THE BIG PICTURE
This is the last week of August recess as Congress prepares to come back for what is going to be a busy fall schedule with lots of deadlines, including raising the debt ceiling and funding the government.
Treasury Secretary Steven Mnuchin has urged Congress to raise debt ceiling by the end of September. It will be difficult to get things done with tensions appearing to increase between President Trump and GOP legislators. House Speaker Paul Ryan held a town hall on August 21 at which he discussed some things Congress needed to get done, including tax reform. In another interview on tax reform, the Speaker hinted that the mortgage interest deduction cap may be on the table.
Speaking from Ft. Myer, Virginia on August 21, President Trump also outlined a strategy for Afghanistan that would keep U.S. troops on the ground in an attempt to win the 16-year war. The President declared that a rapid exit would leave a power vacuum that would create a “predictable and unacceptable” safe haven for terrorists. Trump did not give a number of troops that would be on the ground.
Federal Reserve Chair Janet Yellen Speaks at Fed Annual Conference: On August 25, Federal Reserve Chair Janet Yellen spoke at the Fed’s annual conference in Jackson Hole, WY. Though she showed some willingness to ease some regulations, she reminded the crowd of what caused the financial crisis in the first place. In contrast to statements from the Trump Administration, she noted that “Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years.”
Federal Banking Agencies Propose Extension of Certain Capital Rule Transitions: In preparation for a forthcoming proposal that would simplify regulatory capital requirements, on August 22 federal banking regulators proposed a rule that would extend the existing transitional capital treatment for certain regulatory capital deductions and risk weights for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests. The extension would apply to banking organizations that are not subject to the agencies’ advanced approaches capital rules, typically banks with less than US$250B in total consolidated assets and less than US$10B in total foreign exposure.
Federal Deposit Insurance Corporation (FDIC) Chair Will Consider Tweaks to Volcker Rule: FDIC Chairman Martin Gruenberg said on August 22 that, as long as the substance of the ban on proprietary trading by banks is maintained, he is open to making slight changes to the Volcker Rule. He said that he did not want to alter the rule in a way that could cause more risks to the banking system.
FDIC Vice Chairman Tom Hoenig said in an American Banker op-ed last week that he is “disappointed that the Volcker Rule continues to be characterized as a burden to community banks and allegedly is prohibiting them from taking part in fintech investment opportunities.”
Financial Crimes Enforcement Network (FinCEN) Broadens Money Laundering Oversight to Include Honolulu: On August 22, the Financial Crimes Enforcement Network (FinCEN) on announced the issuance of revised Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven metropolitan areas. Following the recent enactment of the Countering America’s Adversaries through Sanctions Act, FinCEN is revising the GTOs to capture a broader range of transactions and include transactions involving wire transfers. FinCEN also expanded the GTOs to include transactions conducted in the city and county of Honolulu, Hawaii.
Consumer Financial Protection Bureau Report Warns That Taking Out a Reverse Mortgage Loan Can Be an Expensive Way to Maximize Social Security Benefits: On August 24, the Consumer Financial Protection Bureau (CFPB) issued a report warning older consumers about taking out a reverse mortgage loan in order to bridge the gap in income while delaying Social Security benefits until a later age. The CFPB report found, in general, the costs and risks of taking out a reverse mortgage exceed the cumulative increase in Social Security lifetime benefits that homeowners would receive by delayed claiming. The Bureau also released a consumer guide and video to help prospective borrowers and their families understand how reverse mortgages work so that they can make an informed decision before agreeing to borrow.
CFPB Temporarily Changes Mortgage Data Rule Reporting Threshold for Community Banks and Credit Unions: On August 24, the Consumer Financial Protection Bureau (CFPB) issued a rule amending the 2015 updates to the Home Mortgage Disclosure Act (HMDA) rule. The Bureau has temporarily changed reporting requirements for banks and credit unions that issue home-equity lines of credit, and clarified the information that financial institutions are required to collect and report about their mortgage lending. For the next two years, only banks and credit unions issuing at least 500 home equity credit lines each of the past two years will be required to report specified Home Mortgage Disclosure Act data.
Fed to Hold Open Board Meeting on September 1: The Federal Reserve announced on August 25 that it will meet on September 1. The Board will consider the Final Rule Establishing Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations.
FDIC Receives Letter from Ranking Member Maxine Waters (D-CA) on SoFi’s Deposit Insurance Application: On August 25, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, sent a letter to FDIC Chairman Martin Gruenberg, calling for the FDIC to hold at least one public hearing on Social Financial, Inc.’s (SoFi) application to establish an Industrial Loan Company (ILC). In the letter, Ranking Member Waters states that changes in the financial services industry and financial regulation necessitate a public hearing to examine the policy and legal implications of granting federal deposit insurance to ILCs generally, as well as to obtain greater input on the unique risks posed by granting it to a financial technology (fintech) company like SoFi.
Office of the Comptroller of Currency (OCC) Files Motion to Dismiss in Fintech Charter Case: On August 18, the OCC filed a motion to dismiss in its case with the New York Department of Financial Services, which has sued to block the creation of so-called national fintech charters. The OCC argued the lawsuit is a “speculative” exercise and that state regulators cannot prove harm caused by the charters because one has not been issued yet.
OCC Head Keith Noreika Welcomes End of “Operation Choke Point”: In a letter to House Financial Services Chairman Jeb Hensarling (R-TX), Comptroller Keith Noreika praised the Justice Department’s ending of “Operation Choke Point,” saying the agency rejected "tactics and goals ... that were previously pursued by other agencies and departments of the federal government during the prior administration."
FDIC-Insured Institutions Earn $48.3B in Second Quarter 2017: Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of US$48.3B in the second quarter of 2017, up US$4.7B (10.7 percent) from a year earlier. The increase in earnings was mainly attributable to a US$10.3B (9.1 percent) increase in net interest income and a US$654M (1 percent) increase in non-interest income. FDIC Chair Martin Gruenberg implied that the numbers show that banks aren’t being hurt by increased regulation, saying “The bottom line is the industry remains in pretty good shape and is a source of strength and stability for the economy.”
CFPB Files Amicus Brief in Student Debt Collection Case: The CFPB filed an amicus brief in a case that is preventing the Department of Education from sending billions of dollars in defaulted student loans to debt collection companies. The CFPB said in its brief that the court’s order “leaves some borrowers worse off—potentially interfering with access to important consumer protections and preventing some borrowers from making payments toward accruing interest charges.”
Chamber of Commerce Leads Fight Against Mandatory Arbitration Rule: The Chamber of Commerce is leading the fight against the CFPB’s mandatory arbitration rule, going up against a powerful rival, the trial bar. The Chamber is issuing warnings about lawyers suing companies out of existence.
Big Banks Could See Profits Jump 20 Percent with Deregulation: According to estimates by Bloomberg, deregulation by the Trump administration could add US$27B of gross profit at the six largest U.S. banks. Deregulation would lift annual pretax income by about 20 percent.
Groups Support Certified Financial Planner Board of Standards Proposal: Investor advocate groups and financial planning professional associations are supporting a Certified Financial Planner Board of Standards that would expand and clarify its fiduciary duty standards. Some business groups, however, including the Financial Services Institute and the Securities Industry and Financial Markets Association, are opposed to the proposal.
National Association of Manufacturers Expands Campaign against Scott Garrett: The National Association of Manufacturers is running digital ads targeting senators in South Carolina, South Dakota, and Nevada regarding the nomination of former Rep. Scott Garrett (R-NJ) to head the Export-Import bank. The Manufacturers Association opposes the nomination and has launched a campaign to block former Rep. Garrett.
Securities and Exchange Commission (SEC) Chairman Jay Clayton to Testify on October 4: SEC Chairman Jay Clayton will testify before the House Financial Services Committee on October 4. He is expected to cover corporate disclosure requirements, equity and fixed-income market structure, and the “consolidated audit trail” (CAT).
COMINGS AND GOINGS AT THE AGENCIES
Dave Sapenaro Named New Payments Director at Federal Reserve: Dave Sapenaro was named as the Fed’s new payments strategy director. Sapenaro was most recently the first vice president and chief operating officer at the Federal Reserve Bank of St. Louis.
OTHER NOTEWORTHY ITEMS
Chinese Bid for Chicago Stock Exchange Faces Hang-ups amid Trade Disputes: Amid heightening tensions between the Trump Administration and China, the move by Chinese investors to acquire the Chicago stock exchange has stalled. Earlier this month, the SEC delayed approval for the deal despite staff previously announcing that the deal had the green light.
Freddie Mac Introduces Appraisal Alternative for Home Purchases and Refinances:Freddie Mac announced on August 18 that consumers who are buying homes or refinancing existing mortgage loans may be eligible for an automated appraisal alternative. Borrowers may be able to realize savings and closing times may be reduced in cases where Freddie Mac's new capability determines a traditional appraisal isn't needed..