THE BIG PICTURE
On Wednesday, the House voted to impeach President Trump for abuse of power and obstruction of Congress, making him only the third President in United States history to face the punishment. The vote came after a full day of debate and fell on largely party lines, with Democratic presidential contender Tulsi Gabbard voting present. House Speaker Nancy Pelosi has so far resisted sending the articles to the Senate for the next phase until she receives clarity on how the trial will proceed. The majority Republican Senate is widely expected to vote to acquit the President.
On Thursday, the House voted 385-41 to approve the new North American trade deal, the U.S.-Mexico-Canada Agreement, delivering a win to the President just a day after voting to impeach. The deal still needs to clear the Senate, where it will be considered in January, but is expected to pass with bipartisan support.
The final Democratic debate of 2019 was held on Thursday in Los Angeles. Seven candidates qualified to appear on stage, and tangled over a number of issues including the influence of big-money donors, race, electability, and the war in Afghanistan.
The President signed a two-part US$1.4T spending package into law, averting a midnight government shutdown on Friday. The measures had cleared the House on Tuesday and Senate on Thursday, after a period of intensive negotiations that included a fight on border wall funding. In addition to boosting funding for the Treasury, SEC and CFTC, the final package included a seven year authorization of the Export-Import Bank, a seven year authorization of the Terrorism Risk Insurance Program, extended the National Flood Insurance Program through September 30, 2020, and included a set of US$428B tax cuts.
On Friday evening the President signed the US$738B National Defense Authorization Act into law at a ceremony held at Joint Base Andrews. The measure creates a new branch of the military, the Space Force, as well as giving 12 weeks of paid parental leave to federal employees.
Other highlights of last week include:
- House Speaker Nancy Pelosi formally invited the President to deliver his State of the Union address on February 4th, one day after the Iowa caucuses.
- New Jersey Rep. Jeff Van Drew announced he would switch from the Democratic to Republican Party on Thursday, pledging his “undying” support for the President.
- Rep. Mark Meadows (R-NC), a key ally of the President, announced that he would not seek another term.
- Rick Gates, the President’s former deputy campaign manager, was sentenced to 45 weekend days in jail, followed by 36 months of probation, after pleading guilty to financial fraud.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
No hearings held.
SENATE BANKING COMMITTEE
No hearings held.
ON THE FLOOR
Senate Passes Robocall Bill: On Thursday, the Senate passed S. 151, the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act which would crackdown on robocalls by voice vote, sending the measure to the President’s desk.
House Passes SALT Relief Bill: On Thursday, the House voted 218-206 to pass H.R. 5377, the Restoring Tax Fairness for States and Localities Act, which would increase the tax deduction for state and local taxes in 2019 to US$20K for persons filing a joint tax return and would eliminate the current US$10K cap on the deduction in 2020 and 2021.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 5455: Rep. Carolyn Maloney (D-NY) introduced H.R. 5455, which would require sales and leases of assets of public housing projects to financially benefit the residents of such public housing project and the budget of the public housing agency that owns such public housing project.
H.R. 5460: Rep. Scott Perry (R-PA) introduced H.R. 5460, which would direct the Board of Governors of the Federal Reserve System to revise the transfers and withdrawals limit with respect to savings deposits and transaction accounts.
S. 3036: Sen. Doug Jones (D-AL) introduced S. 3036, the Unsolicited Loan Act of 2019, which would amend the Truth in Lending Act to prohibit the distribution of any check or other negotiable instrument as part of a solicitation by a creditor for an extension of credit, to limit the liability of consumers in conjunction with such solicitations.
THIS WEEK ON THE HILL
No hearings scheduled during recess period.
Treasury and IRS Issue Final Regulations on Opportunity Zones: On Thursday, the Treasury and IRS issued final regulations implementing the Opportunity Zones tax incentive. The final rules provide clarity for Opportunity Funds and their eligible subsidiaries in determining qualification and levels of new investment in Opportunity Zones. They also provide guidance regarding the types of gains that qualify for Opportunity Zone investments, as well as gains that may be excluded from tax after a 10-year holding period.
Federal Reserve Board Announces Series of “Fintech Innovation Office Hours”: On Tuesday, the Federal Reserve Board announced that it will hold a series of "fintech innovation office hours" across the country to meet with banks and companies engaged in emerging financial technologies, popularly known as fintech. The sessions will serve as a resource for banks and fintech firms to meet one-on-one with Federal Reserve staff members with relevant expertise to discuss fintech developments and ask questions. They may be particularly helpful to community banks and their potential fintech partners.
Federal Reserve and FDIC Review Living Wills: On Tuesday, the Federal Reserve and FDIC announced that they did not find any “deficiencies,” which are weaknesses that could result in additional prudential requirements if not corrected, in the resolution plans of the largest and most complex domestic banks. However, plans from six of the eight banks had “shortcomings,” which are weaknesses that raise questions about the feasibility of a firm's plan, but are not as severe as a deficiency. Plans to address the shortcomings are due to the agencies by March 31, 2020.
CFTC Provides Relief to Market Participants Transitioning Away from LIBOR: On Wednesday, three divisions of the CFTC (Swap Dealer and Intermediary Oversight, Market Oversight, and Clearing and Risk) announced that each had issued a no-action letter that provides relief to swap dealers and other market participants as it relates to the industry-wide initiative to transition from swaps that reference the London Interbank Offered Rate (LIBOR) and other interbank offered rates to swaps that reference alternative benchmarks. Chairman Heath Tarbert said in a statement “next year is going to be crucial for the transition away from LIBOR. Firms that fail to do so will put themselves and the global financial system at risk. The CFTC remains committed to working with market participants and our fellow regulators on this critical issue.”
SEC Approves 2020 PCAOB Budget and Accounting Support Fee: On Wednesday, the SEC voted to approve the 2020 budget of the Public Company Accounting Oversight Board and the related annual accounting support fee. The 2020 PCAOB budget totals US$284.7M, an increase of approximately 4.0% from its 2019 budget. The accounting support fee totals US$270.2M, approximately 2.8% more than the 2019 accounting support fee, of which US$239.7M will be assessed on public companies and US$30.5M will be assessed on broker-dealers.
SEC Adopts Actions to Stand Up Security-Based Swap Regulatory Regime: On Wednesday, the SEC voted 3-2 to adopt a package of rule amendments, guidance, and a related order to expand and improve the framework for regulating cross-border security-based swaps, including single-name credit default swaps. The adoption of the package also stands up the Commission’s broad security-based swap regulatory regime as it triggers the compliance date for security-based swap entities to register with the Commission and the implementation period for previously adopted rules under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules establish a coherent approach to the regulation of margin, capital, segregation, recordkeeping and reporting and business conduct for security-based swaps. Commissioner Allison Lee disagreed with the decision, saying the package “undermines and complicates” the SEC’s oversight efforts.
SEC Proposes to Update Accredited Investor Definition to Increase Access to Investments: On Wednesday, the SEC voted to propose amendments to the definition of accredited investor, one of the principal tests for who is eligible to participate in our private capital markets. The proposal seeks to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets. The proposed amendments would allow more investors to participate in private offerings by adding new categories of natural persons that may qualify as accredited investors based on their professional knowledge, experience, or certifications. The proposal would also expand the list of entities that may qualify as accredited investors by, among other things, allowing any entity that meets an investments test to qualify.
SEC Adopts Risk Mitigation Techniques for Uncleared Security-Based Swaps: On Wednesday, the SEC voted to adopt rules requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps. New Rules 15Fi-3, 15Fi-4, and 15Fi-5 establish requirements for registered security-based swap dealers and major security-based swap participants to: (1) Periodically reconcile outstanding security-based swaps with counterparties; (2) Engage in certain forms of portfolio compression exercises, as appropriate; (3) Execute written trading relationship documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap transaction. “Ensuring that counterparties agree in writing on the terms of their security-based swap transactions, and that such transactions are periodically reconciled and compressed, goes to the heart of the Dodd-Frank Title VII regulatory regime,” said Chairman Jay Clayton. “These rules are designed to guide and drive security-based swap entities to accurately and effectively manage their market and credit risks throughout the life of a security-based swap transaction, including by mitigating the risk that a disagreement, ambiguity or omission will affect performance.”
SEC Proposes Rules to Implement the Statutory Mandate to Adopt Resource Extraction Disclosure Rules: On Wednesday, following a series of Commission actions, court proceedings and Congressional action, the SEC voted to propose rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.
Senators Call for Investigation of CFPB’s Failure to Enforce Fair Lending Laws: Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) called on the Government Accountability Office to investigate the CFPB failure to conduct proper oversight and enforcement of fair lending laws. The Senators wrote, “after Director Cordray resigned in November 2017, Acting Director Mulvaney and Director Kraninger reorganized the Bureau’s Office of Fair Lending and Equal Opportunity, stripped it of its supervision and enforcement duties, reassigned attorneys with fair lending expertise to other offices, and to date have brought only one fair lending enforcement action, raising grave concerns about whether the Bureau is fulfilling its statutory obligations.”
Agencies Extend Deadline on Request for Information on CAMELS Rating System: On Friday, the FDIC and Federal Reserve announced that they will extend until February 28, 2020, the deadline on the request for information on their use of the Uniform Financial Institutions Rating System, also known as the CAMELS rating system.
Agencies Extend Comment Period for Proposed Rule to Amend Swap Margin Rules: On Friday, the Federal Reserve, Farm Credit Administration, FDIC, FHFA, and OCC announced that they will reopen and extend until January 23, 2020, the comment period on a proposal to change swap margin rules to facilitate the implementation of prudent risk management strategies at certain banks and swap entities.
COMINGS AND GOINGS AT THE AGENCIES
SEC Announces Robert Marchman as Senior Policy Advisor on Diversity and Inclusion: On Thursday, the SEC announced the appointment of Robert Marchman as Senior Policy Advisor on Diversity and Inclusion. In this newly created role within the SEC's Office of Minority and Women Inclusion, Mr. Marchman will focus on working with Commission divisions, offices, and advisory committees to develop and implement strategies to promote diversity and inclusion.
FDIC Announces Departure of Chief Information Officer Howard Whyte: On Tuesday, the FDIC announced that Howard Whyte, Chief Information Officer (CIO) and Chief Privacy Officer, had resigned his position to pursue an opportunity in the private sector, effective January 3. Sylvia Burns, Deputy CIO, will serve in an acting capacity after Mr. Whyte's departure until a successor is named.
Federal Reserve Board Appoints Director of the Division of International Finance: On Wednesday, the Federal Reserve Board announced the appointment of Beth Anne Wilson as director of the Division of International Finance, effective February 1. Wilson, currently a deputy director of the division, will succeed Steven Kamin, who will serve as a senior adviser to the division before retiring at the end of April.
Waters Criticizes Rumored CFPB Nominee: In a statement on Tuesday, Rep. Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, sent a letter to CFPB Director Kathleen Kraninger, expressing concerns regarding reports that an administration political appointee, Thomas Ward, is the lead candidate for the Enforcement Director position at the Consumer Bureau.
Fifth Circuit Finds ACA Mandate Unconstitutional: On Wednesday, a three-judge panel on the 5th Circuit found that the individual mandate of the affordable care act was unconstitutional, but declined to rule on whether the measure could stand without that provision. The panel sent the case back to the district court judge, saying “the rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today.”
OTHER NOTEWORTHY ITEMS
Senate Banking Chair Opposes Pot Banking Bill: On Wednesday, Senate Banking Chairman issued a statement expressing his “significant concerns” regarding H.R. 1595, SAFE Banking Act. He noted argued that “the SAFE Banking Act does not address the high level potency of marijuana, marketing tactics to children, lack of research on marijuana’s effects, and the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.”
Senators Call on Megabanks to Agree to Climate Change Principles: Senators Sherrod Brown (D-OH), Sheldon Whitehouse (D-RI), and Brian Schatz (D-HI) called on several large banks to commit to the United Nations Environment Programme Finance Initiative to combat climate change. The Senators wrote “Climate change will impact every sector of our economy, posing risks for financial institutions and the global financial system. Planning for climate-related financial risks will help drive the transition to a low-carbon, climate-resilient economy—a transition that presents substantial business opportunities for banks.”
EU Reaches Provisional Agreement on Proposal to Boost Crowdfunding: The European Parliament and Council reached a provisional agreement on a proposal to boost crowdfunding in the EU. The proposal “aims to harness the opportunities presented by emerging technology-enabled innovations in the financial sector.” European Commission Vice President Valdis Dombrovskis celebrated the agreement, explaining “this is an important source of alternative financing for many innovative European entrepreneurs and startups, which may struggle to access traditional financing channels.”