President Trump signed the US$1.3T omnibus spending bill on Friday, ending a cycle of short-term stopgap measures and the recurring threat of a government shutdown – at least through September 30. Capitol Hill was thrown into disarray earlier in the day when the President tweeted he was “considering a VETO” of the carefully negotiated bill, sending aides scrambling to salvage the agreement, however he relented hours later. The text of the 2,323 page bill was released late on Wednesday evening, leaving little time for lawmakers to absorb its details. The bill includes increased funding to fight the opioid epidemic, increases to military spending with US$700B for the Pentagon, US$1.6B in funds for border security, and US$380M for election security grants.

McMaster out, Bolton in. President Trump announced that he planned to replace H.R. McMaster with John Bolton as national security adviser, effective April 9. Mr. Bolton will become the third person to serve in this role in just 14 months. Mr. Bolton previously served as ambassador to the United Nations under George W. Bush, however his tenure in that role was limited as he was installed as a recess appointment, unable to be confirmed by a Republican Senate. He has a reputation as a war hawk on Iran, Syria, and North Korea, favoring aggressive military action, and remains one of the few individuals who continue to defend the U.S. invasion of Iraq. His appointment will mark a stark turn from H.R. McMaster, a three-star general who cautioned against upending international agreements without thorough planning.

On Wednesday, the Senate voted 97-2 to advance the “Stop Enabling Sex Traffickers Act,” a controversial bill that is intended to crack down on sex trafficking on the internet. The bill creates an exception to Section 230 of the Communications Decency Act, which will allow victims to sue websites that enable abuse. Victims’ rights advocates hailed the vote as “a huge day for victims because we are finally saying enough is enough.” Critics of the bill however argue that it will chill free speech on the internet. Others, including advocates for sex trade workers, fear unintended consequences.

John Dowd, who has served as President Trump’s lead personal lawyer in the Russia investigation, resigned his position on Thursday, releasing a statement that said “I love the President and I wish him well.” Mr. Dowd had been seen as a moderating force on the legal team, favoring cooperation with Special Counsel Robert Mueller’s investigation. His departure is seen as a sign the President may take an increasingly hard line with the investigation.

Other highlights of last week include:

  • Incumbent Rep. Dan Lipinski (D-IL) emerged victorious in the Illinois democratic primary, in what turned out to be a close race against his challenger Marie Newman. Ms. Newman was a progressive first time candidate who was inspired to run by President Trump’s election. While Ms. Newman was virtually unknown prior to the race, the acrimonious race came down to the wire, with a final margin of less than two points.
  • The Dow Jones Industrial Average dove over 700 points on Thursday, amid fears that President Trump’s newly announced tariffs on China, restrictions blocking upwards of US$50B in imports, could start a trade war. China’s Foreign Ministry announced in a statement that, “We hope that the U.S. can be fully aware of the mutually beneficial and win-win nature of China-U.S. economic and trade relations and refrain from moves that will hurt both itself and others.”

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitled “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime”: On Tuesday, the Subcommittee on Terrorism and Illicit Finance held a hearing on “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime.” The purpose of the hearing was to explore the increasing convergence of terrorism and transnational organized crime groups, the networks that provide these groups with financial support, and facilitate these criminal and nefarious enterprises. Chairman Steve Pearce (R-NM) said, “massive profits . . . ensure that these criminal groups are powerful enough to influence the political, judicial, and law enforcement branches of more vulnerable countries, providing them the protection to continue their illegal schemes and further expand their influence. Today’s hearing was an opportunity to dissect the connection of transnational terrorism, crime, and corruption.”

  • Mr. Derek Maltz, Executive Director, Government Relations, Pen-Link, Ltd.
  • Ms. Celina B. Realuyo, Professor, Practice of National Security Affairs, William J. Perry Center for Hemispheric Defense Studies, National Defense University
  • Dr. Louise Shelley, Professor, Schar School of Policy and Government, George Mason University

Markup of HR 2683, HR 4659, HR 4790, HR 4861, HR 5051, HR 5076, HR 5082, and HR 5323: On Wednesday, the Full Committee held a hearing to consider eight bills and advanced them all. Chairman Jeb Hensarling (R-TX) congratulated the committee saying, “these eight important measures continue the Committee’s efforts to ensure that hardworking Americans have access to credit; to ensure that the regulatory burden does not fall disproportionately on our smaller banks and credit unions; and to make sure that our startup businesses and our entrepreneurs have access to capital while balancing very legitimate concerns for the stability of our financial system.” The bills included:

  • H.R. 2683 (Rep. John Delaney, R-MD), the “Protecting Veterans Credit Act of 2017” was agreed to, as amended, by a recorded vote of 59-0. The bill would amend the Fair Credit Reporting Act to exclude from consumer report information: (1) certain medical debt incurred by a veteran if the hospital care or medical services relating to the debt predates the credit report by less than one year; and (2) a fully paid or settled veteran’s medical debt that had been characterized as delinquent, charged off, or in collection.
  • H.R. 4861 (Rep. Trey Hollingsworth, R-IN), the “Ensuring Quality Unbiased Access to Loans Act of 2018” was agreed to by a recorded vote of 34-26. The bill would repeal the Federal Deposit Insurance Corporation (FDIC) “Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products” (78 Fed. Reg. 70552; November 26, 2013). The bill would also require the Federal banking agencies to each issue regulations, subject to notice and comment, to establish standards for short-term, small-dollar loans or lines of credit made available by insured depository institutions.
  • H.R. 5076 (Rep. Claudia Tenney, R-NY), the “Small Bank Exam Cycle Improvement Act of 2018” was agreed to, as amended, by a recorded vote of 60-0. The bill would amend the Federal Deposit Insurance Act to increase the qualifying asset threshold for insured depository institutions eligible for 18-month on-site examination cycles from US$1B to US$3B.
  • H.R. 5082 (Rep. Alex Mooney, R-WV), the “Practice of Law Technical Clarification Act of 2018” was agreed to by a recorded vote of 35-25. The bill would amend the Fair Debt Collection Practices Act to exclude from the definition of “debt collector” any law firm or licensed attorney engaged in litigation activities in connection with a legal action in a court of law to collect a debt on behalf of a client to the extent that such legal action is served on the defendant debtor, or service is attempted, in accordance with the applicable statute or rules of civil procedure. This bill would also amend the Consumer Financial Protection Act of 2010 to clarify that the Consumer Financial Protection Bureau (CFPB) may not exercise supervisory or enforcement authority with respect to attorneys engaged in the practice of law and not offering or providing consumer financial products or services.
  • H.R. 4659 (Rep. Blaine Luetkemeyer, R-MO), a bill to require the appropriate Federal banking agencies to recognize the exposure-reducing nature of client margin for cleared derivatives, was agreed to by a recorded vote of 45-15. The bill would amend the Federal Deposit Insurance Act, the Bank Holding Company Act, and the Home Owners’ Loan Act to allow for the supplementary leverage ratio to recognize the exposure-reducing effect of initial margin posted for centrally cleared derivatives.
  • H.R. 4790 (Rep. French Hill, R-ARK), a bill to amend the Volcker Rule to give the Board of Governors of the Federal Reserve System sole rulemaking authority, to exclude community banks from the requirements of the Volcker Rule, and for other purposes, was agreed to, as amended, by a recorded vote of 50-10.
  • H.R. 5051 (Rep. Sean Duffy, R-WI), the “Public Company Registration Threshold Act” was agreed to by a recorded vote of 34-26. The bill would amend Section 12(g) of the Securities Exchange Act of 1934 to raise the threshold for companies to register as a public reporting company with the Securities and Exchange Commission (SEC) from 500 non-accredited investors to 2,000, with the US$10M threshold indexed for inflation. Additionally, the bill would raise the threshold under Section 12(g) for issuers to terminate a class of securities from 300 to 1,200 investors. Lastly, the bill would amend Section 15(d) of the Securities Exchange Act of 1934 to raise the exemption from filing supplemental and periodic information with the SEC from 300 to 1,200 investors.
  • H.R. 5323 (Rep. Warren Davidson, R-OH), the “Derivatives Fairness Act” was agreed to by a recorded vote of 34-26. The bill would amend Title I of the Dodd-Frank Act to add a new Section 177 entitled “Credit Valuation Adjustment.” This legislation would exempt from the Credit Valuation Adjustment capital charge non-cleared derivatives with certain counterparties commonly described as “end-users.”

Dates Announced for Full Committee Hearings: On Friday, Chairman Jeb Hensarling (R-TX) announced the dates of two upcoming full committee hearings:

  • Wednesday, April 11 at 10:00 A.M. – Consumer Financial Protection Bureau Acting Director Mick Mulvaney will appear before the full committee to provide testimony on the Bureau’s semi-annual report as required by Section 1016 of the Dodd-Frank Act.
  • Tuesday, April 17 at 10:00 A.M. – Federal Reserve Vice Chairman for Supervision Governor Randal Quarles will appear before the full committee to provide semi-annual testimony on the efforts, activities, objectives, and plans of the Federal Reserve with respect to the conduct of supervision and regulation of depository institution holding companies and other financial firms supervised by the Federal Reserve.

SENATE BANKING COMMITTEE

Hearing entitled “Oversight of HUD”: On Thursday, the Committee met in an open session to conduct a hearing on “Oversight of HUD.” The purpose of the hearing was supposed to be a discussion of proposed budget cuts to the agency, but was instead dominated by questions to Secretary Ben Carson over a recent scandal involving the order of a US$31K dining room set. Secretary Carson said, “I was not big into redecorating. If it were up to me, my office would look like a hospital waiting room,” and seemed to lay the blame at his wife’s feet saying, “I left it to my wife, you know, to choose something. I dismissed myself from the issues.” Internal emails told a different story, however. Sen. Sherrod Brown (D-OH) criticized the Secretary’s justifications, saying “Instead of taking responsibility, Mr. Secretary, you seem to want to blame others . . . I think you need to take responsibility and get things right.” For her part, Secretary Carson’s wife Candy later said, “Although many in the media would like to depict me as a victim who was ‘thrown under the bus,’ Ben and I are enjoying our 43rd year of marriage and we fully support each other in all endeavors and will continue to do so.” The order was ultimately cancelled.

  • Benjamin Carson, Secretary, United States Department of Housing and Urban Development.

Upcoming Full Committee Hearings:

  • Thursday, April 12 at 10:00 A.M. – “The Consumer Financial Protection Bureau’s Semiannual Report to Congress” with witness The Honorable Mick Mulvaney, Acting Director, Consumer Financial Protection Bureau.
  • Tuesday, April 17 at 10:00 A.M. – The Committee will meet in open session to conduct a hearing on the nominations of Mr. Jeffery Nadaner, of Maryland, to be Assistant Secretary of Commerce for Export Enforcement, Department of Commerce; the Honorable Thelma Drake, of Virginia, to be Federal Transit Administrator, Department of Transportation; and Mr. Seth Daniel Appleton, of Missouri, to be Assistant Secretary of Housing and Urban Development for Policy Development & Research.
  • Thursday, April 19 at 10:00 A.M. – “The Semiannual Testimony of the Federal Reserve’s Supervision and Regulation of the Financial System” with witness The Honorable Randal K. Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System.

ON THE FLOOR

House Passes Financial Services Bill: On Wednesday, the House voted to pass H.R. 4566, the Alleviating Stress Test Burdens to Help Investors Act (Rep. Bruce Poliquin, R-ME), by a vote of 395-19. The bill would amend one-size fits all, bank-centric capital-based stress testing requirements for nonbanks, such as mutual funds. Most House Democrats voted for the bill following the additions of changes offered by Rep. Maxine Waters (D-CA), that allows the Fed to ask for a stress test by a vote of the Fed’s board.

LEGISLATION INTRODUCED AND PROPOSED

S.2574: On Tuesday, Sen. Jeanne Shaheen (D-NH) introduced S.2574, a bill to provide rental assistance to low-income tenants of certain multifamily rural housing projects, and for other purposes.

S.2605: On Thursday, Sen. Tammy Baldwin (D-WI) introduced the “Reward Work Act,” a bill to prohibit public companies from repurchasing their shares on the open market. The bill is targeted at stock buybacks, which have surged since passage of the tax cuts last year. Sen. Baldwin said in a statement, “The surge in corporate buybacks is driving wealth inequality and wage stagnation in our country by hurting long-term economic growth and shared prosperity for worker. . . We need to rewrite the rules of our economy so it works better for workers and not just those at the top.”

THIS WEEK ON THE HILL

No hearings will be held this week as Congress is on a two week recess.

THE REGULATORS

The Federal Reserve Raises Interest Rates: On Wednesday, the Federal Reserve raised interest rates for the first time this year. The Federal Open Market Committee, which is responsible for interest rate setting, said in a statement that it expects to reach its 2% target “in the coming months.”

Federal Chair Says Fed Is Prepared To Scrutinize Banks Below US$250B: Speaking at a press conference following the meeting of the Federal Open Market Committee, Chairman Jerome Powell sought to allay some concerns regarding the potential regulatory rollback included in S.2155, saying that the Federal Reserve is “fully prepared” to subject banks below the US$250B SIFI threshold to increased regulatory scrutiny should the bill become law.

SEC Announces Its Largest-Ever Whistleblower Awards: The Securities and Exchange Commission announced on Monday its highest-ever Dodd-Frank whistleblower awards, with two whistleblowers sharing a nearly US$50M award and a third whistleblower receiving more than US$33M. The previous high was a US$30M award in 2014. Jane Norberg, Chief of the SEC’s Office of the Whistleblower said in the announcement, “we hope that these awards encourage others with specific, high-quality information regarding securities laws violations to step forward and report it to the SEC.”

SEC Chairman Discusses Standoff on Trading Data: Speaking at a conference in Orlando, Florida on Monday, SEC Chairman Jay Clayton said he was “not happy” with the standoff between exchanges that is currently delaying the launch of a database meant to track stock and options markets. He continued “We can’t dilly around. The main markets regulator should have access to a forensic trail that enables us to assess what happened if a market event occurred.”

Cryptocurrency Markets Reportedly Chilled by SEC: While coin offerings continue, with a total of 180 offerings in March that are expected to raise US$795M, those figures represent a 45% decline from February’s total. Many feel this decline is a direct result of the SEC’s recent rash of subpoenas and investigations into potential violations. Meanwhile, there are reports that the SEC is preparing to examine upwards of 100 hedge funds that are involved in the cryptocurrency space.

CFTC “Astounded” at Funding Cut: Following the release of the omnibus spending bill, CFTC Commissioner Rostin Behnam released a statement strongly criticizing the proposed budget cuts, saying “The recently released congressional budget proposal unimaginably cuts the Commodity Futures Trading Commission’s funding level, leaving our nation’s critically important derivatives market and the general public increasingly vulnerable to systemic (and other) risk, and susceptible to fraud and manipulation.”

Treasury Reaches Deal to Allow Discovery Loans to Puerto Rico: Nearly six months following the devastation caused by Hurricane Maria, Puerto Rico Gov. Ricardo Rossello and U.S. Treasury Secretary Mnuchin have reached an agreement that will allow the US$4.7B in recovery loans approved by Congress in October to start flowing. There had been a delay due to disagreement over repayment terms. The deal will allow Puerto Rico access to community-disaster loans once its cash balance drops below US$1.1B.

Treasury Sanctions Four Current or Former Venezuelan Officials: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated four current or former Venezuelan government officials pursuant to Executive Order (E.O.) 13692, as part of Treasury’s ongoing efforts to highlight the economic mismanagement and endemic corruption that have been the defining features of the Maduro regime. President Trump issued the order banning U.S. purchases of the Venezuelan government’s cryptocurrency, the Petro. In a statement Secretary Mnuchin said, “President Maduro decimated the Venezuelan economy and spurred a humanitarian crisis. Instead of correcting course to avoid further catastrophe, the Maduro regime is attempting to circumvent sanctions through the Petro digital currency – a ploy that Venezuela’s democratically-elected National Assembly has denounced and Treasury has cautioned U.S. persons to avoid.”

Treasury Sanctions Iranian Cyber Actors: Friday, in a coordinated action with the U.S. Department of Justice, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated one Iranian entity and 10 Iranian individuals under Executive Order (E.O.) 13694, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities,” as amended. The entity and individuals designated today engaged in the theft of valuable intellectual property and data from hundreds of U.S. and third-country universities and a media company for private financial gain. In announcing the sanctions, Treasury Under Secretary Sigal Mandelker said, “We will not tolerate the theft of U.S. intellectual property, or intrusions into our research institutions and universities. Treasury will continue to systematically use our sanctions authorities to shine a light on the Iranian regime’s malicious cyber practices, and hold it accountable for criminal cyber-attacks.”

CFPB and FTC Partner to Report on 2017 Activities to Combat Illegal Debt Collection Practices: On Tuesday, the Consumer Financial Protection Bureau issued a report on the 2017 activities of the Bureau and the Federal Trade Commission to combat illegal debt collection practices. The annual report to Congress on the administration of the Fair Debt Collection Practices Act details the agencies’ efforts to stop unlawful debt collection practices, including vigorous law enforcement, education and public outreach, and policy initiatives.

GAO Issues First Report on FinTech Regulation: On Thursday, the Government Accountability Office released its first major report on FinTech regulation, saying the fragmentation of U.S. regulations is creating a challenge to firms. The report said, “Understanding the laws and regulations that may apply to fintech firms was not easy because existing regulations were sometimes developed before the type of product or service they are now offering existed” continuing, “complying with fragmented state licensing and reporting requirements can be expensive and time-consuming for mobile payment providers and fintech lenders.” The report urged better cooperation among regulators.

COMINGS AND GOINGS AT THE AGENCIES

Thomas Workman Confirmed as Independent Voting Member of FSOC: On Thursday, Thomas Workman was confirmed by the Senate to be a Member of the Financial Stability Oversight Council for a term of six years. Mr. Workman previously served as president and CEO of the Life Insurance Council from 1999-2016.

David Ryder in at the Mint: On Wednesday, David Ryder was confirmed by the Senate to be Director of the Mint for a term of five years. Mr. Ryder will be the first official Mint Director since Edmund Moy left in 2011. He had previously served as Director from 1992-1993 under President G. H. W. Bush.

THE COURT

“True Lender” Case Remanded to State Court: On Wednesday, a Colorado federal judge ruled that the Federal Deposit Insurance Act doesn’t preempt state claims, saying “Neither the Supreme Court nor the Tenth Circuit Court of Appeals has ruled on whether the complete preemption doctrine applies to the FDIA, the statute relied upon by defendant.” This is the second such case to be remanded this month.

Supreme Court Rules Unanimously in Investment Jurisdiction Case: The justices announced their opinion in Cyan v. Beaver County Employees Retirement Fund on Tuesday. The court held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) did not strip state courts of jurisdiction to adjudicate class actions alleging 1933 Securities Act violations. Justice Elena Kagan wrote for the court, finding that SLUSA “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” The decision could spur more class action IPO cases to be filed in state courts.

OTHER NOTEWORTHY ITEMS

United Kingdom Launches Cryptocurrency Task Force: On Thursday, the U.K. government announced plans to form a task force to review the risks and benefits of cryptocurrency, with the goal of making the U.K. the “most attractive home” for FinTech firms. The task force will include Britain’s central bank, Treasury, and the Financial Conduct Authority. In the announcement, Chancellor of the Exchequer Philip Hammond said, “This will help the U.K. to be at the forefront of harnessing the potential benefits of the underlying technology.”