to finish up their legislative work for 2016 and adjourn sin die for the 114th Congress.  While few expect the Congress not to meet the December 9th deadline to fund the government, one of the last outstanding issues to resolve is the length of the next continuing resolution (“CR”), with the initial three-month frame work having been supplemented with an interest for a longer extension, perhaps even lasting into May.
  • The House is expected to take up H.R. 5143—Transparent Insurance Standards Act of 2016 on Wednesday. 
  • Two subcommittees of the House Financial Services Committee will hold hearings this week, one at the Monetary and Trade subcommittee and one at the Capital Markets subcommittee.

Further Out

  • The House is expected to adjourn this week, while the Senate may have to wait till early next week to finish its work.
  • The 115th Congress will be sworn in on January 3rd.   The House is expected to have 241 Republicans and 194 Democrats, while the Senate is expected to have a 52-48 Republican majority.
  • Presidential Inauguration is January 20th.
  • On February 15th, the moratorium preventing Puerto Rico from bondholder lawsuits expires.
  • The Debt Limit Expires on March 16th.

The Past Week

Presidential Transition
Trump Taps ex-Goldman Sachs Executive Mnuchin for Treasury Secretary
On Tuesday, the transition team for President-elect Donald Trump announced that it would be nominating Steven Mnuchin, former Goldman Sachs executive and film producer, to be the next Secretary of Treasury. Mnuchin served as Trump’s campaign finance chairman and was considered the leading candidate for the post. The soon-to-be nominee told the media over the course of the week that he would prioritize unwinding federal regulations that have prevented banks from making loans. Democrats immediately criticized the pick, with Sen. Elizabeth Warren (D-MA) issuing a particularly harsh statement saying that Mnuchin “managed to participate in all the worst practices on Wall Street.”
 
Hoening among Reported Contenders for Fed Vice Chair
On Sunday, the Wall Street Journal reported that current FDIC Director Thomas Hoening was being considered for the Federal Vice Chair for Banking Supervision.  Other names mentioned in the article included former BB&T CEO John Allison along with former SEC Commissioner Paul Atkins, who seemingly gets mentioned for every financial services regulatory role in the transition.   Whoever gets nominated must get through the confirmation process, something that hasn’t been done since the position was created in 2010 as part of the Dodd-Frank reforms.  
 
Dimon, Schwarzman Lead New Trump Economy Panel
On Friday, the transition team for President-elect Donald Trump named a group of 16 business leaders who will consult Trump on economic issues, notably including founder of the private-equity firm Blackstone Group Stephen Schwarzman and JPMorgan Chase CEO Jamie Dimon. According to the transition, members of the team will use their business acumen to provide insight on “how government police impacts economic growth, job creation, and productivity.”
 
Legislative Branch
House
House Passes Regional Bank Regulatory Relief Bill
On Thursday, the House passed a bill (H.R. 6392) 254-161 that would alter the threshold for bank holding companies to be automatically designated “systemically important” and subject to additional regulatory scrutiny from the Federal Reserve. Republican lawmakers on the Financial Services Committee have previously voiced their concerns on the automatic threshold – currently set at $50 billion in assets – that currently dictates which banks must be subject to additional regulation, calling it a detrimental “one-size-fits-all” regulatory approach. The measure passed over a veto threat from the White House and may offer a glimpse into the intentions of congressional Republicans once President-elect Trump takes office next year.  
 
Pelosi Maintains Grip on the Party – Prevents Ryan v Ryan scenario
On Wednesday, House Minority Leader Nancy Pelosi easily brushed back her second challenge since assuming control of the House Democrats in 2002, beating Ohio Congressman Tim Ryan by a vote of 134-63.   While Pelosi had predicted that she would ultimately have 2/3rds of the support of the caucus (which her total was exactly), Ryan’s total was about 20 votes more than Heath Shuler received when he ran against Pelosi following the 2010 electoral rout. 
 
New Dems Elect Leadership
On Thursday, the NewDem Coalition overwhelmingly elected Connecticut Representative Jim Himes as Chairman of the 54-member organization.   In addition, the elected Reps. Terri Sewell (AL-07), Jared Polis (CO-02), Suzan DelBene (WA-01), and Derek Kilmer (WA-06) to serve as NewDem Vice-Chairs.
 
Richard Neal elected Top Democrat on Ways and Means Committee
Massachusetts Congressman Richard Neal was elected to be the top Democrat on the House Ways and Means Committee after Rep. Xavier Becerra was appointed Attorney General of California, capping off a dynamic 48-hour period starting with Rep. Levin’s semi-surprise announcement that he would not run for reelection to the position.  
 
Senate
GOP Senators Shelby, Crapo Urge SEC to Avoid ‘Midnight’ Rulemaking
On Wednesday, two Republican members of the Senate Banking Committee, Chairman Richard Shelby (R-AL) and Sen. Mike Crapo (R-ID), wrote a letter to outgoing SEC Chair Mary Jo White urging the federal regulator to “delay finalizing any proposed rules” until the Trump Administration takes over in January. They asked for the SEC to deliver a full list of rules it is currently working on by Dec. 9. However, White has given every indication that she will “proceed with the agenda” outlined by the agency earlier this year, including a contentious rule that would rein in the derivatives mutual funds use.
 
Brown Introduces Legislation to Preclude Wells Fargo from Invoking Arbitration Clauses
On Thursday, Senator Sherrod Brown (D-OH) introduced legislation that would preclude Wells Fargo customers who were victims of the bank’s fraudulent account scheme from being subject to the standard arbitration agreements in Wells Fargo contracts.   Companion legislation was introduced in the House by Rep. Brad Sherman (D-CA).   Brown had announced his intention in introducing legislation on this issue back in October following the Senate Banking Committee hearing. 
 
Select Highlights from the Administration
Office of the Comptroller of the Currency (OCC)
Curry Announces Charter Process for Fintechs; OCC Releases White Paper on Criteria
On Friday, in remarks at an event at the Georgetown Law Center, Comptroller of the Currency Tom Curry announced that the Office of the Comptroller of the Currency (OCC) intends to move forward with plans to grant special purpose national bank charters to financial technology, or fintech, companies. The long-awaited announcement was coupled with the release of a new white paper aimed at exploring the requirements for fintech companies to apply and qualify for bank charters. As expected, state regulators took issue with the announcement, arguing that fintechs should continue to be reliant on state bank charters. Consumer groups have also been hesitant to offer their support, given concerns over the ability for fintechs to comply with Community Reinvestment Act (CRA) requirements.
 
Curry Aims to Stay on at OCC, Announces Basel Rules Timeline
On Tuesday, Comptroller of the Currency Tom Curry announced that he would stay on as head of the OCC until President-elect Trump nominates someone else for the position. In the remarks given to a Clearing House conference in New York, Curry also said Basel liquidity rules would be proposed before the end of the year.
 
Federal Reserve
Brainard Outlines Fed Role in Fintech
On Friday, at the same time Comptroller Curry made his announcement that the chartering process would be open to fintechs, Federal Reserve Governor Lael Brainard outlined her vision for the Fed’s role in regulating fintech at an online lending forum. This was even more relevant after the OCC announced its white paper that most of the FinTech Companies receiving a Special Purpose Charter would become member banks of the Federal Reserve.
 
The Fed is participating in a multi-agency working group on fintech and Brainard suggested that cooperation with the OCC and FDIC could be more significant as regulators adjust guidance to reflect the tremendous growth in the fintech industry. On online lending, Brainard said that while internet-based lenders could expand access to credit, the industry needs to avoid the inflation of a credit bubble similar to what mortgage securities experienced in the run up to the 2008 financial crash. In a positive sign for the industry, however, Brainard endorsed the use of alternative data in underwriting loans for customers whose traditional credit record may disqualify them from accessing mainstream avenues of credit.
 
Fed Gov. Tarullo Speaks Out Against Weakening Bank Requirements
On Friday, Federal Reserve Governor Daniel Tarullo said in remarks that he doesn’t see a “sound economic case” for weakening the regulatory requirements placed on U.S. banks by the 2010 Dodd-Frank financial reform law. Tarullo, who oversaw the reform of Fed’s approach to oversight, said that the beneficial economic effects of the regulatory regime for large banks is becoming more evident. On further steps designed to enhance resiliency, Tarullo said that the Fed should stay focused on making the most systemically important firms resolvable and look at the capital positions of large U.S. branches of some foreign banks. He also endorsed the “tiering” of requirements in the prudential regulatory regime, but warned that new forms of shadow banking will require “continued attention.”
 
Federal Deposit Insurance Corporation (FDIC)
Gruenberg Plans to Finish Term at FDIC
On Monday, FDIC Chairman Martin Gruenberg announced that he intends to serve out the rest of his term, which expires late in 2017. The announcement follows similar statements from Securities and Exchange Commission (SEC) Chair Mary Jo White, who will step down, and Federal Reserve Chair Janet Yellen, who will finish her term.
 
Department of the Treasury
Treasury Counselor Asks for ‘Legislative Action’ on Small Business Lending
On Thursday, Treasury Department counselor Antonio Weiss lauded industry efforts to create standards for small business lending, but also described a “regulatory gap” in the area. While Weiss said that the Treasury Department supports efforts to improve transparency in small business lending terms, he said they remained “insufficient” and that “Congress should consider taking legislative action.” Weiss criticized online lenders’ use of alternative credit scoring models that led to greater risk and the potential for fair lending violations.
 
Next Week’s Schedule

Mon. (12/5) 

  • No relevant events scheduled at this time.

Tues. (12/6)

  • BPC Event on Post-Crisis Financial Reform – 10:00 AM – The Bipartisan Policy Center (BPC) will hold an event entitled, “Did Policymakers Get Post-Crisis Financial Regulation Right?” featuring remarks from the U.S. Chamber of Commerce, among others. Details here.
  • FTC Event on Changing Consumer Demographics – 10:00 AM – The Federal Trade Commission (FTC) will hold a workshop on changing consumer demographics as part of its Every Community Initiative. Details here.
  • Meeting: Federal Reserve Board of Governors Closed Session – 10:00 AM – The Federal Reserve Board of Governors will hold a closed session to discuss a bank supervisory matter. Details here.
  • Heritage Foundation Event on IP Rights – 12:00 PM – The Heritage Foundation will hold an event entitled, “Defending American IP Rights and Promoting Due Process Protections Overseas: What Should the Next Administration Do?” featuring remarks from Federal Trade Commission (FTC) Commissioner Maureen Ohlhaussen. Details here.

Wed. (12/7)

  • Meeting: SEC Advisory Committee on Small and Emerging Companies – 11:00 AM – The Securities and Exchange Commission’s (SEC) Advisory Committee on Small and Emerging Companies will hold a meeting on outreach and board diversity. Details here.
  • Hearing: House Financial Services Subcommittee on Monetary Policy – 10:00 AM – The House Financial Services Subcommittee on Monetary Policy and Trade will hold a hearing entitled, “Unconventional Monetary Policy.” Details here.

Thurs. (12/8)

  • Meeting: SEC Investor Advisory Committee – 9:30 AM – The SEC’s Investor Advisory Committee will hold a meeting on investor protection priorities for 2017 and an update to the rulemaking mandate of the Fixing America’s Surface Transportation Act concerning public company disclosure requirements. Details here.
  • Hearing: House Financial Services Subcommittee on Short-Term Financing Regulations – 9:30 AM – The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises will hold a hearing entitled, “ The Impact of Regulations on Short-Term Financing.” Details here.
  • Meeting: OCC, Treasury Committee on Mutual Savings Associations – 8:30 AM – The Office of the Comptroller of the Currency will host a meeting of the joint Mutual Savings Association Advisory Committee with the Treasury Department. Details here.
  • Meeting: SEC Closed Session on Administrative Proceedings – 3:00 PM – The Securities and Exchange Commission will hold a closed meeting to discuss administrative proceedings, among other issues. Details here.

Fri. (12/9)

  • No relevant events scheduled at this time.