Finance Brief: Appeals Court Puts MetLife SIFI Case on Hold


Government Brief

  • The federal appeals court hearing a challenge to MetLife Inc.’s designation as a systemically important financial institution said it will hold off on issuing a ruling, likely in anticipation of the Trump administration weighing in on whether it believes the Financial Stability Oversight Council should change its position regarding the insurance company. The administration is reviewing FSOC’s non-bank SIFI designations. (Reuters)
  • Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig told the leaders of the Senate Banking Committee that lawmakers should avoid easing bank capital standards for major banks in their efforts to find common ground on financial regulatory relief. Loosening those standards, Hoenig said, would allow big banks “to increase their already highly leveraged positions.” (The Washington Examiner)
  • House Freedom Caucus Chairman Mark Meadows (R-N.C.) backed off his demand that an agreement to raise the debt ceiling be paired with significant spending cuts. Meadows said he doesn’t “believe we should play around with the full faith and credit of our country,” and that he’s “bullish” about raising the debt limit before a Sept. 29 deadline. (Bloomberg)

Business Brief

  • The Consumer Financial Protection Bureau penalized JPMorgan Chase & Co. $4.6 million for not ensuring it was giving third-party reporting agencies accurate accurate information about customer checking accounts. (American Banker)
  • The federal regulator overseeing the auditing industry issued a $1 million fine to PricewaterhouseCoopers LLP for not providing sufficient evidence to back up a report on compliance with regulations by Bank of America Corp.’s Merrill Lynch unit. The Public Company Accounting Oversight Board said PwC did not take sufficient measures in a 2014 audit to ensure Merrill Lynch was complying with a Securities and Exchange Commission rule that requires companies to protect a broker-dealer’s customer assets from creditors if the business goes under. (MarketWatch)
  • Banks should be careful not to make “aggressive” financial protections to back up new lending for companies, according to a warning from the Federal Reserve, Office of the Comptroller of the Currency and FDIC. The banking regulators said there has been a decline in lending to highly leveraged firms. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Thursday
Federal Reserve Board conference on regional food system investments 10 a.m.
Friday
No events scheduled
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General

Top House Conservative Drops Debt-Ceiling Demands
Anna Edgerton and Erik Wasson, Bloomberg

A leading House conservative said Wednesday that Congress will raise the nation’s debt ceiling in September as he backed away from his earlier demands that any increase be paired with steep spending cuts. Republican Representative Mark Meadows, who leads the House Freedom Caucus, said that while he wants changes aimed at cutting the budget deficit, he is ready to accept a bill without other conditions and wants to “get it done sooner rather than later.”

Schumer says Democrats’ new trade platform is ‘tougher than Section 301’
Inside U.S. Trade

Senate Democrats have unveiled a new, seven-point trade platform that includes views on NAFTA and Buy America reform, along with calling for a new economic security investment watchdog, measures to counter currency manipulation, creating a new trade prosecutor position, penalties for contractors that outsource, and an outsourcing tax for companies that leave the U.S. Senate Minority Leader Charles Schumer (D-NY) on Aug. 2 said the new measures are “tougher than Section 301 action,” which the Trump administration is readying.

Fear of China’s Retaliation Hinders U.S. in Trade Dispute
Jacob M. Schlesinger and Bob Davis, The Wall Street Journal

In targeting China’s voracious pursuit of American intellectual property, the Trump administration is picking a trade fight that unites the ideological spectrum. Democrats, Republicans, free-traders, protectionists, and business groups have all slammed Beijing for demanding technology transfers in return for access to its market, and they have pleaded with Washington for a tougher response.

Stocks Retreat From Record; Euro Cools, Gold Slips: Markets Wrap
Samuel Potter and Robert Brand, Bloomberg

Global stocks retreated from their recent unprecedented high amid declines across Asia and as energy shares weighed on the European index. The euro edged lower after its jump on Wednesday, and the dollar was steady as traders await U.S. labor-market data.

Banking

CFPB fines JPM $4.6M for checking account denials
Kate Berry, American Banker

The Consumer Financial Protection Bureau ordered JPMorgan Chase on Wednesday to pay a $4.6 million fine for failing to provide accurate information to consumers and reporting agencies when denying checking account applications. The agency said Chase did not have adequate policies in place when reporting information to specialty credit reporting agencies that collect negative information about consumer accounts, in violation of the Fair Credit Reporting Act.

FDIC regulator warns senators: Don’t lower bank capital standards
Joseph Lawler, The Washington Examiner

A regulator responsible for the safety of banks has a message to senators: Don’t listen to bankers telling you that they need lower capital requirements to increase lending. Despite the push from the industry to lower the standards that were ramped up in the wake of the 2008 financial crisis, big banks actually have too little capital, according to Thomas Hoenig, the vice chairman of the Federal Deposit Insurance Corporation.

US regulators issue warning over ‘aggressive’ lending
Eric Platt and Alistair Gray, Financial Times

Regulators have warned US banks over “aggressive” financial projections that are being used to justify loading companies up with more debt. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation on Wednesday joined others who have voiced concerns about bank lending to already highly leveraged companies.

‘London Whale’ Has a New Target: J.P. Morgan’s Top Brass
Lucy McNulty et al., The Wall Street Journal

The U.S. case against two former J.P. Morgan Chase traders charged with concealing billions of dollars in losses fell apart because a key witness known as the London Whale shifted blame to Chief Executive Officer James Dimon and other top executives, according to a person familiar with the matter. Four years ago, Bruno Iksil, a former J.P. Morgan trader in London, agreed to testify against ex-coworkers Javier Martin-Artajo and Julien Grout for their roles in a 2012 trading debacle that cost the bank more than $6 billion.

Is Gary Cohn a Good Pick to Head the Fed?
Jeanna Smialek et al., Bloomberg

In their decades of dominating the intersection of Wall Street and Washington, Goldman Sachs Group Inc. bankers have captured many of the world’s most powerful economic and financial positions. Gary Cohn, a longtime Goldman president and Donald Trump’s top economic adviser, is now within arm’s reach of the holy grail—chairman of the Federal Reserve.

Is the Fed’s community banker seat worth the trouble?
John Heltman, American Banker

As the Trump administration enters its sixth month in office, it has yet to name a nominee to the Federal Reserve Board who has experience with community banks — a legal requirement that experts say may be complicating the president’s ability to fill vacant seats on the central bank. “Vacancies at the Fed are a huge problem, and it’s been a problem that has been extending in [recent] decades,” said Peter Conti-Brown, assistant professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School of Business.

Financial Products and Investments

U.S. court puts MetLife ‘too big to fail’ case on indefinite pause
Lisa Lambert, Reuters

Any legal decision on whether the largest U.S. life insurer MetLife Inc (MET.N) should be labeled “too big to fail” will probably come after the Trump administration defines its stance on the designation. A U.S. appeals court said on Wednesday that a U.S. government appeal of a ruling last year that the label was wrongly applied to MetLife would remain in abeyance until further court order.

U.S. judges allow public to see records in MetLife ‘too big to fail’ case
Lisa Lambert, Reuters

The public may soon be able to delve into how a U.S. District Court judge came to rule that MetLife Inc is not “too big to fail,” after three appeals judges on Tuesday decided many records in the case should be unsealed. District Court Judge Rosemary Collyer last year rescinded financial regulators’ designation of MetLife, the largest U.S. life insurer, as “systemically important,” a label triggering heightened oversight and requirements to hold additional capital.

Regulator fines PwC $1 million for faulty Merrill Lynch audit
Francine McKenna, MarketWatch

The Public Company Accounting Oversight Board, the audit industry regulator, censured and imposed a $1 million civil penalty against PricewaterhouseCoopers LLP on Wednesday for issuing audit and examination reports without obtaining sufficient evidence to support its opinion for broker-dealer Merrill Lynch, a subsidiary of Bank of America, in 2014. Merrill Lynch had reported to PwC that it complied with the SEC’s Customer Protection Rule which requires a broker-dealer to hold certain customer securities in segregated accounts that are insulated from creditor liens if the broker’s business fails.

The Great Escape: How Credit Raters Ducked Reform
Sid Verma, Bloomberg

You might have expected the credit rating companies, like the banks, to have taken a massive regulatory hit, savaging their business models and earnings prospects. They didn’t.

Dow Passes 22,000, but Market’s Surge Meets Dollar’s Swoon
Landon Thomas Jr., The New York Times

Six months into the Trump presidency, two symbols of American financial might — the Dow and the dollar — have taken divergent paths, highlighting the complexities that investors face as the global economy hums, while Washington is enmeshed in political turmoil. The Dow Jones industrial average on Wednesday morning passed the 22,000 milestone for the first time, an 11 percent surge for the year that is being driven of late by increasingly bullish retail investors piling into stocks.

Wall Street, Climbing Sharply, Skips Washington’s ‘Soap Opera’
Nelson D. Schwartz, The New York Times

Despite the disorder in Washington — with a revolving door at the White House and roadblocks on Capitol Hill — Wall Street and corporate America are booming. The disconnect was evident Wednesday, as the Dow Jones industrial average passed the 22,000 mark, a new high.

Housing and GSEs

HUD dedicates $38 million to fight housing discrimination
Kelsey Ramírez, HousingWire

The U.S. Department of Housing and Urban Development announced Wednesday it is making funds available to fight housing discrimination. HUD announced it is making $38 million available through the department’s Fair Housing Initiatives Program.

Taxes

Committee leaders: Tax reform should benefit small businesses
Naomi Jagoda, The Hill

The leaders of the Senate Small Business and Entrepreneurship Committee are urging their colleagues to make sure that any tax-reform legislation taken up by the Senate improves the tax code for small businesses. “Small businesses are the backbone of our economy, creating two out of every three net new jobs in the United States,” Committee Chairman Jim Risch (R-Idaho) and ranking member Jeanne Shaheen (D-N.H.) said in a letter Wednesday to the leaders of the Senate’s tax-writing committee.

Action on Trump’s tax cut plan could be delayed until next year
Damian Paletta and Kelsey Snell, The Washington Post

The White House’s push to quickly pass a major package of tax cuts through Congress is facing a fall calendar full of legislative land mines, potentially delaying a key part of President Trump’s agenda into at least 2018. The Trump administration sees tax cuts as an achievable victory after a string of failed attempts to pass other parts of the president’s legislative agenda, as well as a proposal that could unite a party fractured over Senate Republicans’ failure last week to vote through a repeal of parts of the Affordable Care Act.

Three Donald Trump appointees owe IRS back taxes
Dave Levinthal, The Center for Public Integrity

At least three of President Donald Trump’s political appointees are drawing taxpayer-funded paychecks while owing the Internal Revenue Service tens of thousands of dollars, a Center for Public Integrity review of federal financial disclosures reveals. Trump’s appointment of federal debtors to his administration perpetuates a pattern that’s dogged presidential administrations — including that of President Barack Obama — for decades.

Financial Technology

CBOE plans bitcoin futures contract
Lynne Marek, Crain’s Chicago Business

Chicago Board Options Exchange parent CBOE Holdings is getting into the bitcoin market in collaboration with the Winklevoss twins, best known for their role in the birth of Facebook. Chicago-based CBOE, which also operates a young futures exchange, aims to launch a bitcoin futures contract later this year or early next year using market data from the twins’ New York firm, Gemini Trust, they said in a statement today.

Bitcoin, Ether drift lower; Bitcoin Cash jumps amid limited trade
Mark DeCambre, MarketWatch

The main digital currencies were drifting lower on Wednesday, while a new version of the world’s biggest cybercurrency, known as Bitcoin Cash, was extending its rise since being split from the original less than 24 hours ago. Bitcoin Cash pared an early advance and was trading at $469.24, up 75%, after peaking around $728, or up nearly 130%, earlier Wednesday, when its total market value hit about $11 billion.

An influential US Senator is worried about the stock market getting hacked
Matt Turner, Business Insider

Senator Mark Warner (D-Va) is worried about cybersecurity threats to the US securities market. The influential Democrat, who sits on the Committee on Banking, Housing and Urban Affairs, the Committee on Finance, and the Select Committee on Intelligence, on August 1 sent a letter to Securities and Exchange Commission chairman Jay Clayton.

Opinions, Editorials and Perspectives

Those Complaining About Tax Reform Don’t Know Much About History
Mary Kate Hopkins and Michael Decker, Morning Consult

We hear the same tired complaints today that Presidents John F. Kennedy, Ronald Reagan and George W. Bush faced when they were trying to jump start the economy: Tax cuts will help only the wealthy and lead to a massive decrease in federal revenue. It wasn’t true in the 1960s, the 1980s or the 2000s, and it isn’t true today.

Pass GOP tax cuts by Thanksgiving or get ready for Speaker Pelosi
Newt Gingrich and Brad Anderson, USA Today

The specter of House Speaker Nancy Pelosi is looming. Following Republicans’ failure to fix the country’s health care system, polls show Americans are increasingly flirting with Democratic governance in Congress next year.

The Mortgage Interest Deduction Is Pure Rent Seeking So End It
Jeffrey Dorfman, Forbes

The mortgage interest deduction is one of the most treasured and fiercely defended features of the current U.S. tax code. Many in the real estate business worry that any tinkering with it will lead to major disruption in the real estate sector, further weakening an industry still trying to fully recover from the collapse of the real estate bubble in 2006.

How Dodd-Frank Hurts the Poor
Megan McArdle, Bloomberg View

Think of any old newspaper. Every day, or every week, it prints up some sheets of paper covered with recent news and advertising, and sells those papers to consumers. Its revenue comes from both the consumers who buy the papers, and the advertisers who pay the papers to display their copy to those readers.

Research Reports

Shared National Credits Program: 3rd Quarter 2016
Office of the Comptroller of the Currency

The SNC Program assesses credit risk and trends as well as risk management practices associated with the largest and most complex credits shared by multiple regulated financial institutions. The program provides for uniform treatment and increased efficiency in shared credit risk analysis and classification.