THE BIG PICTURE

President Trump’s former campaign manager Paul Manafort was found guilty on eight counts of bank and tax fraud, with the jury deadlocked on the remaining ten counts. It was later revealed that a single juror was the holdout that prevented his conviction on all counts. Following the verdict the President tweeted that he “felt badly” for the Manafort family, and said Mr. Manafort was “brave” for refusing to “break,” causing some to wonder if a pardon was in the offing. Senate Republicans were quick to warn the president against such a move however, with Senate Republican Whip John Cornyn (R-TX) saying it “would be a mistake” and Senator Susan Collins (R-ME) describing it as a “misuse of his power to pardon.”

Also on Tuesday, President Trump’s former personal lawyer pled guilty to eight counts of tax evasion, financial fraud, and campaign finance violations related to hush payments made in the run-up to the 2016 election. Mr. Cohen potentially implicated the President by saying that he “participated in the conduct for the purposes of influencing the election” adding that it was “at the direction of a candidate for federal office.” The President was quick to defend himself against the accusation, and in an interview with Fox News, explained that he felt “flipping . . . almost ought to be illegal.”

The Environmental Protection Agency unveiled the Affordable Clean Energy plan last week, intended to replace President Obama’s signature climate change policy, the Clean Power Plan. The CPP’s aim was to reduce greenhouse gas emissions from power plants, with a goal of reducing emissions by 32% by 2030 compared to 2005 numbers. The ACE plan by contrast, will leave it to the states to set their own targets, and does not set a national benchmark.

Congressman Duncan Hunter, who represents California’s 50th District, was indicted on campaign finance violations along with his wife Margaret for the misuse of US$250K in campaign funds. The Hunters pled not guilty to the charges, and Rep. Hunter seemed to lay blame on his wife in a string of interviews. The indictment has raised the question of whether the controversy could give Rep. Hunter’s Democratic challenger, Ammar Campa-Najjar, a shot at unseating him in the midterms in what is traditionally one of the most Republican districts in the state.

On Friday, the president directed Secretary of State Mike Pompeo to cancel an upcoming trip to North Korea, citing failure to make “sufficient progress” in nuclear negotiations. The president added that his tougher stance on trade with China may be the root cause for the stalled progress.

Senator John McCain passed away at age 81 on Saturday, just one day after his family announced that he had decided to discontinue treatment. Senator McCain was diagnosed with glioblastoma, an aggressive brain cancer, in July of last year. Tributes from individuals on both sides of the political spectrum poured in over the weekend, hailing the war hero, presidential nominee and longtime Senator as a “patriot of the highest order” and a man who “put the greater good above [his] own.” Former Presidents George W. Bush and Barack Obama are expected to eulogize Senator McCain at his funeral, and Senator Chuck Schumer has already announced his plan to introduce a resolution to rename the Russell Senate Office Building in his honor.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

No hearings held while the House remains on August recess.

SENATE BANKING COMMITTEE

Hearing entitled Russia Sanctions: Current Effectiveness and Potential for Next Steps”: On Tuesday, the committee held a hearing to receive testimony from senior administration officials from the Departments of Treasury, State, and Homeland Security on the implementation and effectiveness of the sanctions program currently in place against Russia. Ranking Member Sherrod Brown (D-OH) noted that the current sanctions regime has had questionable efficacy in deterring Russia’s “malign activity” in Crimea, Syria, and the Ukraine, and in its efforts to attack our elections, and called for the U.S. to “not only press to more aggressively implement current Russian sanctions, but . . . also strengthen our response.”

  • The Honorable Sigal P. Mandelker, Under Secretary of Terrorism and Financial Crimes and Deputy Secretary (Acting), United States Department of the Treasury.
  • The Honorable Christopher Krebs, Under Secretary for the National Protection and Programs Directorate, United States Department of Homeland Security.
  • The Honorable Manisha Singh, Assistant Secretary, Bureau of Economic and Business Affairs, United States Department of State.

Executive Session to Consider “Nominations”: On Thursday, the Committee met in Executive Session to vote on the nominations of six individuals to serve in key leadership roles at the Bureau of Consumer Financial Protection, or the Bureau; Export-Import Bank; Securities and Exchange Commission; Government National Mortgage Association, or Ginnie Mae; Department of Housing and Urban Development; and Office of Financial Research.

  • Kathleen Kraninger’s nomination to be director of the CFPB was advanced by a party-line vote of 13-12.
  • Kimberly Reed’s nomination to be president of the Export-Import Bank was advanced unanimously.
  • Elad Roisman’s nomination to be a Member of the Securities and Exchange Commission was advanced by voice vote.
  • Michael Bright’s nomination to be president of the Government National Mortgage Association was advanced by voice vote.
  • Rae Oliver’s nomination to be Inspector General, U.S. Department of Housing and Urban Development was advanced by voice vote.
  • Dino Falaschetti’s nomination to be Director, Office of Financial Research, U.S. Department of the Treasury was advanced by voice vote.

OTHER COMMITTEES

Senate Energy Committee Hearing entitled “Energy Efficiency of Blockchain and Similar Technologies”: On Tuesday, the Senate Energy Committee held a hearing to consider the energy efficiency of blockchain and similar technologies and the cybersecurity possibilities of such technologies for energy industry applications. They also considered whether we expect electricity prices to increase from rising electricity demand in blockchain applications, and whether blockchain and similar approaches will soon improve the cybersecurity of computing systems used to supply our energy.

  • Mr. Paul Skare, Chief Cyber Security and Technical Group Manager, Energy and Environment Directorate, Pacific Northwest National Laboratory.
  • Mr. Thomas Golden, Program Manager, Technology Innovation, Electric Power Research Institute.
  • Ms. Claire Henly, Managing Director, Energy Web Foundation.
  • Dr. Arvind Narayanan, Associate Professor, Department of Computer Science, Princeton University.
  • Dr. Robert Kahn, President and CEO, Corporation for National Research Initiatives.

Senate Health Committee (Subcommittee on Primary Health and Retirement Security) hearing entitled “Financial Literacy: the Starting Point for a Secure Retirement”: On Tuesday, the Senate Health Committee’s Subcommittee on Primary Health and Retirement Security held a hearing to examine the importance of financial literacy and its role in planning for a secure retirement.

  • Jovita Carranza, Treasurer, U.S. Department of the Treasury.
  • Vishal Jain, Financial Wellness Officer, Workplace Solutions, Prudential Financial, Inc.
  • Lynn Dudley, Senior Vice President, Global Retirement & Compensation Policy, American Benefits Council.
  • Scott Astrada, Federal Advocacy Director, Center for Responsible Lending.

ON THE FLOOR

Senate Passes Sweeping Spending Package in Hopes of Heading Off Shutdown: The Senate voted 85-7 to pass a “minibus” package of appropriations bills totaling US$857B, including funding for the Departments of Health and Human Services, Labor, and Education. While funding these Departments often involves contentious negotiations, the Senators avoided any such poison pill riders in the hopes of avoiding a government shutdown in September. Majority Leader Mitch McConnell celebrated the vote saying, “I am proud of what these bills contain and how the Senate has crafted them.” The bills will need to be merged with House versions once the House returns from recess, with the deadline of September 30th looming.

McConnell Files Cloture on Nominees: On Wednesday, Majority Leader Mitch McConnell filed a cloture motion on a package of 17 executive and judicial nominees, including Richard Clarida’s nomination to be vice chairman of the Federal Reserve and 12 district court judge nominees.

LEGISLATION INTRODUCED AND PROPOSED

S.3357: Senator Elizabeth Warren (D-MA) introduced the Anti-Corruption and Public Integrity Act, a wide-ranging bill intended to keep money and lobbying out of all branches of government. The bill would create a U.S. Office of Public Integrity, and in a speech Senator Warren described her goal to “isolate and quarantine the ability of big money to infect the decisions made every day by every branch of our government.”

THIS WEEK ON THE HILL

House remains in recess.

THE REGULATORS

CFTC Unanimously Approves a Proposal to Amend the Clearing Requirement to Help End-Users: The CFTC unanimously approved a proposed swap clearing requirement rule that would exempt from the clearing requirement swaps entered into by bank holding companies and savings and loan holding companies with consolidated assets of US$10B or less, and community development financial institutions that meet certain conditions. “This proposal would accomplish Project KISS goals by providing regulatory certainty and reduce the costs associated with the clearing requirement for these important end-users,” said Brian Bussey, Director of the Division of Clearing and Risk.

CFTC Unanimously Adopts Rule Amendments Simplifying Chief Compliance Officer Duties and Annual Report Rules for FCMs, Swap Dealers, and Major Swap Participants: The CFTC unanimously approved final amendments clarifying and simplifying its regulations governing chief compliance officer (CCO) duties and annual compliance reporting requirements for futures commission merchants (FCM), swap dealers, and major swap participants. “The Commission’s approval of these amendments demonstrates our commitment to efficient and effective regulation,” said CFTC Chairman J. Christopher Giancarlo.

Federal Reserve, FDIC and OCC Issue Interim Final Rule Regarding the Treatment of Certain Municipal Securities as High-Quality Liquid Assets: The Board, FDIC, and OCC jointly issued and invited comment on an interim final rule that amends the agencies’ liquidity rules to treat certain eligible municipal securities as high-quality liquid assets, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA).

Treasury Targets Russian Shipping Companies for Violations of North Korea-related United Nations Security Council Resolutions: The U.S. Department of the Treasury’s Office of Foreign Assets Control on Tuesday announced North Korea-related designations, continuing the implementation of existing United Nations and U.S. sanctions. The action against two entities and six vessels was taken pursuant to Executive Order 13810 of September 20, 2017, and targets persons involved in the ship-to-ship transfer of refined petroleum products with North Korea-flagged vessels, an activity expressly prohibited by the UN Security Council. Treasury Secretary Steven Mnuchin announced that, “Consequences for violating these sanctions will remain in place until we have achieved the final, fully verified denuclearization of North Korea.”

SEC to Rehear Cases Following Supreme Court Ruling: Following the ruling in Lucia v. SEC that the Commission’s use of Administrative Law Judges was unconstitutional due to their selection processes, the SEC announced late Wednesday that they plan to provide respondents “with the opportunity for a new hearing before an ALJ who did not previously participate in the matter.”

SEC to Review Staff Decision to Reject Nine Bitcoin ETFs: On Wednesday, SEC staff rejected nine applications from three companies to list and trade bitcoin-based ETFs, saying that they had failed to “demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.” On Thursday, the SEC announced that the four commissioners will review those decisions.

Agencies Issue Interim Final Rules Expanding Examination Cycles: The OCC, Board, and FDIC issued interim final rules to expand the number of insured depository institutions and U.S. branches and agencies of foreign banks eligible for an 18-month on-site examination cycle. As authorized by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), the interim final rules generally would allow qualifying insured depository institutions with less than US$3B in total assets to benefit from an extended 18-month on-site examination cycle. The rules also make parallel changes to the agencies’ regulations governing the on-site examination cycle for U.S. branches and agencies of foreign banks.

FDIC-Insured Institutions Reported US$60.2B in Second Quarter 2018: Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported aggregate net income of US$60.2B in the second quarter of 2018, up US$12.1B (25.1 percent) from a year ago. The improvement in earnings was attributable to higher net interest income and a lower effective tax rate. In her assessment, FDIC Chair Jelena McWilliams said “The banking industry experienced continued improvement in net interest income, noninterest income and loan performance this quarter. However, the interest-rate environment coupled with competitive lending conditions have led to heightened exposure to interest-rate, liquidity, and credit risks. The industry must continue to position itself to be resilient through economic cycles.”l

COMINGS AND GOINGS AT THE AGENCIES

Federal Reserve Board’s Head of Research and Statistics to Retire: David Wilcox, who has worked at the Fed for three decades and served as Head of Research and Statistics for the past 7, announced his plans to retire at the end of the year.

SEC Names Matthew Jacques as Chief Accountant in Enforcement Division: Matthew Jacques has been named the new chief accountant in the SEC’s Division of Enforcement. Mr. Jacques, who for six years served as a senior enforcement accountant in the SEC’s Boston Regional Office, rejoins the SEC enforcement staff from AlixPartners, where he has been a managing director since 2013.

OTHER NOTEWORTHY ITEMS

German Foreign Affairs Minister Calls for New Global Payment System: Following the U.S. withdrawal from the Iran nuclear deal, Germany’s Foreign Affairs Minister, Heiko Maas issued a call for a new global payments system that operates independent of the U.S., saying “it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the U.S., creating a European Monetary Fund and building up an independent SWIFT system.”

17 Attorneys General Urge HUD to Keep Disparate Impact Rule: In a letter to HUD, 17 state AGs, led by North Carolina’s AG Josh Stein are urging HUD to not change the rule governing disparate impact liability under the Fair Housing Act saying, “Based on our experience enforcing fair housing laws and addressing discrimination in housing and lending, we firmly advise that no amendments are warranted,” adding that “the rule strikes the proper balance between promoting an integrated society and protecting housing providers from unmeritorious discrimination claims.”