THE BIG PICTURE

On Thursday, President Trump announced he planned to pardon controversial conservative commentator Dinesh D'Souza, who in the President's view had been "treated very unfairly by our government!" Mr. D'Souza pleaded guilty to making illegal campaign contributions in 2014 and served a sentence of community confinement. The President also floated the idea of additional pardons for former Illinois governor Rod Blagojevich and even Martha Stewart.

The summit between President Trump and North Korean leader Kim Jong Un is officially back on schedule for June 12th, after being called off last month. The President met with Kim Yong Chol, a top North Korean official, in the Oval Office where he delivered a letter from Kim Jong Un. The President also seemed to soften his language, telling reporters that he no longer wanted to use the phrase "maximum pressure" as the relationship was "as good as it's been in a long time."

President Trump tweeted a teaser of the May jobs numbers by saying he was "looking forward to seeing the employment numbers," a move that was criticized by many former officials who questioned whether the tweet had broken protocol by hinting at the report, given that the President was likely briefed on its contents. The numbers are typically a closely guarded secret prior to their release, due to their ability to impact markets. The numbers this month were excellent, with Jason Furman, who served on President Obama's CEA saying, "I can see why President Trump was so excited that he felt compelled to hype the numbers in advance." This month's report showed that 223,000 jobs had been added in May, easily surpassing the Bloomberg estimate of 190,000 causing the unemployment rate to drop to 3.8%— an 18 year low.

The tariffs on steel and aluminum imports announced earlier this year under the auspices of national security will go into effect, it was announced this week, as the administration will allow the temporary exemptions for Canada, Mexico, and EU countries to expire. Canadian Prime Minister Justin Trudeau called the tariffs an "affront" and announced US$12.8B in retaliatory tariffs. The EU also announced a series of retaliatory tariffs, marking what could be the first moves in a transatlantic trade war. EU Commissioner for Trade Cecilia Malmstrom announced that the EU would "now trigger a dispute settlement case at the WTO, since these U.S. measures clearly go against agreed international rules."

Other highlights of last week include:

Missouri Governor Eric Greitens, who until recently had been seen as a rising star in the Republican party, officially resigned last week after months of scandal revolving around an alleged extramarital affair and subsequent claims of harassment. Governor Greitens had long resisted resignation; calling investigation by the Republican led state legislative committee a "political witch hunt".

LAST WEEK ON THE HILL

No hearings were held due to the Memorial Day recess.

THIS WEEK ON THE HILL

Monday, June 4

Senate Appropriations (Financial Services and General Government Subcommittee) Hearing "to review the Fiscal Year 2019 funding requests and budget justifications for the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission" 3:30 PM 138 Dirksen Senate Office Building

Tuesday, June 5

House Financial Services (Housing and Insurance Subcommittee) Hearing entitled "Legislative Review of H.R. 1511, the Homeless Children and Youth Act of 2017" 10:00 AM in 2128 Rayburn House Office Building

House Financial Services (Financial Institutions and Consumer Credit Subcommittee) Hearing entitled "Improving Transparency and Accountability at the Bureau of Consumer Financial Protection" 2:00 PM in 2128 Rayburn House Office Building

THE REGULATORS

Proposed Changes to Volcker Rule Released: The Federal Reserve released for comment the proposal for changes to the Volcker Rule, with the Fed's regulatory chief Randal Quarles describing it as "our best first effort at simplifying and tailoring the Volcker rule. I view this proposal as an important milestone in comprehensive Volcker rule reform, but not the completion of our work." The proposed changes were jointly developed by all five agencies responsible for administration of the Volcker rule—the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. Specifically, the proposed changes would:

  • Tailor the rule's compliance requirements based on the size of a firm's trading assets and liabilities, with the most stringent requirements applied to firms with the most trading activity;
  • Provide more clarity by revising the definition of "trading account" in the rule, in part by relying on commonly used accounting definitions;
  • Clarify that firms that trade within appropriately developed internal risk limits are engaged in permissible market making or underwriting activity;
  • Streamline the criteria that apply when a banking entity seeks to rely on the hedging exemption from the proprietary trading prohibition;
  • Limit the impact of the Volcker rule on the foreign activity of foreign banks; and
  • Simplify the trading activity information that banking entities are required to provide to the agencies.

CFPB Lifts Hold on Data Collection: Acting Director Mick Mulvaney announced on Thursday that he was going to lift the six-month old hold on collecting personally identifiable information, saying in an all-staff email that "Today, after an exhaustive review by outside experts, including a comprehensive 'white-hat hacking' effort, we can lift that hold. The independent review concluded that 'externally facing Bureau systems appear to be well-secured.'"

Fed Governor Brainard Discusses Interest Rate Setting: In a speech at the Forecasters Club of New York, Federal Reserve Governor Lael Brainard discussed the challenges the Fed faces in charting the course for interest rates, saying "I would not underestimate the challenge of calibrating monetary policy to sustain full employment and re-anchor trend inflation around 2 percent, while adjusting to sizable stimulus at a time when resource constraints are tightening and the economy is growing above trend."

SEC Obtains Emergency Order Halting Fraudulent Coin Offering "Create and Inflate" Scheme: The Securities and Exchange Commission announced it obtained a court order halting an ongoing fraud involving an initial coin offering that raised as much as $21 million from investors in and outside the U.S. The court also approved an emergency asset freeze and the appointment of a receiver for Titanium Blockchain Infrastructure Services Inc., the firm behind the alleged scheme. The complaint, which was unsealed, charges that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described "blockchain evangelist," lied about business relationships with the Federal Reserve and dozens of well-known firms in a twist on the "pump and dump" scheme.

OCC and FDIC Shorten Trade Cycle to Two Days: The OCC and the FDIC are adopting a final rule to shorten the standard settlement cycle for securities purchased or sold by national banks, federal savings associations, and FDIC-supervised institutions. The Agencies' final rule is consistent with an industry-wide transition to a two business-day settlement cycle, which is designed to reduce settlement exposure and align settlement practices across all market participants.

COMINGS AND GOINGS AT THE AGENCIES

Elad Roisman Nominated to Fill SEC Vacancy: Senate Banking Committee chief counsel, Elad Roisman, has been formally nominated to fill the vacancy to be created by Republican Commissioner Michael Piwowar when he steps down next month. Mr. Roisman was widely considered to be the top contender for the post.

Julie Erhardt Named Acting Chief Risk Officer of SEC: Julie Erhardt has been selected as the Acting Chief Risk Officer of the SEC. Ms. Erhardt joined the SEC in 2004, and has served as a Deputy Chief Accountant in the Office of the Chief Accountant since then.

THE COURTS

CFPB Joins in Seeking a Stay and Delay for Payday Loan Rule: On Thursday the CFPB joined with two trade groups to seek a stay in Community Financial Services Association of America Ltd et al v. CFPB, a suit challenging the Bureau's 2013 Payday Lending Rule, which is currently pending in the Western District of Texas. The joint motion argued that "Staying the litigation while the bureau reconsiders the payday rule would therefore conserve judicial resources, the time of this court, and expense to the parties, and potentially avoid the need for further litigation."

OTHER NOTEWORTHY ITEMS

Tax Professionals Seek Guidance from IRS on Cryptocurrency: The American Institute of CPAs sent a letter to the IRS asking for guidance on how to handle cryptocurrencies, particularly in relation to the valuation of transactions, saying "Virtual currency transactions, in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client's reporting requirements. The issuance of clear guidance in this area will provide confidence and clarity to preparers and taxpayers on application of the tax law to virtual currency transactions."