THE BIG PICTURE

The Senate remains busy with much left on the to-do list, including confirmations, tax reform, and a final FY2018 budget. Senate Majority Leader Mitch McConnell (R-KY) told Senators to prepare to work right into the Thanksgiving break.

The House voted on October 26 to clear the Senate's budget resolution. Though not as conservative as the plan the House advanced earlier this month, the House had no problem clearing the chamber, but with some opposition. Twenty House Republicans voted against the budget, including 11 Members from New Jersey and New York primarily due to the fear that the budget is predicated on elimination of the State and Local Tax deduction. With passage of the resolution, Congress has procedurally unlocked a mechanism that will allow the GOP to advance a tax overhaul with only a simple majority in the Senate.

Senator Jeff Flake (R-AZ) announced that he will not be seeking reelection in 2018. Accompanying his announcement was a scathing rebuke of President Trump, saying among other things, "We must never regard as 'normal' the regular and casual undermining of our democratic norms and ideals. We must never meekly accept the daily sundering of our country — the personal attacks, the threats against principles, freedoms, and institutions; the flagrant disregard for truth or decency, the reckless provocations, most often for the pettiest and most personal reasons, reasons having nothing whatsoever to do with the fortunes of the people that we have all been elected to serve."

President Trump declared a national health emergency last week related to the nation's opioid addiction epidemic, calling it the "worst drug crisis" in U.S. history. In his speech, he spoke of his own brother's issues with alcohol and explained that he has never had a drink. He said that his administration will launch an advertising campaign "to get people, especially children, not to want to take drugs in the first place." Such approach echoes Nancy Reagan's "Just Say No" campaign, an attempt to combat drug addiction in the 1980s and early 1990s as part of the War on Drugs. Studies performed on "Just Say No" advertising have found that it is not an effective method for discouraging illegal drug use.

The Senate passed a second infusion of disaster aid, legislation which passed the House earlier this month. H.R. 2266 would deliver about US$18B to FEMA, and another US$16B to wipe away some of the National Flood Insurance Program's debt. About US$577M is directed to western wildfire response efforts. Puerto Rico would receive up to US$4.9B in loans to pay its workers and fund other basic services. The legislation passed the Senate 82-17.

LAST WEEK ON THE HILL

House Approves Bipartisan Financial Services Bills: On October 24, the House on Tuesday passed two financial services bills with bipartisan support.

H.R. 3898, the Otto Warmbier North Korea Nuclear Sanctions Act, was sponsored by Rep. Andy Barr (R-KY) and would impose secondary financial sanctions against North Korea. The legislation would also incentivize stricter sanctions enforcement by foreign countries, and require regular reports on sanctions implementation from the Department of the Treasury. This legislation includes Presidential waiver authorities that provide for sanctions relief if North Korea takes meaningful steps to limit its development and proliferation of weapons of mass destruction.

H.R. 3972, the Family Office Technical Correction Act of 2017, was sponsored by Rep. Carolyn Maloney (D-NY) and clarifies that family offices and family clients are accredited investors under Regulation D of the Securities and Exchange Commission. “From time to time there are unintended consequences of regulation. We do wish to ensure that these family offices that otherwise meet the definition of accredited investors have the full range of investment opportunities before them. This bill will do this,” said House Financial Services Chairman Jeb Hensarling.

Ways and Means Committee Chairman Says Changes to 401(k) Still in Play: House Ways and Means Committee Chairman Kevin Brady (R-TX), the head Republican in the House responsible for drafting a tax overhaul, said on October 25 that changes to how retirement plans are taxed are still in play, including raising limits. His comments follow a tweet from President Trump that there would be no changes to 401(k)s.

The House Ways and Means Committee and Republican leadership have been working behind the scenes to ensure that their tax reform effort does not face the same fate as the Obamacare repeal. House Republican Conference Chairwoman Cathy McMorris Rodgers (R-WA) called the bill the "ultimate must-pass legislation for House Republicans." The bill is expected to be introduced on November 1, 2017.

Senate Votes to Repeal Consumer Financial Protection Bureau's Mandatory Arbitration Rule: On October 24, the Senate voted to repeal the CFPB's rule that prohibits mandatory arbitration in financial product contracts. In a floor statement the day of the vote, Senate Banking Ranking Member Sherrod Brown (D-OH) spoke against the repeal legislation and said that "forced arbitration takes power away from ordinary people, and gives it to big banks and Wall Street companies that already have an unfair advantage."

On October 23, the Treasury Department released a report examining the rule and concluded that the CFPB did not appropriately consider whether prohibiting arbitration clauses would advance consumer protection and serve the public interest. CFPB Director Richard Cordray spent last week defending the rule, including sending a letter to the Treasury Department accusing it of using a flawed analysis to issue the report. According to House Financial Services Chairman Jeb Hensarling (R-TX), the report "shows that the CFPB is more interested in helping trial lawyers than consumers."

Senator Elizabeth Warren (D-MA) Takes Aim at Federal Housing Administration Nominee: Senator Warren said last week that she would vote against Brian Montgomery, President Trump's pick to lead the Federal Housing Administration. Warren cited his past work for mortgage lenders as the reason for her opposition.

HOUSE FINANCIAL SERVICES COMMITTEE

Subcommittee Holds Hearing on Federal Government and Insurance Industry: On October 24, the Housing and Insurance Subcommittee held a hearing entitled “The Federal Government’s Role in the Insurance Industry. The purpose of the hearing was to examine both the domestic and international roles of the Federal Insurance Office (FIO), and Congressional oversight of international insurance issues. Witnesses included:

  • Mr. Paul Ehlert, President of Germania Insurance and Chairman of the National Association of Mutual Insurance Companies
  • Professor Daniel Schwarcz, Professor of Law, University of Minnesota Law School
  • Mr. Rick Means, President and Chief Executive Officer, Shelter Insurance Companies
  • Ms. Katharine Wade, Commissioner, Connecticut Insurance Department, on behalf of the National Association of Insurance Commissioners

Subcommittee Holds Hearing on Sustainable Housing Finance: On October 25, the Housing and Insurance Subcommittee held another hearing entitled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform.” The purpose of the hearing was to provide the Subcommittee with views and perspectives on the need to enact comprehensive housing finance reform; the legal, statutory, or regulatory impediments to the return of private capital to the housing finance system; and what factors and metrics Congress should consider to reform the housing finance system. Witnesses included:

  • Ms. Brenda K. Hughes, Senior Vice President, First Federal Savings, on behalf of the American Bankers Association (ABA)
  • Mr. Samuel A. Vallandingham, President and CEO, First State Bank, on behalf of the Independent Community Bankers of America (ICBA)
  • Ms. Nikitra Bailey, Executive Vice President, Center for Responsible Lending
  • Mr. Kevin Chavers, Managing Director, BlackRock, on behalf of the Securities Industry and Financial Markets Association (SIFMA)
  • Mr. Richard Stafford, President and CEO, Tower Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions (NAFCU)

Committee Democrats Hold Hearing on Equifax Breach: On October 25, Financial Services Committee Democrats held a "Minority Day" hearing on the Equifax breach. No witnesses from the company attended. In her opening statement, Ranking Member Maxine Waters (D-CA) said that "it is particularly troubling that, since the massive breach, Equifax has yet to send an executive to testify before Congress who actually has the legal authority to commit the company to future action," referring to the fact that Equifax sent its former CEO Richard Smith to testify earlier this month. Witnesses at last week's hearing included:

  • Ms. Sara Cable, Director, Data Privacy and Security, Assistant Attorney General, Consumer Protection Division, Office of Attorney General, Commonwealth of Massachusetts
  • Mr. Mike Litt, Consumer Advocate, U.S. Public Interest Research Group
  • Ms. Kathleen McGee, Chief, Bureau of Internet and Technology, Division of Economic Justice, Office of the New York State Attorney General
  • Ms. Laura M. Moy, Deputy Director, Center on Privacy and Technology, Georgetown University Law Center
  • Ms. Chi Chi Wu, Staff Attorney, National Consumer Law Center

SENATE BANKING COMMITTEE

Committee Holds Nominations Hearing on Securities and Exchange Commission and U.S. Mint Nominee: On October 24, the Senate Banking Committee held a hearing to consider nominees for the SEC and the U.S. Mint. Nominees included: Mr. David J. Ryder, to be Director of the United States Mint; Ms. Hester M. Peirce, to be a Member of the Securities and Exchange Commission; and Mr. Robert J. Jackson, Jr., to be a Member of the Securities and Exchange Commission.

Committee Holds Nominations Hearing on Housing and Urban Development Nominees: On October 26, the Senate Banking Committee held another nominations hearing to consider HUD nominees. The nominees included: The Honorable Brian D. Montgomery, to be Assistant Secretary for Housing – Federal Housing Commissioner; Mr. Robert Hunter Kurtz, to be Assistant Secretary for Public and Indian Housing; and Ms. Suzanne Israel Tufts, to be Assistant Secretary for Administration.

LEGISLATION INTRODUCED AND PROPOSED

Maxine Waters Introduces Legislation Aimed at Making Federal Housing Authority (FHA) Mortgages More Affordable: On October 26, Congresswoman Maxine Waters (D-CA) introduced the Making FHA More Affordable Act, a bill to repeal the requirement that Federal Housing Administration (FHA) borrowers pay mortgage insurance premiums for the life of the loan, and reinstate the FHA’s previous policy of only requiring borrowers to pay premiums until the outstanding principal balance reaches 78 percent of the original home value.

Waters Introduces Legislation to Help Prevent Unfair Foreclosures on Seniors with HUD Reverse Mortgages: On October 27, Congresswoman Maxine Waters introduced the Preventing Foreclosures on Seniors Act, a bill to make reforms to the U.S. Department of Housing and Urban Development’s (HUD’s) reverse mortgage program to help prevent foreclosures on seniors. HUD’s Home Equity Conversion Mortgages (HECM) program allows seniors to take out reverse mortgages, which convert a portion of their home equity into cash to supplement their income in retirement.

THIS WEEK ON THE HILL

Wednesday, November 1

Senate Banking Committee, Nomination Hearing, 10:00AM, 538 Dirksen Senate Office Building

  • The Honorable Scott Garrett, to be President of the Export-Import Bank;
  • Ms. Kimberly A. Reed, to be First Vice President of the Export-Import Bank;
  • The Honorable Spencer Bachus III, to be a Member of the Board of Directors of the Export-Import Bank;
  • Ms. Judith Delzoppo Pryor, to be a Member of the Board of Directors of the Export-Import Bank;
  • Ms. Claudia Slacik, to be a Member of the Board of Directors of the Export-Import Bank;
  • Mr. Mark L. Greenblatt, to be Inspector General of the Export-Import Bank.

House Financial Services Oversight and Investigations Subcommittee, Hearing, “Examining the Community Development Block Grant-Disaster Recovery Program,” 10:00AM, 2128 Rayburn House Office Building

  • Ms. Helen Albert, Acting Inspector General, Office of the Inspector General, U.S. Department of Housing and Urban Development

House Energy and Commerce Committee, Hearing, "Securing Consumers' Credit Data in the Age of Digital Commerce," 10:00AM, 2123 Rayburn House Office Building

House Financial Services Subcommittee on Financial Institutions and Consumer Credit, Hearing, “Data Security: Vulnerabilities and Opportunities for Improvement,” 2:00PM, 2128 Rayburn House Office Building

  • Mr. Kenneth Bentsen, Jr., President and Chief Executive Officer, Securities Industry and Financial Markets Association
  • Mr. Daniel Mennenoh ITP NTP, President, H.B. Wilkinson Title Company, on behalf of the American Land Title Association
  • Ms. Debra Schwartz, President and Chief Executive Officer, Mission Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions

Thursday, November 2

House Financial Services Subcommittee on Housing and Insurance, Hearing, “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part II,” 2:00PM, 2128 Rayburn House Office Building

Friday, November 3

House Financial Services Subcommittee on Capital Markets, Securities, and Investment, Hearing, “Legislative Proposals to Improve Small Businesses’ and Communities’ Access to Capital,” 9:15AM, 2128 Rayburn House Office Building

THE REGULATORS

Decision on Federal Reserve Chair "Very, Very Close": President Trump said on October 23 that he is "very, very close" to picking the next Chair of the Federal Reserve. Conservatives have been pushing the President toward John Taylor or Kevin Warsh, saying that current Fed Governor Jerome Powell didn't do enough to slow down bank regulations pushed by former Fed Governor Daniel Tarullo. A coalition of 22 progressive groups sent a letter to Senate Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) opposing the potential nominations of John Taylor, Kevin Warsh, and Marvin Goodfried.

President Trump asked Fox Business host Lou Dobbs for his advice on who the President should pick for Fed Chair, saying that he only wants to hear from “people [he] respect[s].” Dobbs told the President that current Fed Chair Janet Yellen may be worth keeping.

SEC Reaches Unanimous Decision on Landmark Accounting Disclosure Rule: On October 23, the SEC unanimously approved a decision by the Public Company Accounting Oversight Board (PCAOB) to provide more information to investors regarding a company's financial health. The U.S. Chamber of Commerce urged the SEC to reject the decision, and other businesses opposed the rule change. Asset managers generally supported the new rule.

SEC and Commodity Futures Trading Commission (CFTC) Form Task Force to Address Overlap: The CFTC and the SEC have formed a "chairman-to-chairman" task force to address jurisdictional overlap between the two agencies. According to CFTC Chairman Giancarlo, there are a "whole bunch of areas where [the agencies] have overlapping jurisdiction, a whole bunch of areas where [they] have outstanding rules that haven't been resolved."

Department of Housing and Urban Development (HUD) to Review How it Interprets Errors and Mistakes in Loan Files: Speaking at a Mortgage Bankers Association conference in Denver, HUD Secretary Ben Carson said that the agency will revisit how it interprets mortgage defects—a decision intended to encourage more lenders to make Federal Housing Authority (FHA) loans. Since 2009, the Department of Justice (DOJ) has collected billions of dollars in false claims settlements over loans that were fraudulently certified as FHA compliant, leading many lenders to pull back from the program.

SEC Says it Doesn't Have Enough Money to Hire for Enforcement: Speaking at a conference in Washington, Steven Peikin, co-head of the SEC's enforcement division, said that the lack of a budget increase for the agency means that it will have fewer people available to investigate and pursue potential misconduct. He said that, as a result of attrition, the number of attorneys is decreasing and that they "don't have the hiring authority to backfill the people who leave."

Office of Comptroller of the Currency (OCC) Issues First New National Bank Charter Since Financial Crisis: On October 27, Acting Comptroller of the Currency Keith Noreika announced that the OCC is issuing its first full-service national charter to Winter Park National Bank of Florida. This is the first new national bank charter issued since the 2008 financial crisis, and first de novo approved for federal deposit insurance.

Treasury and Terrorist Financing Targeting Center Partners Issue First Joint Sanctions Against Key Terrorists and Supporters: On October 25, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on eight individuals and one entity today, targeting leaders, financiers, and facilitators of the Islamic State in Iraq and Syria in Yemen (ISIS-Y) and al-Qa’ida in the Arabian Peninsula (AQAP). This action was taken in partnership with the Kingdom of Saudi Arabia, as the co-chair of the recently established Terrorist Financing Targeting Center (TFTC), as well as all other TFTC member states. The collective actions are the first taken by the TFTC since its announcement during President Trump’s visit to the region in May.

Treasury Department Releases Third Report on Administration's Core Principles for Financial Regulation: On October 26, the U.S. Department of the Treasury released a report that examines the current regulatory framework for the asset management and insurance industries and makes recommendations to ensure the regulatory framework is aligned with the Administration's Core Principles for financial regulation. Treasury's evaluation focuses on four key areas: the proper evaluation of systemic risk, ensuring effective regulation and government processes, rationalizing international engagement, and promoting economic growth and informed choices. The report is a third installment in a series of reports the Treasury Department is releasing focusing on regulatory reform.

SEC Announces Measures to Facilitate Cross-Border Implementation of the European Union's MiFID II's Research Provisions: On October 26, the staff of the SEC issued three related no-action letters related to an upcoming rule that would require more pricing transparency from brokerages. These letters are "designed to provide market participants with greater certainty regarding their U.S. regulated activities as they engage in efforts to comply with the European Union’s (EU) Markets in Financial Instruments Directive (MiFID II) in advance of the Jan. 3, 2018, implementation date." The no-action relief provides a path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the U.S. federal securities laws. The move by the SEC drew quick backlash from some asset managers.

OTHER NOTEWORTHY ITEMS

David Stevens to Step Down as Head of Mortgage Bankers Association (MBA): On October 25, the MBA announced that David Stevens will step down as the head of the group. Stevens was diagnosed with cancer last year, and though it is now in remission, he wants to focus on "family, friends, and staying healthy."

Singapore Won't Regulate Cryptocurrency: Monetary Authority of Singapore Managing Director Ravi Menon said that the country has no plan to regulate cyrptocurrencies such as bitcoin, saying at this point he doesn't see a basis for wanting regulations. He said that the bank will "look at the activities surrounding the cryptocurrency" and evaluate the risks posed.

Warren Buffett Calls Cryptocurrency a "Bubble": Speaking at an event, Warren Buffett followed up on his 2014 statement that cryptocurrency is a "mirage." He called it a "real bubble" and said that the excitement around the technology is the result of "big price movements" yielding improper praise.