THE BIG PICTURE
The government unexpectedly shut down, after Republicans and Democrats failed to come to an agreement on a variety of issues, including children's health insurance, the Deferred Action for Childhood Arrivals program, border security, and domestic spending. Unlike the last government shutdown, which came with plenty of warning time and weeks to try and avoid, this shutdown happened abruptly and with little warning. As of Sunday evening, the situation is still in flux.
President Trump signed into law surveillance legislation last week, after passing the Senate on January 18 amid some opposition. The legislation authorizes digital spying tools that intercept information and correspondence of foreign targets but also incidentally collect the personal information of Americans. Many privacy groups opposed the bill, but Senate Majority Leader Mitch McConnell (R-KY) said that the statute is "one of the most important tools that our national security professionals use to combat terrorism and to keep Americans safe."
The Supreme Court announced on January 19 that it will review the legality of President Trump's latest travel ban. The announcement comes two months after the Court allowed the President's request to fully reinstate the ban. In other court news, the Department of Justice is appealing a federal district court judge's decision to block the Trump Administration from ending the DACA program.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Committee Holds Two-Day Markup to Consider 17 Bills: On January 17-18, the Committee met to mark up 17 pieces of financial services-related legislation. Among the legislation approved was H.R. 2319, a bill that would reverse structural changes to the money-market mutual-fund industry. The legislation would scrap a post-crisis rule that would require money-market mutual funds to float the net asset value (NAV) and allow certain funds to return to offering investments with stable US$1 share prices.
The markup also included some pieces of the Financial CHOICE Act, and according to the Committee included legislation on topics including "regulatory relief for community financial institutions, increased investment opportunities, improved access to financing for home buyers, greater consumer protection, and development of a national strategy to combat financial crime." It is unclear whether any of the legislation will move in the Senate. The full list of legislation passed by the Committee is below:
- H.R. 4768, the “National Strategy for Combating the Financing of Transnational Criminal Organizations Act” was AGREED TO, as amended, by a recorded vote of 53 ayes and 0 nays (FC-136).
- H.R. 1264, the “Community Financial Institution Exemption Act” was AGREED TO, as amended, by a recorded vote of 30 ayes and 25 nays (FC-137).
- An amendment in the nature of a substitute offered by Mr. Williams, no. 1, was AGREED TO by a voice vote.
- H.R. 1426, the “Federal Savings Association Charter Flexibility Act of 2017” was AGREED TO by a recorded vote of 55 ayes and 0 nays (FC-138).
- H.R. 2255, the “Housing Opportunities Made Easier Act” was AGREED TO by a recorded vote of 55 ayes and 0 nays (FC-139).
- H.R. 2226, the “Portfolio Lending and Mortgage Access Act” was AGREED TO, as amended, by a recorded vote of 55 ayes and 0 nays (FC-140).
- H.R. 3746, the “Business of Insurance Regulatory Reform Act of 2017” was AGREED TO by a recorded vote of 37 ayes and 18 nays (FC-141).
- H.R. 4607, the “Comprehensive Regulatory Review Act” was AGREED TO by a recorded vote of 38 ayes and 17 nays (FC-142).
- H.R. 4725, the “Community Bank Reporting Relief Act” was AGREED TO by a recorded vote of 55 ayes and 0 nays (FC-143).
- H.R. 4771, the “Small Bank Holding Company Relief Act of 2018” was AGREED TO by a recorded vote of 41 ayes and 14 nays (FC-144).
- H.R. 2319, the “Consumer Financial Choice and Capital Markets Protection Act of 2017” was AGREED TO, as amended, by a recorded vote of 34 ayes and 21 nays (FC-145).
- An amendment in the nature of a substitute offered by Mr. Rothfus, no. 1, was AGREED TO by a voice vote
- H.R. 4061, the “Financial Stability Oversight Council Improvement Act of 2017” was AGREED TO by a recorded vote of 45 ayes and 10 nays (FC-146).
- H.R. 4566, the “Alleviating Stress Test Burdens to Help Investors Act” was AGREED TO, as amended, by a recorded vote of 47 ayes and 8 nays (FC-147).
- An amendment in the nature of a substitute offered by Mr. Poliquin, no. 1, was AGREED TO by a voice vote.
- H.R. 4738, the “Mutual Fund Litigation Reform Act” was AGREED TO by a recorded vote of 31 ayes and 25 nays (FC-148).
- H.R. 4785, the “American Customer Information Protection Act” was AGREED TO by a recorded vote of 31 ayes and 25 nays (FC-149).
- H.R. 4792, the “Small Business Access to Capital After a Natural Disaster Act” was AGREED TO by a recorded vote of 57 ayes and 0 nays (FC-150).
SENATE BANKING COMMITTEE
Committee Holds Hearing on Money Laundering and Other Illicit Finance: On January 17, the Banking Committee held a hearing entitled "Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement." The purpose of the hearing was to hear from Department of Treasury and Department of Justice witnesses on the potential for modernization of the United States anti-money laundering and counter terrorist financing regime. In his opening statement, Chairman Mike Crapo (R-ID) said that there is a "clear bipartisan interest" in modernizing the BSA/AML regime. Witnesses included:
- The Honorable Sigal Mandelker, Under Secretary for Terrorism and Financial Crimes, U.S. Department of the Treasury; and
- Mr. M. Kendall Day, Acting Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice.
At the hearing, Mandelker spoke about virtual currency as an "evolving threat." She also said that the Financial Crimes Enforcement Network (FinCEN) will review guidance that allowed banks to service marijuana businesses. The statement comes after the Justice Department reversed Obama Administration policies regarding enforcement of federal drug laws in states that legalized marijuana.
Before the hearing, the Committee re-approved nominations that lapsed at the end of last year, including:
- Federal Reserve Governor Jerome Powell for Chairman of the Fed
- Randal Quarles for Federal Reserve Governor;
- Brian Montgomery for Federal Housing Administration Commissioner;
- Robert Hunter Kurtz for Housing and Urban Development Assistant Secretary for Public and Indian Housing; and
- David Ryder of the United States Mint.
Committee Holds Hearing on Committee for Foreign Investment in the United States: On January 18, the Senate Banking Committee held a hearing entitled "CFIUS Reform: Examining the Essential Elements." The purpose of the hearing was to examine the Foreign Investment Risk Review Modernization Act of 2017, which was introduced last year by Senators Diane Feinstein (D-CA) and John Cornyn (R-TX). The legislation aims to "modernize and strengthen CFIUS to more effectively guard against the risk to the national security of the United States posed by certain types of foreign investment. Witnesses included:
- Panel I:
- The Honorable John Cornyn, United States Senator (R-TX).
- Panel II
- T he Honorable Christopher Padilla, Vice President for Government and Regulatory Affairs, IBM Corporation, and former Under Secretary for International Trade, U.S. Department of Commerce;
- Mr. Scott Kupor, Managing Partner, Andreessen Horowitz, and Chairman of the Board, National Venture Capital Association;
- Dr. Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Peterson Institute for International Economics; and
- Dr. James Mulvenon, General Manager, Special Programs Division, SOS International.
FINANCIAL SERVICES ON THE FLOOR
House Approves Bill to Ease Mortgage Reporting Rules: On January 18, the House passed H.R. 2954, the Home Mortgage Disclosure Act. The legislation that would scale back rules requiring lenders to collect loan data and report it to regulators. Financial Services Ranking Member Maxine Waters (D-CA) spoke out against the legislation, saying that it would "undermine efforts to monitor trends in mortgage lending, combat discriminatory and predatory lending, and ensure that consumers who reside in low-and moderate-income communities have fair access to mortgage credit."
House Approves World Bank Accountability Act: On January 17, the House passed H.R. 3326, the World Bank Accountability Act. The legislation makes a share of future World Bank appropriations contingent on reforms to the Bank's International Development Association (IDA). The IDA has been plagued by numerous issues, including, according to the Committee, "institutional incentives that prioritize loan volume over delivering actual results; continued lending to corrupt regimes that abuse their citizens and trample on economic freedom for the poor; and insufficient attention paid to auditing Bank initiatives for corruption."
THIS WEEK ON THE HILL
Tuesday, January 23
- Ms. Jelena McWilliams, to be Chairperson and a Member of the Board of Directors of the Federal Deposit Insurance Corporation;
- Dr. Marvin Goodfriend, to be a Member of the Board of Governors of the Federal Reserve System; and
- Mr. Thomas E. Workman, of New York, to be a Member of the Financial Stability Oversight Council.
Thursday, January 25
Senate Banking Committee, Hearing, CFIUS Reform: Administration Perspectives on the Essential Elements, 10:00AM, 538 Dirksen Senate Office Building
- The Honorable Heath P. Tarbert, Assistant Secretary of the Treasury for International Markets and Investment Policy;
- The Honorable Richard Ashooh, Assistant Secretary of Commerce for Export Administration; and
- Mr. Eric Chewning, Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy (MIBP).
Acting Consumer Financial Protection Bureau (CFPB) Asks for No Funding for Agency: Acting Director Mick Mulvaney requested US$0 to cover the agency's second quarter expenses. Mulvaney wrote in a January 17 letter to Federal Reserve Chair Janet Yellen that the agency had US$177.1M left over at the start of the federal government's 2018 fiscal year in September.
Commodity Futures Trading Commission Issues Two Enforcement Actions Related to Virtual Currencies: The CFTC charged two individuals last week in connection with fraudulent virtual currency schemes. Patrick K. McDonnell allegedly induced people to send him money in exchange for virtual trading advice and services, but he did not provide the services and kept the money. Dillon Michael Dean allegedly raised US$1.1M from over 600 people in another fraudulent scheme.
The CFTC and the Securities and Exchange Commission (SEC) jointly issued a statement last week related to virtual currency enforcement actions, saying that the agencies will "look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws."
Also last week, CFTC Chairman J. Christopher Giancarlo said that the agency will add new protection for virtual currency products, requiring derivatives business to gather more information about virtual currency derivatives before such products can be traded.
SEC Sends Letter to Wall Street on Exchange-Traded Funds: The SEC sent a letter on January 18 to Wall Street trade groups outlining its concerns related to exchange-traded funds that hold bitcoin and other cryptocurrencies. The SEC questioned how the volatility and potential illiquidity of cryptocurrencies would fit with funds that must calculate a fair market price for their portfolio at the end of each trading day and give investors the option to cash out on shares. The SEC's director of investment management, Dalia Blass, wrote that "until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products."
Acting Director Mick Mulvaney Announces Call for Evidence Regarding Consumer Financial Protection Bureau Functions: On January 17, The Consumer Financial Protection Bureau announced that it is issuing a call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers. In coming weeks, the Bureau will be publishing in the Federal Register a series of Requests for Information (RFIs) seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. These RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.
CFPB Issues Statement on Payday Rule: On January 16, 2018, the CFPB issued a statement recognizing the date as the effective date of the “Payday, Vehicle Title, and Certain High-Cost Installment Loans" ("Payday Rule"). The Bureau announced that it intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule. It also stated that: "Today’s effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system ("RIS") under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant."
Treasury Department Warns about Venezuelan Cryptocurrency: On January 17, the Treasury Department warned investors to avoid Venezuela's proposed oil-backed cryptocurrency. Officials claimed that the currency is a clear effort by the Venezuelan government to avoid sanctions imposed on it by the Trump Administration last year. The sanctions prohibit the purchase of newly issued debt that the U.S. imposed on Venezuela in August.
Federal Reserve Czar Randal Quarles Says Federal Reserve Will Still Implement Net Stable Funding Ratio: Speaking to the American Bar Association's Banking Law Committee, Federal Reserve regulatory czar Randal Quarles said that the central bank still intends to implement a standard that will require banks to hold liquid assets in sufficient amounts to provide stable funding over the course of a year. He did say, though, that the Fed is still reviewing public input that it received on the proposed rule.
In the speech, Quarles spoke broadly about the need for simpler oversight, including reducing the number of capital requirements faced by large lenders.
Federal Housing Finance Agency Recommends Government Guarantee in Housing Overhaul: The FHFA is recommending that Congress convert mortgage giants Fannie Mae and Freddie Mac into privately owned utilities, with the government backing the housing finance market with an explicit guarantee. The FHFA outlined its proposal in documents sent to the Senate Banking Committee last week.
Trump Administration Drops MetLife Appeal: The Trump Administration has dropped the appeal of a 2016 court ruling that released MetLife, Inc. from heightened federal oversight and its designation of a "systemically important financial institution." The Obama Administration appealed the ruling, but the Trump Administration was expected to drop the appeal.
COMINGS AND GOINGS AT THE AGENCIES
CFTC Chair Chooses Senior Counsel: CFTC Chairman J. Christopher Giancarlo announced last week that he was selecting Maggie Sklar to serve as his senior counsel. Sklar is currently a high-ranking attorney at the agency and previously worked at three prominent law firms.
Administration Considering John Williams for Vice Chairman of Federal Reserve Board: The Trump Administration is reportedly considering John Williams, current president of the Federal Reserve Bank of San Francisco, to serve as Vice Chair of the Federal Reserve Board in Washington.