THE BIG PICTURE

The controversy over President Trump’s phone call with Ukrainian president Volodymyr Zelensky dominated headlines last week. The call led to a whistleblower complaint alleging the President had “solicit[ed] interference” in the 2020 election by pressuring Zelensky to investigate former Vice President and current candidate Joe Biden’s son, and claiming the administration had moved to hide evidence of the call on a classified server. The administration released a transcript of the conversation and a declassified version of the complaint, but these moves failed to stem the mounting tide of criticism and outrage from Democrats. In the wake of the release, the U.S. special envoy to Ukraine Kurt Volker resigned his position.

On Tuesday, House Speaker Nancy Pelosi announced that she would support launching a formal impeachment inquiry, saying the President had committed a “betrayal of his oath of office.” As of Wednesday, 218 lawmakers supported the move – 217 Democrats along with the newly independent Rep. Justin Amash. As part of the inquiry, on Thursday Secretary of State Mike Pompeo was subpoenaed by the House Foreign Affairs for documents related to the President’s Ukraine contacts. In addition, the Committee noticed depositions for five State Department officials. House Intelligence Committee Chair Adam Schiff told his colleagues that “more subpoenas and investigatory steps will occur next week, as the investigation accelerates.” The President hit back via Twitter, calling the proceedings “the greatest scam in the history of American politics!”

On Thursday, the Senate voted 85-15 to pass a continuing resolution to fund the government at current levels through November 21st and avert a government shutdown. The President signed the stop gap spending bill into law the next day. That same day, the Senate Appropriations Committee held a mark-up of five FY2020 spending bills, ultimately advancing them all for consideration.

Other highlights of last week include:

  • The U.S. and Japan reached a trade deal that will lower or remove tariffs on agricultural products as well as prohibit duties on digital products.
  • The DNC announced the criteria for candidates to qualify for the fifth debate. In order to appear on stage, the contenders will need to be polling at 3% in four approved polls and receive donations from 165,000 unique donor.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing on “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat”: On Tuesday, the full Committee held a hearing to receive the testimony of all five Commissioners of the SEC for the first time since 2007. Chairwoman Maxine Waters (D-CA) opened by criticizing the agency as “not fulfilling its mission as Wall Street’s cop” and decried the rollback of the Volcker rule. SEC Chairman Jay Clayton noted that the Supreme Court’s decision in Kokesh “was adverse both for investors defrauded and adverse for the markets,” adding that the agency wants to see a fix “move forward here and in the Senate.”

  • Chairman Jay Clayton
  • Commissioner Robert Jackson Jr.
  • Commissioner Hester Peirce
  • Commissioner Elad Roisman
  • Commissioner Allison Herren Lee

Hearing on “Examining the Racial and Gender Wealth Gap in America”: On Tuesday, the Subcommittee on Diversity and Inclusion held a hearing to examine the state of the racial and gender wealth divide in America and explore policy and industry solutions to improve wealth building opportunities for women and minorities.

  • Kilolo Kijakazi, Director, Institute Fellow, Urban Institute
  • Dedrick Asante-Muhammad, Chief of Race, Wealth and Community, National Community Reinvestment Coalition
  • Mariko Chang, Researcher, Author, and President, Mariko Chang Consulting, Inc.
  • Sally Krawcheck, Co-Founder and Chief Executive Officer, Ellevest
  • Lisa Cook, Professor of Economics, Michigan State University

Hearing on “Promoting Financial Stability: Assessing Threats to the U.S. Financial System”: On Wednesday, the Subcommittee on Consumer Protection and Financial Institutions held a hearing to provide the Committee with an opportunity to review OFR’s and the Federal Reserve’s most recent financial stability reports, as well as consider legislative proposals to promote financial stability. During her testimony, Fed Governor Lael Brainard described recent repo market instability as a “simple imbalance.”

  • Dino Falaschetti, Director, Office of Financial Research, U.S. Department of the Treasury
  • Lael Brainard, Governor, Board of Governors of the Federal Reserve System

Hearing on “Protecting Seniors: A Review of the FHA’s Home Equity Conversion Mortgage (HECM) Program”: On Wednesday, the Subcommittee on Housing, Community Development, and Insurance held a hearing to examine the Federal Housing Administration’s (FHA’s) Home Equity Conversion Mortgage (HECM) program, which remains the only source of federal backing for reverse mortgages. The program was created in 1988 to help seniors access the equity in their homes without being forced to sell their home, or enter into home equity loans with unaffordable payments. This hearing explored the benefits that the program offers for seniors as well as some of the challenges that the program has encountered.

  • Sarah Bolling Mancini, Staff Attorney, National Consumer Law Center
  • Alicia Puente Cackley, Director, Financial Markets and Community Investment, Government Accountability Office (GAO)
  • Peter H. Bell, President & Chief Executive Officer, National Reverse Mortgage Lenders Association (NRMLA)
  • Laurie Goodman, Vice President, Housing Financial Policy, Urban Institute

Hearing on “Examining Legislation to Protect Consumers and Small Business Owners from Abusive Debt Collection Practices”: On Thursday, the full Committee held a hearing to examine legislation to curb predatory and abusive debt collection practices. Chairwoman Maxine Waters (D-CA) noted that in the past year the CFPB had “received over 81,000 consumer complaints about debt collection practices” and noted that “communities of color are disproportionately affected.”

  • The Honorable Rohit Chopra, Commissioner, Federal Trade Commission
  • Rev. Dr. Cassandra Gould, Pastor, Quinn Chapel A.M.E. Church (Jefferson City, MO) and Executive Director, Missouri Faith Voices
  • Ms. Bhairavi Desai, Executive Director, New York Taxi Workers Alliance
  • Ms. April Kuehnhoff, Staff Attorney, National Consumer Law Center
  • Professor Dalié Jiménez, Professor of Law, University of California, Irvine School of Law
  • Ms. Sarah Auchterlonie, Shareholder, Brownstein Hyatt Farber Schreck
  • Mr. John H. Bedard, Jr., Owner, Bedard Law Group, P.C.

Hearing on “The Future of Real-Time Payments”: On Thursday, the Task Force on Financial Technology held a hearing to examine how the nearly instantaneous clearing and settlement of payments stands to benefit consumers and small businesses, as well as the challenges it presents to both operation and security.

  • Esther George, President and Chief Executive Officer, Federal Reserve Bank of Kansas City
  • Harsh Sinha, Chief Technology Officer, TransferWise
  • Bob Steen, Chairman and Chief Executive Officer, Bridge Community Bank, on behalf of the Independent Community Bankers of America
  • Rodney Williams, Cofounder and Chief Commercial Officer, LISNR
  • Carol Benson, Founding Partner, Glenbrook

SENATE BANKING COMMITTEE

Hearing on “Facilitating Faster Payments in the U.S.”: On Wednesday, the Senate Banking Committee held a hearing to consider the existing and proposed platforms for facilitating faster payments in the United States. Committee Chairman Mike Crapo (R-ID) noted he wanted to learn more about a number of related issues, including “clear demonstration of the market failure or problem that the Fed believes it must solve through the development of its own real-time payments system; how the existing real-time payments platform works, how it has been impacted by the Fed so far and the consequences of the Fed developing a competing system; and how the Fed believes its proposed system could achieve interoperability, minimize negative effects to existing private sector participants, and fully recover its costs quickly.”

  • Esther George, President and Chief Executive Officer, Federal Reserve Bank of Kansas City
  • Robert Hunter, Executive Managing Director and Deputy General Counsel, The Clearing House
  • George Selgin, Senior Fellow and Director, CATO Institute
  • Bob Steen, President and Chief Executive Officer, Bridge Community Bank, on behalf of the Independent Community Bankers of America
  • Sheila Bair, Former Chair, Federal Deposit Insurance Corporation

ON THE FLOOR

House Passes Pot Banking Bill: On Wednesday, the House passed H.R. 1595, the “Secure And Fair Enforcement Banking (SAFE) Act of 2019” by a vote of 321-103. The bipartisan measure was sponsored by Congressmen Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH) and Warren Davidson (R-OH) and is intended to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses. A provision involving hemp was included, perhaps as a sweetener to sway Senate Majority leader Mitch McConnell (R-KY).

House and Senate Rebuke President over National Emergency Declaration: On Wednesday, the Senate voted 54-41 on a resolution to overturn President Trump’s declaration of a national emergency at the southern border in order to use funds for the construction of a border wall. Despite being joined by 11 Republicans, Democrats failed to form a veto-proof majority. On Friday, the House voted 236-174 on a similar resolution.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 4407: Rep. Kevin Hern (R-OK) introduced H.R. 4407, the “SCORE for Small Business Act of 2019” which would amend the Small Business Act to reauthorize the SCORE program.

H.R. 4410: Rep. Scott Tipton (R-CO) introduced H.R. 4410, the “Rare Earth Cooperative 21st Century Manufacturing Act” which would provide for the establishment of the Thorium-Bearing Rare Earth Refinery Cooperative.

H.R. 4421: Rep. Zoe Lofgren (D-CA) introduced H.R. 4421, the “Bankruptcy Venue Reform Act of 2019” which would amend title 28, United States Code, to modify venue requirements relating to bankruptcy proceedings. In a statement, Rep. Lofgren explained that “Justice requires that community stakeholders be able to fully participate and that these proceedings be adjudicated by someone from and knowledgeable of the community, rather than allowing corporations to choose a court where an entire cottage industry has been built around favorable decisions that benefit corporate interests above all else.”

H.R. 4458: Rep. Patrick McHenry (R-NC) introduced H.R. 4458, which would require the Board of Governors of the Federal Reserve System to issue reports on cybersecurity with respect to the functions of the Federal Reserve System.

H.R. 4476: Rep. Carolyn Maloney (D-NY) and Patrick McHenry (R-NC) introduced H.R. 4476, the “Financial Transparency Act” which would amend securities, commodities, and banking laws to make the information reported to financial regulatory agencies electronically searchable, to further enable the development of RegTech and Artificial Intelligence applications, to put the United States on a path towards building a comprehensive Standard Business Reporting program to ultimately harmonize and reduce the private sector’s regulatory compliance burden, while enhancing transparency and accountability.

H.R. 4491: Rep. Tom Malinowski (D-NJ) introduced H.R. 4491, which would amend the Securities Exchange Act of 1934 to require shareholder authorization before a public company may make certain political expenditures.

H.R. 4492: Rep. Gwen Moore (D-WI) introduced H.R. 4492, which would protect the investment choices of investors in the United States.

S. 2529: Senators Chuck Grassley (R-IA), Tammy Baldwin (D-WI), Joni Ernst (R-IA), and Dick Durbin (D-IL) introduced S. 2529, which would amend the Commodity Exchange Act and the Securities Exchange Act of 1934 to modify provisions relating to whistleblower incentives and protection. In a statement, Sen. Grassley noted that “internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors.”

S. 2563: Senators Mark Warner (D-VA) and Tom Cotton (R-AR) introduced S. 2563, the “Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act” which would improve corporate transparency, strengthen national security, and help law enforcement combat illicit financial activity being carried out by terrorists, drug and human traffickers, and other criminals. The measure would for the first time, require shell companies—often used as fronts for criminal activity—to disclose their true owners to the U.S. Department of Treasury.

S. 2571: Sen. Jeanne Shaheen (D-NH) introduced S. 2571, which would amend the Internal Revenue Code of 1986 to allow a business credit for gain from the sale of real property for use as a manufactured home community.

THIS WEEK ON THE HILL

No hearings scheduled during recess period.

THE REGULATORS

Agencies Issue Final Rule to Exempt Certain Residential Real Estate Transactions From Appraisal Requirements: On Friday, the Federal Reserve, FDIC, and the OCC adopted a final rule that increases the threshold for residential real estate transactions requiring an appraisal from US$250K to US$400K. The appraisal threshold was last changed in 1994. For transactions exempted from the appraisal requirement, the final rule requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral.

SEC Adopts New Rule to Modernize Regulation of Exchange-Traded Funds: On Thursday, the SEC announced that is has voted to adopt a new rule and form amendments that are designed to modernize the regulation of exchange-traded funds (ETFs), by establishing a clear and consistent framework for the vast majority of ETFs operating today. The agency touted the move, saying it will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors and also will allow ETFs to come to market more quickly without the time or expense of applying for individual exemptive relief.

SEC Proposes Amendments to Enhance Retail Investor Protections: On Thursday, the SEC announced that it has voted to propose amendments to Exchange Act Rule 15c2-11, which sets out certain requirements with which a broker-dealer must comply before it can publish quotations for securities in the over-the-counter (“OTC”) market. The proposed amendments are designed to modernize the Rule, which was last substantively amended in 1991, and to enhance investor protection by requiring that current and publicly available issuer information is accessible to investors. The proposed amendments would provide greater transparency to the investing public by requiring that information about the issuer and the security be current and publicly available before a broker-dealer can begin quoting that security.

SEC Adopts New Rule to Allow All Issuers to “Test-the-Waters”: On Thursday, the SEC announced that it has voted to adopt a new rule that extends a “test-the-waters” accommodation—currently a tool available to emerging growth companies or “EGCs”—to all issuers. Under the new rule, all issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement. “The final rule benefits from the staff’s experience with the test-the-waters accommodation that has been available to EGCs since the Jumpstart Our Business Startups Act (JOBS Act),” said SEC Chairman Jay Clayton. “Investors and companies alike will benefit from test-the-waters communications, including increasing the likelihood of successful public securities offerings.”

Warren Calls on SEC to Take Action Over ‘Inflated’ Bond Ratings: In a letter to SEC Chairman Jay Clayton, Sen. Elizabeth Warren (D-MA) called on the agency to “take immediate action” regarding “troubling reports regarding inflated bond ratings and the perverse incentives within the bond rating industry.” Sen. Warren questioned why the agency had not “taken meaningful action to curb the activities of bond rating agencies, given their large contributions to the financial crisis that cost the U.S. economy trillions of dollars and millions of Americans their homes, jobs, and savings.”

CFTC Commissioner Discusses Fintech: Speaking at a conference on Thursday, CFTC Commissioner Dan Berkovitz discussed his view that the agency should “dedicate a significant portion of its fintech initiative to engaging more actively with market participants and infrastructure technology developers to facilitate more effective and efficient compliance with our regulations.” He also noted that “where feasible, compliance should be integrated into digitized documentation and automated transaction activities and become a seamless part of transacting in swaps.”

Former NY Fed Chief Discusses Potential Standing Repo Facility: During an interview on Monday, former head of the New York Fed President William Dudley predicted that the Fed would “strongly consider … introducing a standing repo facility, so whenever there is upward pressure on short-term rates, there is a facility that people can come to and do repo with, and that would sort of take away any risk of a big upswing.”

FHFA Instructs FHL Banks to Begin Transitioning Away from LIBOR: On Friday, the FHFA sent a letter to the 11 Federal Home Loan Banks instructing them that, as of December 31, 2019, they should stop purchasing investments in assets tied to LIBOR with a contractual maturity beyond December 31, 2021. As of March 31, 2020, the Federal Home Loan Banks should no longer enter into all other LIBOR-based transactions involving advances, debt, derivatives, or other products with maturities beyond December 31, 2021, with only very limited exceptions granted by FHFA. While implementing the transition away from LIBOR, FHFA noted that it will continue to examine the impact of LIBOR-based transactions on all regulated entities. Director Mark Calabria said, “This is an important step in the transition away from LIBOR to a more robust reference rate. Beginning this process immediately and providing clear timelines will help the Federal Home Loan Banks manage the risks associated with LIBOR in the most safe and sound manner possible.”

Republicans on Financial Services Committee Press OCC for Madden Workaround: The Republican members of the House Financial Services Committee wrote to the OCC asking for an “administrative” fix to neutralize the consequences from the Second Circuit’s decision in Madden v. Midland Funding. They argued that “the ‘valid when made’ doctrine has been central to U.S. banking law for more than a century, and by abandoning that principle, Madden has caused significant uncertainty and disruption in many types of lending programs,” adding that “we believe administrative solutions to mitigate the consequences of the Madden decision are available and achievable.”

Treasury Further Targets Entities and Vessels Moving Venezuelan Oil to Cuba: On Tuesday, the Treasury’s Office of Foreign Assets Control designated four entities that operate in the oil sector of the Venezuelan economy pursuant to Executive Order 13850. Additionally, OFAC identified four vessels that transport oil and other petroleum products from Venezuela to Cuba as blocked property owned or controlled by the four designated entities. “The United States continues to take strong action against the former illegitimate Maduro regime and the malign foreign actors who support it. Maduro’s Cuban benefactors provide a lifeline to the regime and enable its repressive security and intelligence apparatus,” said Treasury Secretary Steven Mnuchin. “Venezuela’s oil belongs to the Venezuelan people, and should not be used as a bargaining tool to prop up dictators and prolong the usurpation of Venezuelan democracy.”

FDIC’s Office of the Ombudsman Publishes Its 2018 Annual Report: On Monday, the FDIC’s Office of the Ombudsman, an independent, neutral and confidential liaison between the agency and its stakeholders, published its 2018 Annual Report outlining the office’s structure, outreach activities, and goals. In 2018, the Ombudsman Office handled 142 industry cases, many of which were able to be resolved by providing information and assistance (65%) for bank-specific questions or issues. The office also conducted outreach visits to nearly 500 external stakeholders, including banks, trade associations and state banking authorities. Through this engagement, the Ombudsman was able to work with bankers on many important efforts such as: [collecting ideas around reducing] regulatory burden, offering clarity around requirements of the FASB rulemaking on Current Expected Credit Losses (CECL), Truth in Lending Act (16%), and helping banks meet their obligations under the Bank Secrecy Act (15%).

COMINGS AND GOINGS AT THE AGENCIES

CFPB Announces Additions to Executive Team: On Wednesday, the CFPB announced that it had named Desmond Brown as the Deputy Associate Director for the Consumer Education and Engagement Division; Jason Brown as Assistant Director for Research; Karla Carnemark as the Deputy Chief of Staff; Ren Essene as Chief Data Officer; and Bryan Schneider as Associate Director in the Supervision, Enforcement and Fair Lending Division.

OTHER NOTEWORTHY ITEMS

State AGs Support Passage of Federal Pot Banking Bill: 21 State AGs wrote to Congress to urge for the passage of the “Strengthening the Tenth Amendment Through Entrusting States Act” which they argued would stop the “confusing and dangerous regulatory limbo” surrounding cannabis, adding that “it’s not only common sense to fold a growing multi-billion-dollar industry under the regulated banking sector, but it’s also a matter of public safety. With such widespread, bipartisan support, there is no reason this bill shouldn’t pass without delay.”

NYDFS Becomes First State Regulator to Join Network for Greening the Financial System: On Tuesday, New York Financial Services Superintendent Linda Lacewell announced that the Department of Financial Services has become the first U.S. state banking regulator to join the Network for Greening the Financial System (NGFS), a leading international coalition of nearly 50 bank supervisors dedicated to mobilizing the financial industry to address climate change. In addition, DFS also joined the Sustainable Insurance Forum (SIF), an international network of insurance supervisors seeking to find collaborative ways to help the global insurance industry meet the challenges posed by climate change. In a statement, Lacewell said “both the global banking and insurance industries have a critical role to play in addressing climate change, and as a member of NGFS and SIF, DFS will be collaborating with our international partners as well as working closely with our regulated entities to build for a sustainable future.”

Democrats Call on Appraisal Subcommittee to Explain Waiver: Rep. Maxine Waters (D-CA), Chair of the House Financial Services Committee and Sen. Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee sent a letter to the Appraisal Subcommittee Chairman Arthur Lindo requesting answers about ASC’s decision to grant a waiver of appraiser certification and licensing to the state of North Dakota. “Congress has repeatedly recognized the essential role that appraisals play in both safety and soundness and consumer protection,” Brown and Waters wrote. “That is why it is so concerning that the ASC, the primary federal organization with oversight over appraisal and appraiser standards, has acted to waive appraiser certification requirements with minimal justification.”