TRP Financial Services Report

We have consistently said that this year’s Congress will be driven in large part by the various deadlines of significant programs and policies.  Last week we saw how one of the first of these played out, as Congress struggled to pass a bill to keep the Department of Homeland Security from shutting down.  In order to nearly avoid funding from running out, Congress passed a one week extension while setting up for an obscure possibility more fitting for the Hollywood political drama whose third season also premiered on Friday than for the actual Congress.
 
In other news, last week Senator Warren also pushed back at critics by saying that she is open to some “reasonable” changes to Dodd-Frank.  Republicans will be eager to use Director Cordray’s appearance before the House Financial Services Committee this week, the first time he will be on the Hill with Republican majorities in both Houses, to prod him on whether he believes any of their proposals to modify the Bureau (i.e., transitioning from a Director to a Commission) are reasonable. 

Looking Ahead
Near Term 

Further Out 

 
The Past Week
Legislative Branch
 
House
Fed Chair Yellen Testifies Before HFSC
On Wednesday, the day after her appearance before the Senate Banking Committee, Fed Chair Yellen appeared before the House Financial Services Committee.  Similar to the hearing in the Senate, members focused their questions primarily on monetary policy, Fed oversight / independence and the systemically important (SIFI) designation process.  Chairman Hensarling made it clear that he believed in the need for “audit the fed” legislation, but took it further by raising concerns about Chair Yellen’s private meetings with Administration officials and others.   Rep. Garret also reiterated these points but went further to question meetings Yellen had with “liberal policy groups”.  Yellen pushed back on this, noting that the Fed meets with many groups, across the political spectrum, but it is clear that proponents of the audit the Fed bill see these private meetings as further evidence for greater Fed transparency. 
 
During the hearing, significant attention was also paid to the SIFI issue, with Rep. Neugebauer noting his opposition to the $50 billion threshold for SIFI designation and Rep. Luetkemeyer expressing his opposition to either asset managers or insurance banks receiving SIFI designation.   However, Republicans were not the only ones to question the SIFI process, as Rep. Carney (D-DE) also shared his concern about the $50 billion threshold.  In response, Chair Yellen noted that any point of demarcation would likely be somewhat arbitrary and she viewed the flexibility offered under Section 165 as a way to tailor things specifically to that institution.
 
Democrats Introduce Their Ex-Im Reauthorization Bill
On Wednesday, Ranking Member Waters, Rep. Heck (D-WA), Moore (WI) and 157 other Democrats introduced H.R. 1031, the “Promoting U.S. Jobs through Exports Act of 2015,” legislation to reauthorize the Export-Import Bank for seven years.  The Democratic legislation also includes a number reforms to strengthen the Bank, including provisions to expand opportunities and refine Bank products used by small- and medium-sized businesses, as well as provisions calling on the Administration to seek World Trade Organization remedies for countries that violate international trade agreements.   However the bill does not include the provisions sought out by coal state Members that would overturn the administration’s guidelines preventing the Bank from financing for overseas power plants that do not adopt environmentally friendly technology, which could be a sticking point  in moving the bill – as drafted – through the House and the Senate. 
 
Chairmen of Financial Services & Foreign Affairs Committee Send Letter to SEC on Conflict Minerals
On Wednesday, House Financial Services Committee Chairman Jeb Hensarling, House Foreign Affairs Committee Chairman Ed Royce, along with Capital Markets Subcommittee Chairman Scott Garret and Monetary Policy and Trade Subcommittee Chairman Bill Huizenga sent a letter to SEC Chair White urging her to abandon the agency’s appeal of a court decision that found parts of the conflict-minerals regulation unconstitutional. 
 
House Passes 529 Expansion Bill
On Wednesday, by a vote of 401-20 the House passed H.R. 529, legislation to expand the popular college savings programs known as 529s to cover the cost of computers and to allow refunds to be reinvested in the plans within 60 days without penalty.  While passed with overwhelming bipartisan support, during the debate Democrats expressed their concern that the changes in the program were not offset and thus increase the deficit.  However, the White House did not issue a veto threat – or for that matter any Statement of Policy – on the bill and so it is likely to pass the Senate as well. 
 
Senate
Fed Chair Yellen Testifies Before Banking
On Tuesday, On February 24, the Senate Banking Committee held a hearing on the “Semiannual Monetary Policy Report to Congress” where Fed Chair Janet Yellen was the sole witness.  While the hearing touched on a variety of issues (many which were repeated the next day at her appearance in the House, see above) including; when the Fed may raise interest rates, currency manipulation, stress tests and even a bit on monetary policy.  Chairman Shelby opened the hearing by noting the size and importance of the Fed, both as originator of monetary policy as well as a regulator of unmatched consolidated power.  With growing support in the Senate for the audit the Fed bill, the hearing presented an opportunity for members to express their position on the proposal.  Notably Chairman Shelby appeared more supportive of reforming the New York Fed and Senator Corker appeared to be calling for tamping the brakes on the bill as he questioned the political impacts the types of audits envisioned by Senator Paul would have on the Fed’s Monetary Policy.   Additional areas of focus included the possibility of regulatory relief from Dodd Frank for regional and smaller banks.  While Yellen was mostly non-committal, it was clear that Senator Shelby believed relief for those institutions was necessary.  A point confirmed later in the week when he announced plans to mark up regulatory relief legislation in April.  
 
Reed Introduces Legislation to Modify How President of New York Federal Reserve Bank Get Job
This past week, in a move designed to coincide with Fed Chair Janet Yellen’s appearance on the Hill, Rhode Island Senator Jack Reed reintroduced legislation that would require the head of the New York Fed to be nominated by the President and confirmed by the Senate.  According to the Senator, the legislation is supported by the AFL-CIO, Public Citizen, Americans for Financial Reform, and the Independent Community Bankers of America (ICBA).
 
Senators Call for Department of Education to Ease Student Loan Debt
On Wednesday, six Democratic Senators: Elizabeth Warren, Tammy Baldwin, Ed Markey, Richard Blumenthal, Sherrod Brown and Jeff Merkley sent a letter to Secretary of Education Arne Duncan urging him to implement policies that would reduce student debt.  Among other things, the letter notes that the Department has the authority to “cancel student loan borrowers’ debt when their colleges act in ways that hurt the quality of their education or their finances” and that it is not the job of the Department of Education to “maximize profits for the government at the cost of squeezing students […]”
 
Select Highlights from the Administration
 White House
President Obama Announces Full White House Support for DOL Fiduciary Rule
On Monday, while at an event at AARP, President Obama announced full White House support for a proposal to impose a fiduciary standard on broker-dealers and certain investment advisers.   While the final text of the proposed rule is expected to be made public sometime in the next 30 to 90 days, based on the President’s speech as well as the supporting documents the White House has made available, the rule will likely hold brokers to some type of higher “fiduciary standard” in place of the current “suitability standard.”  It will also target fees and payments that firms impose on accounts, especially IRAs, and other fund plans used for retirement savings.  Before the week was over, Republican Ann Wagner (MO) reintroduced her legislation that would delay DOL’s rulemaking by requiring DOL to wait for the SEC to first issue its own fiduciary rulemaking.  While this measure previously gained the support of 30 House Democrats, none of those Representatives joined Rep. Wagner as an original cosponsor this past week.
 
Federal Reserve Board
Comment Period For Big Bank Surcharge Rule Extended
On Thursday, the Federal Reserve Board announced it was providing for an additional 30 days for the comment period on proposed rules to implement capital surcharges for “systemically important” bank holding companies.  Commentors will now have until April 3^rd  to offer their views. 
 
Securities and Exchange Commission (SEC)
Commission to Focus on Brokers Facilitating Money Laundering
On Wednesday, at a speech before SIFMA, SEC Enforcement Director Andrew Ceresney disclosed that the SEC had opened dozens of probes as part of a new initiative to root out brokers turning a blind eye to illicit trading.  According to Ceresney the SEC is focusing on firms that didn’t submit any SARs for long periods, those that provided scant data in the forms, and those that routinely dealt with customers identified in SARS by other firms.
 
Consumer Financial Protection Bureau (CFPB)
CFPB to Pause CARD Act Obligation for Credit Card Companies to Submit Card Agreements
On Tuesday, the CFPB issued a proposal to put in place a one-year break for credit card companies from having to submit their card agreements with the Bureau.  Under the proposal, card issuers wouldn’t have to send the CFPB their agreements again until the end of April 2016.  According to the CFPB the pause is necessary because “the current process for Bureau staff to manually review, catalog, and upload new or revised agreements to the Bureau’s website, and to remove outdated agreements, can extend for several months after the quarterly submission deadline” and so during the next year the CFPB intends to replace the current manual system with an automated one.
 
Cordray Offers Insight into Timing on Debt Collector Rulemaking
On Monday, while speaking at the winter meeting of the National Association of Attorneys General, CFPB Director Cordray indicated that he expects “the public portion of the [new rules on debt collection] to be commencing sometime this year.  It was unclear whether Cordray believes that new rules governing debt collection can be finalized in 2015, but he did indicate his frustration with the process, noting that “it takes a lot longer than I expect or that I would like, but it's designed to incorporate all kinds of input and stakeholder comments and thoughts.”
 
Commodity Futures Trading Commission (CFTC)
Massad Indicates Swaps Margin Rule to Be Completed by Summer
On Thursday, while speaking before the Coalition for Derivatives End-Users , CFTC Chairman Tim Massad said that he expects a final swap margin rule by the summer and that he also expects it will incorporate a slight delay in the implementation time table.  He went on to add that the margin threshold should be harmonized with Europe and Japan even if that meant having to raise the US levels.  Massad also mentioned that the CFTC will be holding a roundtable next month on cyber security and that the Commission is working to implement end-user protections through an interim rule in response to language included in the TRIA reauthorization. 
  
Next Week’s Schedule
On Tuesday, the House Committee on Financial Services will hold a hearing entitled “The Semi-Annual Report of the Bureau of Consumer Financial Protection” at 2:30 PM.

On Tuesday, the Senate Committee on Finance will hold a hearing entitled “Fairness in Taxation” at 9:00 AM.

On Tuesday, the Senate Committee on Appropriations’ Subcommittee on Financial Services and General Government will hold a hearing to review the Fiscal Year 2016 funding request and budget justification for the U.S. Department of the Treasury at 2:30 PM.
 
On Tuesday, the Senate Committee on Banking, Housing and Urban Affairs will hold a hearing  entitled “Federal Reserve Accountability and Reform” at 2:30 PM.

On Wednesday the House Committee on Appropriations’ Subcommittee on Financial Services and General Government will hold a budget hearing on the Department of Treasury at 2:00 PM.

On Wednesday, the House Committee on Foreign Affairs’ Subcommittee on Asia and the Pacific will hold a hearing entitled “The Trans-Pacific Partnership: Prospects for Greater U.S. Trade” at 2:00 PM.

On Thursday the House Committee on Financial Services’ Subcommittee on Capital Markets and Government Sponsored Enterprises will hold a hearing entitled “Oversight of the SEC’s Division of Enforcement” at 9:00 AM
 
On Thursday, the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations will hold a hearing on “H.R. 707, the Restoration of America’s Wire Act.”
 
On Thursday, the House Committee on Small Business’ Subcommittee on Economic Growth, Tax and Capital Access will hold a hearing entitled “Improving Capital Access Programs within the SBA” at 10:00AM.