THE BIG PICTURE

It was a relatively slow week in Congress as both chambers are in recess. President Trump, however, has been making headlines with his standoff with North Korea, noting that the U.S. is locked and loaded for “fire and fury” in response to Pyongyang’s threats against the United States. The President’s statement came after reports that officials think North Korea has developed a small nuclear weapon that could fit on a missile. President Trump also blamed Senate Majority Leader Mitch McConnell for inaction in Congress and said that legislators should be able to pass tax reform, an infrastructure bill, and repeal and replace Obamacare. White House Chief of Staff John Kelly is busy preparing for the President’s fall agenda.

Republicans Plan to Debate 12 Spending Bills After Recess: According to GOP aides, House Republicans plan to debate in early September an appropriation package composed of 12 bills. Part of this will be the four-bill “minibus” passed last month, which includes the Defense, Energy-Water, Legislative Branch, and Military Construction-VA titles. Those four bills would not be subject to further amendment, but the other eight will be amendable. Amendments are expected to be due to the Rules Committee by August 25.

President Trump Declares Opioid Crisis a National Emergency: Following the recent recommendation of the White House’s opioid commission led by New Jersey Governor Chris Christie, President Donald Trump announced on August 10 that he is taking steps to declare the opioid crisis a “national emergency.”

Paul Manafort’s Home Raided Late Last Month: It was reported last week that Donald Trump’s former campaign chairman Paul Manafort’s home was raided by the FBI on July 26. Supposedly, materials were seized as part of the ongoing Russia probe led by special counsel Robert Mueller.

ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Committee Sends Letter Calling Administration to Repudiate Operation Choke Point: House Financial Services Committee Republicans sent a letter to Attorney General Jeff Sessions, Federal Reserve Chair Janet Yellen, and Comptroller of the Currency Keith Noreika asking the Trump Administration to repudiate Operation Choke Point, an Obama Administration initiative that Republicans claim “destroyed legitimate businesses to which the Administration was ideologically opposed.”

SENATE BANKING COMMITTEE

Senator Elizabeth Warren (D-MA) Sends Letters to CEOs about Arbitration Rule: U.S. Senator Elizabeth Warren, member of the Senate Banking Committee, sent letters to the CEOs of 16 large financial institutions asking whether they supported or opposed the Consumer Financial Protection Bureau's (CFPB) forced arbitration rule. The letters also request data on the firms' use of arbitration clauses in consumer agreements and the outcomes of arbitration proceedings. Most banks have been silent about the CFPB rule, which goes into effect on September 18, 2017, with a March 19, 2018 mandatory compliance date, but banking trade associations have been vocal in their opposition.

Randal Quarles Responds to Ranking Member Sherrod Brown’s (D-OH) Questions Following Hearing: Following a July 27 hearing, Senate Banking Committee Ranking Member Sherrod Brown asked Federal Reserve vice chairman nominee Randal Quarles to explain a comment he made in a 2015 interview in which he said “the government should not be a player in the financial sector” and should be “a referee” instead. Quarles responded that his “approach to policy making, and particularly to regulation, has been that the discretion of policy makers, and particularly of regulators, should be as constrained as possible.”

THE REGULATORS

Department of Labor Proposes Delaying Fiduciary Duty Rule: The Department of Labor has proposed delaying the Fiduciary Duty Rule’s second applicability date to July 2, 2019. The current applicability date is January 1, 2018. The delay proposal is posted on the Office of Management and Budget’s regulatory review site.

Federal Housing Finance Agency (FHFA) Director Mel Watt Concerned about Fannie and Freddie: FHFA Director Watt said in a letter to the National Association of Realtors that he is “very concerned” about Fannie Mae and Freddie Mac. In the letter, Watt wrote that he has “publicly expressed [his] concerns that the declining capital buffers leave the Enterprises with litter or no ability to absorb losses that could be caused by a variety of market and non-credit related factor.” The government-sponsored enterprises will be bereft of capital as of January 1.

Department of Housing and Urban Development Reports “Worst Case Housing Needs” Released in 2015: The number of very poor unsubsidized families struggling to pay their monthly rent and who may also be living in substandard housing increased between 2013 and 2015, according to a new report released on August 9 by the U.S. Department of Housing and Urban Development. HUD reports that in 2015, 8.3 million very low-income unassisted families paid more than half their monthly income for rent, lived in severely substandard housing, or both.

Regulators Extend Resolution Plan Filing Deadline for Certain Foreign and Domestic Banks: The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) on August 8 extended the resolution plan filing deadline for 21 domestic and foreign banks to December 31, 2018, giving the firms an additional year to address any supervisory guidance in their next plan submissions. Resolution plans, or “living wills,” are required by the Dodd-Frank Act, must describe the company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company. For foreign banking organizations, resolution plans are focused on their U.S. operations.

Securities and Exchange Commission (SEC) to Decide on New Rival to Wall Street Stock Exchanges: The New York Stock Exchange and Nasdaq are facing a move by smaller rival Bats Global, which has proposed an alternative, cheaper way to price shares when the trading day ends. The SEC must decide on the proposal by August 20, and is receiving significant pressure from the major exchanges to reject the proposal.

Regulator Penalties Decrease Under Trump Administration: According to a Wall Street Journal analysis, penalties imposed by financial regulators have been far lower in the first six months of Donald Trump’s presidency than during the first six months of 2016 during the Obama Administration. Financial lawyers have said the shift could be to the business-friendly stance of the Trump Administration, as well as other factors including the winding down of cases from the financial crisis and a delay due to change in Administration. Kevin Callahan, a spokesman for the SEC, said that six months isn’t a long enough time period to draw conclusions about the agency’s effectiveness. James McDonald, enforcement chief at the Commodity Futures Trading Commission, said that a variation in penalties from year to year is normal.

SEC Delays Approving Acquisition of Chicago Stock Exchange: The SEC announced on August 9 that it is delaying its decision on the controversial acquisition of the Chicago Stock Exchange by a group of Chinese investors. Agency staff previously signed off on the deal in an earlier order. In the August 9 announcement, SEC Secretary Brent Fields said that the order “is stayed until the commission orders otherwise.”

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

Conservative Groups Escalate Fight over Export-Import Bank Nomination: Conservative groups including the Club for Growth, Heritage Action for America and Freedom Works sent a letter to Senate Banking Chairman Mike Crapo (R-ID) saying that they would oppose any nominations to the Ex-Im board unless former Rep. Scott Garrett’s name moved forward as Ex-Im head. Garrett’s nomination is controversial because he was one of the Bank’s lead opponents while in Congress.

SEC Division of Investment Management Director David W. Grim Leaving Agency: David W. Grim is leaving the SEC’s Division of Investment Management this month after two years of head of the division. Investment advisers, mutual funds, private equity funds, and other regulated entities are hoping that this means less rulemaking and more guidance. Experts say that Chairman Jay Clayton’s pick to replace Grim will likely share Clayton’s concerns about capital formation and investor choice.

OTHER NOTEWORTHY ITEMS

Tax Foundation Releases Report on Effects of Lowering Mortgage Interest Deduction Cap:According to a report released by the Tax Foundation on August 8, lowering the mortgage interest cap would raise about $319B over the next decade. Currently, individuals can deduct mortgage interest paid on a mortgage up to $1M and the proposal would cut that number by 50 percent. The funds raised would come primarily from high-income taxpayers. The report also estimates that cutting the mortgage deduction by 50 percent could raise enough revenue to reduce the corporate tax rate by about three percentage points.

Eleven Global Banks Announce Blockchain Trade Milestone: After 12 months of testing, 11 banks have created a cross-border trade finance application for small and midsized companies using blockchain technology. According to Jim Bidwell of Royal Bank of Scotland Group PLC, “distributed ledger technology has huge potential to improve customer experience and reduce costs across trade finance, which has remained largely unchanged for many years.”