THE BIG PICTURE

Last week was a busy one. President Trump signed the National Defense Authorization Act (H.R. 2810) into law. The law is a funding package that includes language from the Modernizing Government Technology Act (H.R. 2227). The MGT Act would centralize funding for federal IT investment and allow agencies to use savings to invest in tech upgrades.

The two-week continuing resolution passed last week expires on December 22. Democrats have come out saying that they will not support another clean continuing resolution. Democrats are also pushing to pass a fix to the Deferred Action for Childhood Arrivals Program (DACA). President Trump has indicated that he wants a clean funding measure that would include a full-year appropriations bill for the Pentagon. House Republicans have been talking about a combination measure to fully fund defense appropriations through the end of the next fiscal year, but to use a continuation resolution for the remaining agencies through January.

Speaker Paul Ryan (R-WI) blames Democrats for the slow budget negotiations, citing their decision not to attend a meeting in late November. However, some GOP allies suggest that there is another factor slowing down the budget process: tax reform. They believe that party leaders fear a deal with Democrats on the budget will displease some Republicans enough to affect the tax reform process. In the interim, House GOP Leaders have proposed a spending bill, H.J. Res. 124, that they know will fail in the Senate in the hopes of appeasing conservative members.

Congressional Republicans are one step closer to passing a tax reform bill. House and Senate negotiators have agreed on last minute changes to the bill to gain the votes of holdout Republicans. The changes expand the child tax credit to secure the votes of Sens. Marco Rubio (R- FL) and Mike Lee (R-UT), both of whom want a bigger child tax credit. However, it is unclear if the changes will be enough to win over their votes.

The FCC voted 3-2 to repeal the Obama-era regulations of net neutrality. The vote overturns rules that prevent internet providers from blocking or slowing down web traffic or creating “paid internet” fast lanes. Instead, providers will be required to disclose their practice to the FTC. On the Hill, Sen. Bill Nelson (D-FL) is calling for Congress to preserve the net neutrality rules following this vote, which Minority Leader, Chuck Schumer (D-NY ) says he will appeal to bring to the floor. In addition, Sen. Ed Markey (D-MA) has released the text of a resolution under the Congressional Review Act to reserve the net neutrality repeal. The resolution has 15 co-sponsors.

The fight over the leadership of the Consumer Financial Protection Bureau (CFPB) continues. Last week, over 30 current and former Democratic lawmakers filed an amicus brief in support of Deputy Director, Leandra English being reinstated as acting director of the agency. The brief argues that Congress intended the CFPB to operate as an independent agency, which is now threatened by Trump’s decision to appoint Mick Mulvaney as acting director. The brief has support of Sens. Sherrod Brown and Elizabeth Warren as well as former lawmakers like Barney Frank and Chris Dodd. Separately, sixteen state attorneys general, led by New York Attorney General Eric T. Schneiderman have written a letter to Trump explaining why they believe Mulvaney’s past comments about the CFPB disqualify him.

Three women who accused President Trump of sexual harassment held a press conference on December 11 to call for Congress to investigate the issue. They cited Congress’s willingness to investigate Sen. Al Franken (D-MN) as support for opening an investigation against Trump. The White House responded that this new call for an investigation is politically motivated.

Representative Blake Farenthold (R- TX) announced that he will not be seeking re-election. This comes after allegations of sexual harassment and inappropriate behavior from former staff members and news of a House Ethics Committee investigation. The House Ethics Committee also announced an investigation into Rep. Ruben Kihuen (D- NV) over allegations of sexual harassment during his 2016 campaign. Rep. Kihuen denies these allegations but announced on Saturday that he will not seek reelection in 2018.

Finally, Bitcoin began futures trading last week. Proceeds from initial coin offerings topped $4 billion this year despite warnings from U.S. officials of risks and fraud. Securities and Exchange Commission Chairman Jay Clayton issued another such warning last week.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Committee Advanced 13 Bills: On December 13, the House Financial Services Committee released a statement saying that the committee approved 13 bills, several with bipartisan support. The bills cover a range of issues including consumer protections, international insurance regulation, Native American housing, and human trafficking. Bills passed include:

  • HR 435 the “Credit Access and Inclusion Act of 2017” was AGREED TO, as amended, by a recorded vote of 60 ayes and 0 nays (FC-128).

    • An amendment offered by Ms. Waters, no. 1, was AGREED TO by a voice vote.
  • HR 1457, the “Making Online Banking Initiation Legal and Easy Act of 2017” was AGREED TO, as amended, by a recorded vote of 60 ayes and 0 nays (FC-125).
    • An amendment in the nature of a substitute offered by Mr. Tipton, no. 1, was AGREED TO by a voice vote.
  • HR 2219, the “End Banking for Human Traffickers Act of 2017” was AGREED TO, as amended, by a recorded vote of 59 ayes and 0 nays (FC-121).
    • An amendment offered by Mr. Royce, no. 1, was AGREED TO by a voice vote.
  • HR 2948, a bill to amend the SAFE Mortgage Licensing Act of 2008 to provide a temporary license for loan originators transitioning between employers, and for other purposes, was AGREED TO by a recorded vote of 60 ayes and 0 nays (FC-129).
  • HR 3179, the “Transparency and Accountability for Business Standards Act” was AGREED TO by a recorded vote of 34 ayes and 26 nays (FC-130).
  • HR 3864, the “Native American Housing Assistance and Self-Determination Reauthorization Act of 2017” was AGREED TO, as amended, by a recorded vote of 37 ayes and 22 nays (FC-120).
    • An amendment in the nature of a substitute offered by Mr. Pearce, no. 1, was AGREED TO by a voice vote.
    • An amendment to the amendment in the nature of a substitute offered by Ms. Waters, no. 1a, was NOT AGREED TO, as amended by unanimous consent, by a voice vote.
    • An amendment to the amendment in the nature of a substitute offered by Ms. Moore, no. 1b, was NOT AGREED TO by a recorded vote of 24 ayes and 32 nays (FC-119).
  • HR 4519, a bill to amend the Securities Exchange Act of 1934 to repeal certain disclosure requirements related to resource extraction, and for other purposes, was AGREED TO by a recorded vote of 33 ayes and 27 nays (FC-123).
  • HR 4464, the “Common Sense Credit Union Capital Relief Act of 2017” was AGREED TO by a recorded vote of 33 ayes and 25 nays (FC-132).
    • An amendment offered by Ms. Waters, no. 1, was NOT AGREED TO by a recorded vote of 25 ayes and 33 nays (FC-131).
  • HR 4529, the “Accelerating Access to Capital Act of 2017” was AGREED TO by a recorded vote of 34 ayes and 26 nays (FC-124).
  • HR 4537, the “International Insurance Standards Act of 2017” was AGREED TO, as amended, by a recorded vote of 56 ayes and 4 nays (FC-135).
  • HR 4545, the “Financial Institutions Examination Fairness and Reform Act” was AGREED TO by a recorded vote of 50 ayes and 10 nays (FC-127).
    • An amendment offered by Ms. Waters, no. 1, was NOT AGREED TO by a recorded vote of 26 ayes and 34 nays (FC-126).
  • HR 4546, the “National Securities Exchange Regulatory Parity Act” was AGREED TO by a recorded vote of 46 ayes and 14 nays (FC-122).
  • HR 4560, the “GSE Jumpstart Reauthorization Act of 2017was AGREED TO by a recorded vote of 33 ayes and 27 nays (FC-134).
    • An amendment offered by Ms. Waters, no. 1, was NOT AGREED TO by a recorded vote of 26 ayes and 34 nays (FC-133).

Monetary Policy and Trade Subcommittee Holds Hearing on CFIUS: On December 14, the House Financial Services Subcommittee on Monetary Policy and Trade held a hearing entitled "Examining the Operations of the Committee on Foreign Investment in the United States (CFIUS)." The purpose of the hearing was to examine the history, operations, and operational challenges of the multi-agency panel. Witnesses included:

  • The Honorable Robert M. Kimmitt, Senior International Counsel, WilmerHale, and former Deputy Secretary and General Counsel, U.S. Department of the Treasury
  • The Honorable Alan F. Estevez, Deloitte Consulting LLP, and former Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics, Department of Defense
  • The Honorable Kevin J. Wolf, Partner, Akin Gump Strass Hauer & Feld LLP, and former Assistant Secretary of Commerce for Export Administration, U.S. Department of Commerce
  • Mr. Adam Segal, Ira A. Lipman Chair, Emerging Technologies and National Security, Director, Digital and Cyberspace Policy Program, Council on Foreign Relations
  • Ms. Nancy McLernon, President and Chief Executive Officer, Organization for International Investment

SENATE BANKING COMMITTEE

Trump’s Nominee to Head the Export-Import Bank Will Likely Be Blocked: A bipartisan opposition is likely to vote against former Rep. Scott Garrett’s nomination to head the Export-Import Bank. Garrett has struggled to find support for his nomination to head an institution that he fought to end while in Congress. This week a spokeswoman for Sen. Mike Rounds (R-S.D.) confirmed that he plans to vote against Garret’s nomination. The committee’s Democrats also plan to vote against Garrett. Further, Sen. Tim Scott (R-S.C.) has also raised some concerns about Garrett’s nomination. The vote is scheduled for Tuesday, December 19. The White House has not released a statement about what would happen if Garrett’s nomination is voted down.

Bills Introduced: The following bills were referred to the Committee this week:

    • S.2237: A bill to amend the Federal Financial Institutions Examination Council Act of 1978 to improve the examination of depository institutions, and for other purposes.
    • S.2230: A bill to require the Secretary of Housing and Urban Development to improve services for survivors of domestic violence, dating violence, sexual assault, or stalking.
    • S.2226: A bill to prohibit recipients of disaster recovery relief assistance from the Department of Housing and Urban Development from penalizing applicants that declined assistance from the Small Business Administration.

ON THE FLOOR

House Passes Mortgage Lending Bill: On December 12, the House passed an amended version of H.R. 3971, that would exempt some mortgage lenders from escrow requirements under certain conditions. Rep. Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, issued a statement in opposition to the bill. She believes it will allow a large number of mortgage service provides to remove key consumer protections. However, the top Republican on the Financial Services Committee, Jeb Hensarling (R-TX), said community banks and credit unions are "drowning in a sea of Dodd-Frank regulations," and said the CFPB's escrow requirements are "unnecessary and impractical."

New House Bill Would Limit Bank Agency Account Closures: On December 11, the House passed the Financial Institution Customer Protection Act, which will require agencies to have a valid reason to order an account shutdown beyond “reputational risk.” The new bill creates carve-outs for accounts associated with governments in Iran, North Korea, Syria, or those associated with terror financing.

House Passes Several Financial Services Bills: The House passed the bipartisan “Iranian Leadership Asset Transparency Act” (H.R. 1638), on December 13. The new law would make public the assets of top political and military leaders in Iran and how those assets are being used, including whether they are used to support terrorism. The purpose of the law is to help businesses throughout the world better choose legitimate business partners if they decide that doing business with Iran is in their interest.

On December 14, the House passed another two bills from the Financial Services Committee. The first, H.R. 2396, the Privacy Notification and Technical Clarification Act, seeks to cut down on the confusion caused by the number of annual privacy notices consumers receive from their financial institutions. If the legislation is enacted, institutions are not required to send written privacy notices annually if the notices are posted online and consumers receive monthly notification of their billing statement. The legislation is likely to get held up in the Senate by Senator Ed Markey (D-MA), who was one of the lead drafters of privacy provisions in Graham-Leech-Bliley.

The second bill, H.R. 4324, the Strengthening Oversight of Iran’s Access to Finance Act, would require the Treasury to report to Congress on any financial transactions authorized in connection with commercial passenger plane sales to Iran.

LEGISLATION INTRODUCED AND PROPOSED

Proposal To Repeal Dodd-Frank Threshold Heads to the Floor: On December 18, the House Rules Committee is set to review H.R.3312, the "Systemic Risk Designation Improvement Act of 2017.” The legislation, proposed by Blaine Luetkemeyer (R-MO), would eliminate a $50 billion asset threshold in Dodd-Frank above which banks are subject to so-called enhanced prudential standards, and instead focus on the complexity of the institution. A bipartisan group in the Senate Banking Committee is working on legislation that would raise the trigger to $250 billion.

New Bill Introduced: This week, Rep. Barry Loudermilk (R-GA) introduced bill H.R. 4607, the Comprehensive Regulatory Review Act, which was referred to the Financial Services Committee. The bill has two bipartisan original cosponsors, Rep. Josh Gottheimer (D-NJ) and Rep. Sean Duffy (R-WI), and is supported by the Independent Community Bankers of America, the American Bankers Association, the Consumer Bankers Association, and the U.S. Chamber of Commerce.

NEXT WEEK ON THE HILL

Monday, December 18

House Rules Committee to meet to formulate a rule on H.R.3312, the "Systemic Risk Designation Improvement Act of 2017." 10:00 AM, Room H-312 of the Capital Building.

Tuesday, December 19

The Senate Banking Committee will hold an Executive Session to vote on Nominations for the Export-Import Bank. 10:00AM, 538 Dirksen Senate Office Building.

THE REGULATORS

Treasury Department Launches a New Treasury.gov: On December 15, Treasury launched the first phase of its modernized website. Over the coming months, the Department will update and migrate the remaining content from its legacy site to its newly redesigned site, which will provide improved navigation and functionality.

SEC Chairman Urges Caution Before Investing in ICOs: Chairman Jay Clayton released a statement on December 11 advising “Main Street” investors and market professionals to act with caution and gain all the facts before investing in cryptocurrencies or initial coin offerings. He advised investors to be wary of offerings that promise guaranteed returns or sound too good to be true. He also stated that investors should ensure that the people they are dealing with are properly registered. Read Chairman Clayton’s full statement here.

SEC Acted to Halt an ICO: The SEC pressured a California-based startup to hold off on an initial coin offering and refund investors. The startup had been selling securities without registering with the market regulator. This move signals that the SEC and its newly created cyber unit will continue to target similar unregistered offerings. However, the SEC stopped short of penalizing the company.

Supreme Court Rejects Tribe’s Bid to Evade the CFPB: The Supreme Court declined to hear an appeal filed by two tribal leaders to overturn a Ninth Circuit decision requiring that they comply with a Consumer Financial Protection Bureau investigation. The Ninth Circuit held that the CFPB did have authority to investigate banks owned by Native American Tribes despite tribal sovereignty.

Federal Judge Dismisses a Challenge Against the OCC: A judge in the Southern District of New York dismissed a case filed by the New York Department of Financial Services against the Office of the Comptroller of the Currency. The state regulator sought to block fintech companies from receiving federal bank charters. The court ruled on the OCC’s argument that the court lacked subject matter jurisdiction, but did not address their separate motion to dismiss for failure to state a claim. The lawsuit brought by the Conference of State Bank Supervisors is ongoing.

Federal Reserve Raises Interest Rates: On December 13, the Federal Reserve raised interest rates to between 1.25 and 1.5 percent. The Fed has also stated that it expects to raise rates three times next year.

Federal Reserve Chair Excepts Tax Bill to Boost GDP: On December 13, the Federal Reserve increased its projections for GDP growth next year from 2.1 percent to 2.5 percent. Chair Janet Yellen stated that the tax bill moving through Congress influenced this change. Although Yellen emphasized that there is still some uncertainty about the ultimate effects of the tax bill, she did say that it appears as if the new bill will stimulate spending and thus potentially boost productivity.

Federal Reserve Chair Does Not Expect Major Changes in Bank Regulatory Policies: In a statement last week, outgoing Chair Janet Yellen stated that she and incoming chair Jerome Powell do not have big differences in their views on bank regulation. They both share a broad commitment to core reforms, such as stress testing and higher bank capital requirements.

Federal Reserve Should Improve Training: The central bank’s Office of Inspector General said that the Reserve could better train its new members. Currently, training does not introduce them to the full spectrum of their role and duties. The Inspection General also suggested ways that the governors could improve communication while still complying with the Sunshine Act, a law designed to ensure the public’s right to know about policy discussions.

Financial Stability Oversight Council Releases Annual Report: The Council held an open session on December 14 to discuss its 2017 annual report and receive an update from the Commodity Futures Trading Commission. The Council also held an executive session to discuss a recent report from the Treasury Secretary on the process for designating nonbank financial companies and financial market utilities. The FSOC’s annual report suggests a move towards reducing the burden of regulations. The report also notes that the U.S. financial regulatory system should focus on promoting economic growth by preventing another financial crisis while still minimizing regulations that increase costs without increasing the benefit. You can read the annual report here.

CFTC New Guidance on Registration: The Commodity Futures Trading Commission issued new guidance about who must register as a commodity trading adviser. Under this change, firms that received separate compensation for commodity trading advice do not have to register as advisors so long as the advice is issued “solely in connection” with the firm’s business operations. This new guidance is in light of Mifid II, a new European Market regime set to take effect in January.

CFTC to define its Bitcoin authority: Following criticism for allowing exchanges to self-certify Bitcoin futures, the CFTC now says it is proposing an interpretation of its authority over retail transactions in order to regulate virtual currency. The interpretation sets out the CFTC's view on the definition of an “‘actual delivery’ exemption that may apply to virtual currency transactions.” You may view the full press release here.

CFTC Launches a Virtual Currency Resource Page: The CFTC launched a webpage dedicated Commission-produced resources about virtual currency, and is designed to educate and inform the public about these commodities, including the possible risks associated with investing or speculating in virtual currencies or recently launched Bitcoin futures and options. The webpage is here.

Treasury Does Not Want to Expand FSOC’s Power: Treasury General Counsel Brent McIntosh wrote a letter published in the Wall Street Journal in which he states the Treasury Department does not support expanding the Financial Stability Oversight Council’s authority to designate financial firms for stricter regulation. Read the full letter here.

GAO Report on Capital Requirements and Stress Testing Practices: A Government Accountability Office report found that the Federal Housing Administration should improve the capital requirements and stress-testing practices for the Mutual Mortgage Insurance Fund. Currently the FHA has not defined objectives for its stress test.

Office of Financial Research Issued New Paper: The OFR released a new research paper entitled, “Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds.” The paper finds that U.S. hedge funds in part account for that risk by holding more cash and liquid assets. These holdings help funds accommodate large outflows, but also result in lower risk-adjusted returns.

Mortgage trade group asks CFPB to delay Home Mortgage Disclosure Act (HMDA) rule: The Community Home Lenders Association sent a letter to Acting CFPB Director Mick Mulvaney on December 13 requesting a delay and a safe harbor from the rule for lenders that show good-faith compliance with HMDA rule set to go into effect on January 1. The trade group is looking for assurance that non-compliance will not result in big fines or enforcement action. With just two weeks to go before the rule takes effect, changes are unlikely to occur.

COMINGS AND GOING AT THE AGENCIES

SEC Names New Members of the PCAOB: William Duhnke, a longtime aide to Sen. Richard Shelby (R.-AL), was named the new chairman of the Public Company Accounting Oversight Board. He will be joined by J. Robert Brown, currently a professor at the University of Denver; Kathleen Hamm, an official at Promontory Financial Group; James Kaiser, currently at PricewaterhouseCoopers; and Duane DesParte, who is retiring from Exelon Corp.

Financial Research Office Director to Step Down: Director Richard Berner will join New York University's Stern School of Business starting Jan. 1, the university announced today. Berner was the first director of the Office and is stepping down a year ahead of the end of his six-year term.