Your Weekly Report on the Discord from Washington, D.C.
In Partnership with the Eris Group
Let it go — Spring came to Washington last week, as it did to every other place in the northern hemisphere. This year feels particularly appropriate to mark the equinox according to Chinese custom: stand facing east (the direction of spring) in silence for a few moments, to honor the spring. Plant something green, to watch it sprout with the promise of life. Fly a kite to catch the wind, another symbol of spring. And finally, shout! Let the old season go. Time to renew, again.
Acosta will follow Administration’s lead on fiduciary rule — In response to a direct question from Senator Elizabeth Warren (D-MA) during last Wednesday’s confirmation hearing before the Committee on Health, Education, Labor and Pensions, Secretary of Labor nominee Alex Acosta said that the fiduciary rule will be rescinded if it meets any of the criteria laid out by the Administration: will the rule reduce investment options available to investors? Will it increase litigation? Will it financially impact retiree investors? Acosta said he would be obligated to support the President’s executive order, and Senator Lamar Alexander (R-TN), the committee’s chairman, added that he believed it would reasonable for Acosta to review the regulation in any case.
Crapo, Brown ask for proposals to boost growth — The Chairman and ranking member of the Senate Banking Committee, Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH), issued a bipartisan call for proposals designed to spur growth, protect consumers, and improve the efficiency and effectiveness of the U.S. economy. Submissions are due to the Committee by April 14, and should include three to five ideas, with brief descriptions of their effects on the economy, consumers, and financial companies. Legislative language would also be welcome.
Fear of mistakes is paralyzing new bank charters, says Luetkemeyer — The House Financial Institutions Subcommittee held a hearing last Tuesday on the dearth of new bank charters — only five new banks between 2010 and 2016, and only 75 new credit unions. Republican members of the committee pointed to Dodd-Frank’s overly burdensome new requirements, while ranking member Rep. Wm Lacy Clay (D-MO) noted increases in banks’ business lending and record profits for small banks. Texas banker Ken Burgess, speaking for the American Bankers Association, told the panel that the economics for community banks don’t work, due mainly to excessive and complex regulatory requirements that are not tailored to a community bank’s specific risks.
Regulators tell Congress they need to simplify — The member agencies of the Federal Financial Institutions Examination Council (FFIEC) delivered a report to Congress last week as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), identifying outdated or unnecessary regulations and detailing actions or plans to simplify and streamline their processes. These actions include simplifying capital rules for community banks; streamlining call reports; increasing the appraisal threshold for commercial real estate; and expanding the number of institutions eligible for less frequent examination cycles.
CFPB proposes changes to data collection by mortgage lenders — The Consumer Financial Protection Bureau (CFPB) asked for comment last Friday on a proposal to give mortgage lenders additional flexibility in how they collect data about customer ethnicity and race under Regulation B of the Equal Credit Opportunity Act (ECOA). The proposal would make it easier for mortgage lenders to use consistent forms and compliance practices, without variations for loan volume or size. The proposal is part of a broader agency review of its major mortgage rules. Comments are due to the CFPB by April 23.
House hearing challenges CFPB’s constitutionality — Most of the witnesses at last Tuesday’s hearing before the House Financial Services Subcommittee on Oversight and Investigations agreed with Chairman Ann Wagner (R-MO) that the Consumer Financial Protection Bureau is unacceptably powerful and independent, and that reforms are necessary. Chairman Wagner said that the CFPB had become “arrogant in its cloak of accountability,” and that the CFPB director, under current law, is more powerful than anyone in government except the President. Former White House counsel Theodore Olson, UVA law professor Saikrishna Prakash, and Adam White of the Hoover Institution told the panel that the CFPB’s structure is unconstitutional, in stripping the President of the authority to control an executive branch agency.
Clayton hearing raises questions of conflicts, capital formation, enforcement — Jay Clayton, President Trump’s nominee to chair the Securities and Exchange Commission, appeared before the Senate Banking Committee last Thursday to answer questions about his experience as an attorney for some of the world’s largest corporations, and about his plans for finalizing and implementing rules required by Dodd-Frank. Clayton said that his diverse experience in capital markets would be an asset to the SEC, and that any necessary recusals would not interfere with his ability to serve. He expressed concern about the declining number of private companies going public, and acknowledged the need to update some regulations and supervisory practices in order to keep up with technological advances.
Dudley points to compensation, incentives as causes of financial crisis — In remarks to the U.K. Banking Standards Board in London last week, New York Federal Reserve Bank President and CEO William C. Dudley said that “Bad incentives were a key contributing factor in the financial crisis” of 2008. He pointed particularly to “mortgage brokers, who were paid based on the volume of loans they generated, not the quality.” In 2016, he said, compensation again appeared to be the root cause of fraud at Wells Fargo — “There was a serious mismatch between the values Wells Fargo espoused and the incentives that Wells Fargo employed.” Dudley said that while he understood that “making progress on culture is difficult . . . the industry must continue to demonstrate that it is taking responsibility for its culture.”
Coalition of lenders and community groups asks Treasury to let GSEs keep earnings — Several organizations representing community-based lenders and housing rights joined to send a letter to Secretary of the Treasury Steven Mnuchin last week that asks the administration to allow Fannie Mae and Freddie Mac to keep $10 billion in earnings, rather than delivering them to the Treasury by March 31. The 2012 GSE bailout requires the enterprises to repay revenue to Treasury, but a group including the Community Home Lenders Association and the Corporation for Enterprise Development pointed out that this payment will leave the GSEs without capital, and in need of another bailout at the beginning of next year.
FHFA pushes Common Securitization Platform back to 2019 — The Federal Housing Finance Agency (FHFA) announced last Thursday that the full release of a planned Common Securitization Platform (CSP), which would allow Fannie Mae and Freddie Mac to issue a Uniform Mortgage-Backed Security (UMBS), is being rescheduled from 2018 to the second quarter of 2019. The first stage of this program was launched in November 2016, when Freddie Mac began to use the CSP’s modules for Data Acceptance, Issuance Support, and Bond Administration. Fannie Mae should complete system-to-system testing for the next stage this year, and the agencies will conduct parallel testing throughout 2018. FHFA will continue to update a progress timeline here.
This Week in Washington:
Senate Committee on Banking, Housing & Urban Affairs holds a hearing on “Fostering Economic Growth: The Role of Financial Companies.” 9:30 a.m., SD-538 Dirksen Senate Office Building
House Financial Services Subcommittee on Oversight and Investigation holds a hearing on “The Arbitrary and Inconsistent Non-Bank SIFI Designation Process.” 10:00 a.m., 2128 Rayburn House Office Building.
House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “The State of Bank Lending in America.” 2:00 p.m., 2128 Rayburn House Office Building.
House Financial Services Subcommittee on “Examining the Impact of the Volcker Rule on the Markets, Businesses, Investors, and Job Creators.” 10:00 a.m., 2128 Rayburn House Office Building.
Senate Committee on Health, Education, Labor & Pensions will meet in executive session to vote on the nomination of Alex Acosta to serve as Secretary of Labor. Time TBD, SD-430 Dirksen Senate Office Building.
The Ellis Insight. Jim Ellis reports on political news:
Indiana: Two key happenings occurred last week in the impending 2018 Indiana Senate campaign. First, freshman Rep. Jim Banks (R-Columbia City/Ft. Wayne) says he will not enter the statewide race to challenge Sen. Joe Donnelly (D) next year. Though he never seemed to be serious about immediately leaving the House to run for the Senate, Mr. Banks had not closed the door on the idea until last week. On the other hand, Rep. Luke Messer (R-Greensburg) took a definitive step toward running. Last week, the Congressman announced the formation of a statewide finance committee, a clear prelude to actually entering the Senate contest.
CA-49: The closest House election in the country last November occurred in this San Diego and Orange County district (a 1,621 vote margin). Normally a Republican seat, the region is trending more Democratic, and certainly lined up against President Trump (Clinton: 51; Trump: 43%). The 2016 Democratic nominee, who came close to unseating the incumbent, retired Marine Corps colonel Doug Applegate, released a new Strategies 360 poll that he recently commissioned. The survey (3/14-15; 405 likely June 2018 primary voters) produces unsurprising results, but Mr. Applegate’s purpose in running a poll at this point is not to position himself against incumbent Rep. Darrell Issa (R-Vista), but against a new Democratic candidate, wealthy attorney Mike Levin. The polling finds Rep. Issa leading the field with 43%, followed closely by Mr. Applegate at 39%. Mr. Levin, with little to no name identification at this point in time, follows with 9 percent. Under California’s jungle primary system, the top two candidates, regardless of party affiliation, will advance to the general election.
FL-7: After freshman Democrat Stephanie Murphy (D-Winter Park) unseated veteran Rep. John Mica (R-Winter Park) last year, Republican leaders have been looking hard for a strong 2018 challenger. One of their top choices was state Rep. Bob Cortes (R), but he announced last week that he will remain in the legislature. Once the GOP secures a strong candidate, central Florida’s 7th District will again become a political hotbed.
GA-6: A new Clout Research poll (3/15-16; 625 GA-6 likely special election voters) finds Democratic investigative filmmaker Jon Ossoff developing a clear lead against the large field of candidates vying to advance from the jungle primary election scheduled for April 18th. According to this data, Mr. Ossoff captures 41% support, followed by both former Secretary of State Karen Handel (R) and businessman and local city councilman Bob Gray (R) who both maintain 16% preference. There are 18 candidates on the ballot, but Clout listed only six Republicans and two Democrats as options. Even with that, the combined Republican selections mounted to 48% versus 44% for the two Democrats. If no one receives a majority vote in the first election, which is almost a certainty, the top two finishers will advance to a June 20th run-off. This poll seems to suggest that Mr. Ossoff will be one of those moving to the second round of voting.
NV-2: 2010 Republican US Senate nominee Sharron Angle, who came within five points of Sen. Harry Reid (D) after leading in polling right up to Election Day, announced a GOP primary challenge to Rep. Mark Amodei (R-Carson City) last week. Ms. Angle also ran for Senate in 2016, being blown out at the hands of then-Rep. Joe Heck (R-Henderson) on a 65-23% count. Mr. Heck would then lose the general election to former state Attorney General Catherine Cortez Masto (D) in a close result. With Ms. Angle losing support with each race that she now enters, Rep. Amodei will not likely be heavily challenged. He should have little trouble securing re-nomination for a fifth term.
Colorado: Two weeks ago former US Interior Secretary and Senator Ken Salazar (D) indicated he was considering entering the open 2018 race for Governor. Last week he announced he will not return to elective politics. The open candidate field is slow in forming for both parties, as former state Sen. Mike Johnston (D) and ex-state Rep. Victor Mitchell (R) appear to be the most prominent announced respective party candidates at this time. All eyes now turn to US Rep. Ed Perlmutter (D-Golden) who has been considering the race. Without Mr. Salazar entering, the chances of a Perlmutter gubernatorial candidacy increase, and late indications from the Congressman’s camp suggest that he will enter the statewide race.
Maryland: Prominent Baltimore Democratic attorney Jim Shea formed a gubernatorial exploratory committee earlier last week. Though Gov. Larry Hogan’s (R) approval numbers are very strong, the Free State’s Democratic nature means the Republican Governor will face a highly competitive opponent. Gov. Hogan is favored for re-election, but he won’t have an easy ride toward a second term.
Minnesota: Rep. Tim Walz (D-Mankato), who barely survived re-election with just a 50.3% victory margin, is a virtual lock to soon enter the open 2018 Governor’s race. Mr. Walz is all but confirming that he will become a statewide candidate. Gov. Mark Dayton (D) is ineligible to seek a third term. The eventual Democratic nominee will certainly begin as the favorite to win the race, at least in the early going.
Ohio: Rep. Jim Renacci (R-Wadsworth) joined the expanding gubernatorial field of candidates last week. The move had been speculated upon for months. Mr. Renacci was elected to the House in 2010, and will risk his seat to battle Lt. Gov. Mary Taylor, Attorney General and former US Senator Mike DeWine, and most likely Secretary of State Jon Husted for the Republican nomination. Ironically, headlining the Democratic field at this point in the cycle is former Rep. Betty Sutton (D-Copley), whom Rep. Renacci defeated in 2012 when redistricting paired the two in one district. Gov. John Kasich (R) is ineligible to seek a third term. This will be one of the most important gubernatorial campaigns in the country.