THE BIG PICTURE

President Trump called off his planned June 12th summit with North Korean Leader Kim Jong Un on Thursday in a letter that cited Kim’s “tremendous anger and open hostility” as the reason for his decision. Mounting tension between the leaders earlier in the week had left many wondering if the meeting would take place, with a North Korean official calling Vice President Pence a “political dummy.” VP Pence and National Security Advisor John Bolton had struck a nerve with North Korea by suggesting the “Libya model” for nuclear disarmament. Over the weekend, however, the leaders of North and South Korea met for talks and a team of U.S. officials traveled to North Korea for negotiations, with the prospect for a meeting seeming more likely.

Another round of primaries were held this week in Kentucky, Georgia, and Texas in what turned out to be a strong evening for women candidates in the run-up to the November midterms. Former Marine fighter pilot Amy McGrath was selected as the nominee in Kentucky’s 6th District, besting Lexington’s mayor Jim Gray, and will now face off against incumbent Republican Rep. Andy Barr. In the Georgia gubernatorial primary, progressive Democrat Stacy Abrams easily won the nomination with 75% of the vote, beating state Rep. Stacey Evans who was considered a more centrist candidate. If elected in November, Ms. Abrams would become the first African-American female governor in U.S. history.

Senate Majority Leader Mitch McConnell is planning a busy summer for Congress, racing to accomplish as much of his agenda as possible before the November midterms. While the tentative schedule includes a state work period beginning Friday August 3rd, in recent days Sen. McConnell has warned press and members of Congress not to buy any nonrefundable tickets, as the August recess may be significantly scaled back or scrapped entirely. Items on his agenda include judiciary appointments, work on the Farm Bill, National Defense Authorization Act, and appropriations bills.

Other highlights of last week include:

  • Moderate Republicans are on the verge of forcing an immigration vote, with over 200 lawmakers, including 20+ Republicans, having signed a discharge petition to trigger floor votes on immigration. Reps. Jeff Denham (D-CA) and Carlos Curbelo (R-FL) are leading the effort.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Markup of H.R. 5735, H.R. 5793, and H.R. 5841: On Tuesday, the Full Committee held a markup of three measures, ultimately advancing all three.

  • H.R. 5841, the “Foreign Investment Risk Review Modernization Act of 2018” was approved unanimously, as amended.
  • H.R. 5735, the “Transitional Housing for Opioid Recovery Demonstration Program Act of 2018” was approved by a vote of 34-19, as amended.
  • H.R. 5793, the “Housing Choice Voucher Mobility Demonstration Act of 2018” was approved unanimously.

Legislative Proposals to Help Fuel Capital and Growth on Main Street: On Wednesday, the Subcommittee on Capital Markets, Securities, and Investment held a hearing entitled “Legislative Proposals to Help Fuel Capital and Growth on Main Street.” The purpose of the hearing was to examine eleven bills or discussion drafts of legislation to eliminate regulatory hurdles that harm the ability of “Main Street” businesses, early-stage companies, smaller companies and emerging growth companies to access capital, innovate, grow and create jobs.

  • Mr. Brett Paschke, Managing Director and Head of Capital Markets, William Blair, on behalf of the Securities Industry and Financial Markets Association
  • Mr. Edward S. Knight, Executive Vice President, Global Chief Legal and Policy Officer, Nasdaq, Inc.
  • Professor John C. Coffee Jr., Adolf A. Berle Professor of Law, Columbia University Law School
  • Mr. Brian Hahn, Chief Financial Officer, GlycoMimetics, Inc., on behalf of the Biotechnology Innovation Organization
  • Mr. Barry Eggers, Founding Partner, Lightspeed Venture Partners, on behalf of the National Venture Capital Association
  • Mr. Tyler Gellasch, Executive Director, Healthy Markets Association
  • Mr. Thomas Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce

The proposals under consideration included:

1. H.R. 5054, the “Small Company Disclosure Simplification Act of 2018,” to provide an exemption for emerging growth companies and other smaller companies from the requirements to use Extensible Business Reporting Language (xBRL) for financial statements and other periodic reporting.
2.

H.R. 5756, to require the Securities and Exchange Commission to adjust certain resubmission thresholds for shareholder proposals.

3. H.R. 5877, the “Main Street Growth Act,” to amend the Securities Exchange Act of 1934 to allow for the registration of venture exchanges.
4. H.R. ____, to direct the Securities and Exchange Commission to revise section 230.163 of title 17, UnitedStates Code, to apply the exemption offered in such section to communications made by underwriters and dealers acting by or on behalf of a well-known seasoned issuer.
5. H.R. ____, to direct the Securities and Exchange Commission to increase and align the smaller reporting company definition and non-accelerated filer financial thresholds.
6. H.R. ____, to direct the Securities and Exchange Commission to conduct a study with respect to research coverage of small issuers before their initial public offerings.
7. H.R. ____, to remove the limitation on large accelerated filers qualifying as an emerging growth company.
8. H.R. ____, to provide a five-year extension of certain exemptions and reduced disclosure requirements for companies that were emerging growth companies and would continue to be emerging growth companies but for the five-year restriction on emerging growth companies.
9. H.R. ____, the “Streamlining Disclosure Options to Reduce Redundant Disclosures to Investors Act,” to require the Securities and Exchange Commission to implement rules simplifying the quarterly financial reporting regime.
10. H.R. ____, to allow purchases of EGC shares to be qualifying investments for purposes of RIA exemption.
11. H.R. ____, to increase the threshold for mutual funds before triggering diversified fund limits from ten percent of voting shares to fifteen percent.

The Impact of Autonomous Vehicles on the Future of Insurance: On Wednesday, the Subcommittee on Housing and Insurance held a hearing entitled “The Impact of Autonomous Vehicles on the Future of Insurance.” The purpose of the hearing was to examine the development of the autonomous vehicle and its effect on insurance. Subcommittee Chairman Sean Duffy (R-WI) summarized the hearing by saying, “the capabilities of fully autonomous vehicles are being tested in cities across America. Auto insurance policies have already been impacted by autonomous vehicles and autonomous technology. Safety is and will be a top concern for the public’s view of autonomous vehicles, and today’s hearing was an incredible opportunity to hear about autonomous vehicles’ impact on auto insurance, data sharing, and Congress’ role as the technology continues to develop.”

  • Mr. David T. Carlson, U.S. Manufacturing & Automotive Practice Leader, Marsh & McLennan
  • Mr. Ryan D. Gammelgard, Counsel, Public Policy Resource Group, State Farm
  • Mr. Sam Geraci, Vice President, Strategy, American Family Mutual Insurance Company
  • Mr. Ian Adams, Assistant Vice President, R Street Institute
  • Mr. Jack Gillis, Consumer Federation of America

SENATE BANKING COMMITTEE

Executive Session to consider S. 2098, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA): On Tuesday, an executive session was held to consider S. 2098, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA). The Committee advanced the bill, as amended, by a unanimous 25–0 vote. Chairman Mike Crapo (R-ID) praised the vote saying it “represents a very serious, bipartisan effort to address steps by China and other nations to acquire technologies and know-how key to U.S. national security.” Ranking Member Sherrod Brown (D-OH) concurred, thanking the Committee members for “com[ing] together to address new investment threats from China and other countries that could undermine our national security.”

Ten Years of Conservatorship: The Status of the Housing Finance System: On Wednesday, the full committee held a hearing entitled “Ten Years of Conservatorship: The Status of the Housing Finance System.” The purpose of the hearing was to receive testimony from Federal Housing Finance Agency Director Mel Watt on the status of Fannie Mae, Freddie Mac, and the broader housing finance system. Director Watt testified that the FHFA was planning a new capital rule for Freddie and Fannie, saying “we are planning in the very near future to propose a risk-based capital and minimum leverage capital rule that would replace the [Office of Federal Housing Enterprise Oversight] capital standards that were in place prior to conservatorship and that are now suspended while the enterprises are in conservatorship.”

  • The Honorable Melvin L. Watt, Director, Federal Housing Finance Agency

Cybersecurity: Risks to the Financial Services Industry and Its Preparedness: On Thursday, the full committee held a hearing entitled “Cybersecurity: Risks to the Financial Services Industry and Its Preparedness.” Privacy issues were a key point of discussion, with Chairman Mike Crapo (R-ID) saying that it would be a “major focus” and that “the collection of personally identifiable information by both the government and private companies has long troubled me.” Ranking Member Sherrod Brown (D-OH) focused on financial institutions, saying they must “work diligently not just to maintain standards set by industry and government, but also to improve protections for financial infrastructure and customer data wherever possible.”

  • Mr. Bill Nelson, President and CEO, FS-ISAC
  • Mr. J. Michael Daniel, President and CEO, Cyber Threat Alliance
  • Mr. Phil Venables, Managing Director and Head of Operational Risk Management and Analysis, Goldman Sachs
  • Mr. Carl A Kessler III, Senior Vice President and Chief Information Officer, First Mutual Holding Company
  • Mr. Bob Sydow, Principal, Americas Cyber Leader, Ernst & Young LLP

ON THE FLOOR

Banking Regulation Relief Bill Passes House: On Tuesday, the House voted 258–159 to pass the Senate’s banking regulation relief bill that will relax parts of the Dodd-Frank Act. The Economic Growth, Regulatory Relief, and Consumer Protection Act, S. 2155, had passed the Senate in March by a vote of 67–31. Senate Banking Committee Chairman and the bill’s sponsor Sen. Mike Crapo (R-ID) heralded the moment saying it had been “years in the making” and was a “step toward right-sizing regulation [that] will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities.” On Thursday, the President held a signing ceremony, joined by several Senate Banking and House Financial Services committee members. The bill was criticized by progressive Democrats, with Sen. Sherrod Brown (D-OH) describing it as “a giveaway that loosens rules for the same big banks that helped crash the economy a decade ago, leaving Americans taxpayers responsible for a $239 billion bailout. Banks are making record profits and hardworking Americans shouldn’t have to pay for favors to Wall Street, foreign megabanks and their lobbyists.”

President Trump Signs S.J. Res. 57: On Monday, the President signed S.J. Res. 57, a resolution which uses Congressional Review Authority to repeal the Consumer Financial Protection Bureau’s 2013 guidance intended to prevent discrimination in auto lending. CFPB Acting Director Mick Mulvaney released a statement praising the decision and thanking “the President and the Congress for reaffirming that the Bureau lacks the power to act outside of federal statutes.”

LEGISLATION INTRODUCED AND PROPOSED

Senators Introduce Resolution on Privacy Protections: Senators Bernie Sanders (I-VT), Ed Markey (D-MA), Dick Durbin (D-IL), and Richard Blumenthal (D-CT) introduced a resolution that would encourage companies to apply privacy protections included in the General Data Protection Regulation of the European Union to citizens of the United States. “When the European privacy law takes effect, the American people are going to wonder why they are getting second-class privacy protections,” said Sen. Markey. “If companies can afford to protect Europeans’ privacy, they can also afford to do so for their American customers and users.”

H.R. 5953, the BUILD Act: Rep. Barry Loudermilk (R-GA) and Rep. Brad Sherman (D-CA) introduced the Building Up Independent Lives and Dreams (BUILD) Act, legislation that would provide regulatory relief to charitable organizations that provide housing assistance. In a statement, Rep. Loudermilk touted the bill as a way to “cut some of the red-tape and alleviate unnecessary burdens brought on by Dodd-Frank regulations. This legislation will allow non-profits, such as Habitat for Humanity, to choose to be exempt from the overly complicated mortgage disclosure requirements of Dodd-Frank, and replace them with a more simplified system.”

S. 2953, the Expanding Access to Capital for Rural Job Creators Act: Sen. Doug Jones (D-GA) was joined by Sen. Dean Heller (R-NV), Sen. Heidi Heitkamp (D-ND), and Sen. John Kennedy (R-LA) to introduce the Expanding Access to Capital for Rural Job Creators Act, legislation intended to expand access for rural-area small businesses. “Running a small business in rural America is a unique challenge, and these business owners deserve to have their voices heard when it comes to federal policies that directly impact them,” said Senator Jones.

THIS WEEK ON THE HILL

Monday, May 28

No hearings due to the Memorial Day recess.

THE REGULATORS

Fed Chairman Issues Warning on Political Meddling in Interest-Rate Policy: Speaking at a conference in Sweden on Friday, Federal Reserve Chairman Jerome Powell delivered remarks on “350 years of Central Banking: The Past, the Present and the Future.” In his speech he remarked that “for a quarter century, inflation has been low and inflation expectations anchored. We must not forget the lessons of the past, when a lack of central bank independence led to episodes of runaway inflation and subsequent economic contractions.” His comments seemed to reference former Fed Chairman Arthur Burns, who served under President Nixon and succumbed to pressure to keep interest rates low, leading to rapid inflation.

Fed Schedules Volcker Rule Vote for May 30: The Fed announced that it intends to hold an open meeting on May 30th to vote on a proposal that would simplify the Volcker Rule. The Rule was created as part of the 2010 Dodd-Frank reforms, and banned banks from making proprietary trades.

Fed’s FOMC Announces Tentative Meeting Schedule for 2019: On Friday, the Federal Open Markets Committee announced its tentative meeting schedule for 2019, bookmarking the following dates: January 29–30 (Tuesday–Wednesday); March 19–20 (Tuesday–Wednesday); April 30–May 1 (Tuesday–Wednesday); June 18–19 (Tuesday–Wednesday); July 30–31 (Tuesday–Wednesday); September 17–18 (Tuesday–Wednesday); October 29–30 (Tuesday–Wednesday); December 10–11 (Tuesday–Wednesday); January 28–29, 2020 (Tuesday–Wednesday).

SEC Proposes FAIR Act Rules to Promote Research Reports on Investment Funds: On Wednesday the SEC released a rule prompted by legislation signed into law by President Trump last year, S. 327 (115). The proposed rules and amendments would promote research on mutual funds, exchange-traded funds, registered closed-end funds, business development companies, and similar covered investment funds. The proposal would also reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities. “The proposed changes are intended to provide investors with greater access to research to aid them in making investment decisions,” said SEC Chairman Jay Clayton. If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions.

CFTC Publishes Guidance on Virtual Currency Derivatives: The CFTC’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) issued a joint staff advisory that gives exchanges and clearinghouses registered with the CFTC guidance for listing virtual currency derivative products. “The CFTC staff is committed to providing regulatory clarity as much as possible,” said DMO Director Amir Zaidi. “As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

CFTC and NASAA Sign Agreement for Greater Information Sharing Between Federal Commodities Regulator and State Securities Regulators: On Monday, CFTC Chairman Giancarlo and NASAA President Borg signed a mutual cooperation agreement to establish a closer working relationship between the federal commodity regulator and individual state securities agencies. Chairman Giancarlo said in a statement, “information-sharing is key to cooperative enforcement operations, and by working together, we can ensure that the rapidly evolving financial technology space has the appropriate oversight to pursue bad actors, protect market participants, and allow for market-enhancing innovation.”

CFPB Plans to Examine Equal Credit Opportunity Act: Following the President’s enactment of S.J. Res. 57, CFPB Acting Director Mick Mulvaney announced that, “given a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently, the Bureau will be reexamining the requirements of the ECOA.”

Treasury Issues Sanctions on Five Iranians: On Tuesday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated five Iranian individuals who have provided ballistic missile-related technical expertise to Yemen’s Huthis, and who have transferred weapons not seen in Yemen prior to the current conflict, on behalf of the Islamic Revolutionary Guard Corps-Qods Force. These sanctions followed the United Nations Panel of Experts’ affirmation in late January that missiles and other military equipment employed by the Huthis against Saudi Arabia were of Iranian-origin. Treasury Secretary Steven T. Mnuchin said in a statement, “the United States will not tolerate Iranian support for Huthi rebels who are attacking our close partner, Saudi Arabia. All countries in the region should be on guard to prevent Iran from sending its personnel, weapons, and funds in support of its proxies in Yemen.”

COMINGS AND GOINGS AT THE AGENCIES

Montgomery Confirmed to Lead Federal Housing Administration: On Wednesday, the Senate confirmed Brian Montgomery by a vote of 74–23 to lead the Federal Housing Administration within HUD. Mr. Montgomery had previously held this post during the George W. Bush administration. He had drawn sharp criticism from Sen. Elizabeth Warren (D-MA), who criticized his industry ties, having previously served as the vice chair of the consulting firm Collingwood Group.

McWilliams Confirmed to Lead Federal Deposit Insurance Corporation: On Thursday the Senate confirmed Jelena McWilliams as chair of the FDIC by a vote of 69–24. Ms. Williams had previously served as chief counsel for the Senate Banking Committee and executive vice president at Fifth Third Bank.

Elad Roisman Under Consideration for SEC Post: Elad Roisman, who currently serves as chief counsel to the Senate Banking Committee, is reportedly under consideration by the White House to be nominated to a GOP opening on the SEC.

OTHER NOTEWORTHY ITEMS

Senate Democrats Call for CRA Reform: In a letter to federal banking agencies co-signed by 16 Democratic Senators, the lawmakers called for Community Reinvestment Act reforms that would increase opportunities for minorities. While the Senators agreed with some of the Treasury Department’s recommendations, they also disagreed with the suggestions to increase the ease with which banks with lower ratings could open additional branches.

Sen. Schumer (D-NY) Plans “All-Out Push” for Flood Insurance Extension: At a press conference Sen. Schumer emphasized his support for extending the National Flood Insurance Program prior to its expiration in July, saying “flood insurance should not be political, but right now there are those who would have no issue with letting the NFIP lapse. We are here today to say this simply cannot happen.” Sen. Schumer has a set of proposals he plans to pursue for the bill to strengthen oversight and increase the accuracy of maps.