Financial Services Report

Looking Ahead
Near Term

• It will be a busy week in the House and Senate – and that isn’t even including the House Floor vote on the health care bill, currently scheduled for Thursday.
• Look for a slew of nomination hearings in the Senate.  On Monday, the Senate Judiciary Committee will start the nomination hearing for Supreme Court Nominee Neil Gorsuch.  Then, the Department of Labor Secretary Nominee Alexander Acosta will finally get his hearing on Wednesday, while on Thursday the Senate Banking Committee will hold a nomination hearing for Jay Clayton to be the Chairman of the Securities and Exchange Commission (SEC).  
• The House Financial Services Committee has four hearings scheduled for next week, including one examining the Constitutionality of the CFPB and another reviewing the JOBS Act on the 5^th Anniversary of the law.

The Past Week

Legislative Branch
House
Financial Services Subcommittee Holds Hearing on Monetary Policy
On Thursday, the House Financial Services Committee’s Subcommittee on Monetary Policy and Trade held a hearing entitled “Sound Monetary Policy.”  The hearing, which came immediately after the FOMC’s most recent monetary policy announcement, broke down on a partisan basis with Republicans questioning the Fed’s motives and statements while Democrats defended them.  As with many hearings in the committee the cause of, and blame for, the financial crisis was relitigated.
 
Duffy Holds Second Hearing on Flood Insurance
On Thursday, the Housing and Insurance Subcommittee held its second hearing on Flood Insurance, this time hearing from various non-government stakeholders.  The witnesses were: Ms. Melissa H. Luckman, Esq., Assistant Clinical Visiting Professor of Law and Director of the Disaster Relief Clinic, Touro Law Center; Mr. Aram V. Terchunian, President, First Coast Corporation; Mr. Chad Berginnis, Executive Director, Association of State Floodplain Managers; and Mr. Evan Hecht, CEO, The Flood Insurance Agency.
 
Waters Blasts Wells Fargo
On Friday, Representative Maxine Waters, the Ranking Member on the House Financial Services Committee sent a letter to Wells Fargo CEO Timothy Sloan expressing her frustration that Democrats on the Committee were not afforded the same opportunity to interview him, and other Wells Fargo executives in the same manner that “afforded” Republicans on the Committee.   
 
House Democrats Urge DOL Not to Delay Fiduciary Rule
On Friday, in a letter lead by Maxine Waters and Bobby Scott, 38 other House Democrats joined to urge the Department of Labor not to delay the Fiduciary Rule.  The letter was sent in on the last day of the Department’s 15-day comment period on the proposed delay, and was one of more than 500 comments that the Department received.  There was also a letter sent by every Republican on the Committee which was in support of the delay.  There is a separate comment period set up for interested parties to share their perspective on the impact of the rule itself, and that will remain open for another 30 days. 
 
House Dems Urge Trump to Prevent a Default on US debts
Last Monday, the top Democrats on two House committees urged President Donald Trump to ensure that the U.S. doesn’t default on its debt. "It is imperative that you, like all of your predecessors, send a clear message that the United States will continue to pay its debts, on time, and in full," wrote House Budget Committee ranking member John Yarmuth (D-KY) and House Ways and Means Committee ranking member Richard Neal (D-MA) in a joint letter to President Trump.
 
Senate
Banking Committee Starts Down the Road to Flood Reform
On Tuesday, the Senate Banking Committee held a hearing entitled “Reauthorization of the National Flood Insurance Program, Part I.” The hearing focused on the pending reauthorization of the National Flood Insurance Program (NFIP), which is currently set to expire on September 30, 2017.  There was one witness, Mr. Roy Wright, from FEMA.  During the hearing, there appeared to be a consensus on the need for a multi-year reauthorization, although there wasn’t any agreement on the specific length of time.  Other topics discussed included mitigation, mapping and the FEMA budget.
 
Crapo and Brown Express Bipartisan Support to Maintain Russian Sanctions
Last Wednesday, tat a hearing on Russian Sanctions, both Senate Banking Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) signaled that they would likely oppose any efforts to weaken economic sanctions against Russia. In an opening statement at the March 15 hearing on Russian sanctions, Sen. Crapo said Russia remained a "hostile, recalcitrant power" that was using its military and espionage capabilities and economic tactics to harm the United States and drive a wedge between this country and its allies. Sen. Brown said he hoped President Donald Trump would "end any ambiguity in our policy, in both his words and in the vigorous enforcement and strengthening of current sanctions."
 
 
Select Highlights from the Administration
 
Federal Reserve
Fed Raises Interest Rates — Signals More Hikes in 2017
On Wednesday, Federal Reserve Chair announced that the Federal Open Market Committee (FOMC) elected to raise the federal funds interest rate by a quarter-point in its March meeting. The widely expected move marks the first rate increase since the FOMC’s December meeting. Fed analysts are projecting two more hikes before the end of the year as Chair Yellen noted aims to get rates to a “neutral stance” as the economy completes its recovery from the 2008 recession.  
 
Office of the Comptroller of the Currency (OCC)
OCC Issues New Guidance in Push for Fintech Charter
On Wednesday, the Office of the Comptroller of the Currency (OCC) issued new guidance on how the agency will evaluate applications from financial technology companies seeking a special purpose bank charter. The move comes despite a recent letter from Republicans on the House Financial Service Committee urging the regulator to slow down the creation of a new charter and wait to issue any new guidance before Comptroller of the Currency Tom Curry’s term expires next month. State regulators have also vehemently opposed the process, with the Conference of State Bank Supervisors issuing a strong statement that the guidance “preempts existing state consumer protections without a comparable mechanism to replace them.
 
Specifically, the guidance suggests that fintech firms will be subject to the same risk-based capital and leverage standards as national banks, but those standards may be tailored for companies that have “limited balance sheets or nontraditional strategies.” Further, the OCC said it may require firms seeking a charter to prove their ability to maintain liquidity during economic downturns and establish “comprehensive contingency funding plans.” Finally, the regulator said it would consider whether any fintech firm offered products that had “predatory, unfair, or deceptive features or that pose undue to consumer protection.” The guidance comes with a 30-day comment period that will expire on April 14.
 
Commodity Futures Trading Commission (CFTC)
Trump Nominates J. Christopher Giancarlo as CFTC Chairman
Last Tuesday, President Donald trump tapped J. Christopher Giancarlo to head the Commodity Futures Trading Commission (CFTC), elevating a critic of the commission’s approach to post-crisis rules as its new chief. Giancarlo is widely expected to adopt a more industry-friendly approach than his predecessors during the Obama administration.
 
Department of Justice (DOJ)
DOJ Reverses Itself – Sides with PHH against CFPB in Appellate Case
On Friday, the Department of Justice (DOJ) filed its Amicus Brief in the PHH v. CFPB case pending in the DC Court of Appeals.   As was widely expected, the DOJ switched sides from the case at the district level and now appears to be arguing against the CFPB and urging the court to side with PHH.   This will make one of the few occasions in the recent memory where two federal agencies were opposing each other in court.  Oral arguments are scheduled for May 24^th. 

Department of Treasury
NAMIC asks Mnuchin to revisit insurance covered agreement
In a letter to Treasury Secretary Steven Mnuchin, National Association of Mutual Insurance Companies (NAMIC) asked the Treasury department to halt the pending covered agreement.  In addition, NAMIC recommended that “the Treasury Department conduct a renewed, transparent process to resolve the problem of the EU’s unfair treatment of U.S. insurers and reinsurers and to prudently provide European reinsurance companies relief from U.S. collateral requirements in return." The agreement, which was finalized in the last days of the Obama administration, has divided the insurance industry, and the Trump Treasury Department has not yet announced its position on the deal.
 
Jim Donovan Nominated as Treasury Deputy Secretary Amid Flurry of Personnel Announcements
Last Tuesday, President Donald Trump nominated Jim Donovan as Deputy Secretary and economist David Malpass as Undersecretary for International Affairs at Treasury.  Additionally, President Trump nominated Adam Lerrick to serve as Deputy Undersecretary for International Finance; Andrew K. ”Drew“ Maloney to serve as Deputy Undersecretary for Legislative Affairs; Sigal Mandelker to serve as Undersecretary for Terrorism and Financial Intelligence; and Brent James McIntosh to serve as General Counsel at Treasury.   
 
Federal Deposit Insurance Corporation (FDIC)
Hoenig Pitches Regulatory Overhaul for Big Banks
Last Monday, Federal Deposit Insurance Corporation (FDIC)Vice Chairman Thomas Hoenig shared a comprehensive plan for reforming bank oversight, calling on the biggest lenders to further separate investment banking activities and accept stricter capital requirements in exchange for fewer regulations. His proposal would apply to banks with entities that act as broker-dealers, investment advisers, derivatives dealers, hedge fund sponsors and insurance underwriters, as well as several other specific activities. It would not apply to firms that primarily serve as custody banks. Hoenig noted that the regulatory overhaul would create the opportunity for regulators to relieve banks of other rules, including risk-based capital and liquidity requirements. Additionally, he said that stress tests, "living will" reviews and additional rules from the 2010 Dodd-Frank Act "could be simplified or eliminated."
 
Consumer Financial Protection Bureau (CFPB)
CFPB Takes Action Against Nationstar Mortgage for Flawed Mortgage Loan Reporting
Last Wednesday, The Consumer Financial Protection Bureau (CFPB) ordered Nationstar Mortgage LLC to pay a $1.75 million civil penalty for violating the Home Mortgage Disclosure Act (HMDA) by consistently failing to report accurate data about mortgage transactions for 2012 through 2014. In addition to the fine levied, Nationstar must also (1) develop and implement an effective compliance management system and (2) fix its HMDA reporting inaccuracies.