Finance Brief: Border Adjustment Tax Will Be Focus of Ways and Means Hearing Next Week

Washington Brief

  • The Ways and Means Committee will examine the House GOP’s border adjustment tax proposal at a hearing scheduled for May 23. Republican members of the House panel are considering a revamp of the provision, which Senate Majority Leader Mitch McConnell (R-Ky.) said “probably wouldn’t pass the Senate.” (The Hill)
  • Bob Ryan, a top deputy to Federal Housing Finance Agency Director Mel Watt, said the FHFA would require congressional approval to release Fannie Mae and Freddie Mac from government control. (Bloomberg News)
  • President Donald Trump nominated Kevin Hassett to be chairman of the Council of Economic Advisers, James Donovan as deputy secretary of the Treasury and Brian Quintenz to be a member of the Commodity Futures Trading Commission. All three positions require Senate confirmation.

Business Brief

  • The CFTC is expected to announce a major initiative today regarding financial technology. In January, the derivatives regulator said it would review its role in regulating the sector. (Reuters)
  • Four prominent U.S. retail trade groups, including the National Retail Federation and the Retail Industry Leaders Association, called on U.S. Trade Representative Robert Lighthizer to preserve the North American Free Trade Agreement. They said that while the pact could use improvements, scrapping it would imperil vital supply chains. (Bloomberg News)
  • JPMorgan Chase & Co. Chief Executive Jamie Dimon defended his ties to the White House at a shareholder meeting, as some attendees urged him to disavow Trump’s policies. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Wednesday
CFPB academic research council meeting 9 a.m.
FDIC ‘Money Smart’ webinar 1 p.m.
Heritage Foundation event on Volcker rule 2 p.m.
Politico discussion on tax reform 5:30 p.m.
Atlantic Council event on infrastructure with Rep. Delaney 6 p.m.
Thursday
American Council for Capital Formation conference with Rep. Roskam 8 a.m.
Senate Banking Committee hearing with Treasury’s Mnuchin 10 a.m.
House Ways and Means Committee hearing on tax reform 10 a.m.
House Financial Services subcommittee hearing on Greek bailout 10 a.m.
Friday
U.S. Chamber of Commerce investment summit 8:30 a.m.
House Judiciary Committee hearing on antitrust enforcement 9 a.m.

 

General

U.S. Retailers Urge Trump’s New Trade Envoy to Save Nafta
Lindsey Rupp, Bloomberg News

The largest U.S. retail associations called on new Trade Representative Robert Lighthizer to support the North American Free Trade Agreement, aiming to salvage an accord that has come under fire from his boss. Leaders of the American Apparel & Footwear Association, the National Retail Federation, Retail Industry Leaders Association and U.S. Fashion Industry Association sent a letter to Lighthizer on Tuesday urging him to tread lightly on the 23-year-old pact.

Trump trade officials prefer tri-lateral NAFTA deal: U.S. senators
David Lawder, Reuters 

The Trump administration’s top trade officials hope to keep the North American Free Trade Agreement as a trilateral deal in negotiations with Canada and Mexico to revamp the 23-year-old pact, senators said on Tuesday. Several members of the Senate Finance Committee said Commerce Secretary Wilbur Ross and new U.S. Trade Representative Robert Lighthizer told them in a closed door meeting that they would prefer the current three-nation format but left open the possibility of parallel bilateral agreements with Canada and Mexico.

Mexico expects NAFTA talks by late August: economy minister
Ana Isabel Martinez and David Lawder, Reuters 

Mexican Economy Minister Ildefonso Guajardo said on Tuesday he expects U.S. President Donald Trump’s administration to tell Congress early next week of plans to renegotiate the North American Free Trade Agreement, a move that would produce talks by late August. Guajardo said he would have more information after meeting with U.S. Trade Representative Robert Lighthizer in Vietnam on Thursday as part of Asia-Pacific Economic Cooperation meetings.

Democrats in U.S. Senate try to slow Republican deregulation
Lisa Lambert, Reuters 

Democrats are striking back at the U.S. Congress and White House over their push to cut regulations, as Republicans ratchet up attacks on rules they say hurt business and give bureaucrats too much power. New Jersey Senator Cory Booker, a Democrat, on Tuesday introduced legislation to kill the Congressional Review Act (CRA), a law Republicans used over the span of three months this year to repeal 14 regulations enacted by former President Barack Obama, also a Democrat.

More than 150 law professors defend CFPB
Kate Berry, American Banker 

A group of 158 law professors and scholars on Tuesday defended the Consumer Financial Protection Bureau in a letter to top lawmakers, saying a bill to overhaul the Dodd-Frank Act would allow lax lending standards to creep back into the financial system.

Caution Reigns as U.S. Politics Takes Center Stage: Markets Wrap
Robert Brand and Adam Haigh, Bloomberg News

Futures on the S&P 500 Index fell 0.5 percent, after the underlying gauge on Tuesday touched an all-time high of 2,405.77.

Banking

‘Patriot’ Dimon dodges calls to disavow Trump policies
Ben McLannahan, Financial Times 

Jamie Dimon endured a rough ride at the annual meeting of America’s biggest bank on Tuesday morning, as shareholders repeatedly attacked the JPMorgan Chase chief over his ties to the administration of Donald Trump. In December Mr Dimon was named chairman of the Business Roundtable, a group of almost 200 CEOs which is among the most prominent lobbying groups in Washington.

Freshman Republican Ted Budd gets bank support for fight with retailers
Joseph Lawler, The Washington Examiner 

Republican Rep. Ted Budd of North Carolina will get an assist from the banking industry as he becomes a surprise center of controversy in a major lobbying war between the financial services industry and the retail, restaurant, and grocery store industries. The Electronic Payments Coalition, a group that represents banks and card providers, began advertising on radio Tuesday in Budd’s district, praising him for having “stood up to the big retail lobbyists” in a vote on debit card transaction fees and decrying “greedy big box retailers.”

Wells Fargo’s Post-Scandal Marketing Playbook
Emily Glazer, The Wall Street Journal 

When Wells Fargo & Co. Chief Marketing Officer Jamie Moldafsky launched a recent new ad campaign for the bank following its sales-practices scandal, it was a mix of art and science. Wells Fargo was already investing in how to better understand its customers and potential customers, but it stepped up the work in September, after the San Francisco bank paid a $185 million settlement for opening up as many as 2.1 million accounts using fictitious or unauthorized customer information.

Managing data on conduct, culture a common challenge for U.S. banks
Henry Engler, Reuters 

Major U.S. banks seeking to monitor conduct and culture through technology face continued challenges in achieving a view across their entire institutions. Key objectives, say executives, are establishing the right framework for collecting information across the organization and analyzing it to identify underlying causes of problems with employee behavior.

Financial Products and Investments

NYSE wins regulatory approval for ‘speed bump’ exchange
John McCrank, Reuters 

The operator of the New York Stock Exchange was given permission by regulators on Tuesday to implement a so-called speed bump on one of its exchanges, allowing it to go head-to-head with upstart rival the Investors’ Exchange. NYSE Group, which is owned by Intercontinental Exchange Inc (ICE.N) (ICE), plans to add a delay of a fraction of a second for incoming and outgoing orders on its NYSE MKT exchange, which it is renaming NYSE American.

Finra chairman John Brennan says DOL rule has raised standard for financial advice
Mark Schoeff Jr., InvestmentNews

Finra chairman John J. Brennan said on Tuesday that even if the Labor Department’s fiduciary rule is repealed, it has elevated and put into plain language the idea of providing investment advice that’s better for clients’ returns than for financial advisers’ revenue.

Quadruple-Levered ETF? SEC Hits Pause on Its Approval of an Exotic Investment
Dave Michaels and Chris Dieterich, The Wall Street Journal 

The Securities and Exchange Commission will reconsider its initial approval of a risky, first-of-its-kind exchange-traded fund that promises four times the daily price moves of S&P 500 futures contracts, according to people familiar with the matter. The commission’s decision means the earlier approval—given by the SEC’s staff, not the politically appointed commissioners—has been put on hold and doesn’t allow the ForceShares Daily 4X US Market Futures Long Fund and Short Fund to begin trading, the people said.

Housing and GSEs

Fannie-Freddie Won’t Be Freed Without Congress, Regulator Says
Joe Light, Bloomberg News

The Federal Housing Finance Agency won’t release Fannie Mae and Freddie Mac from U.S. control without congressional approval even if the Trump administration asks that the mortgage-finance giants be freed, a key agency official said in an interview.

Taxes

House panel to examine border tax next week
Naomi Jagoda, The Hill 

The House Ways and Means Committee will hold a hearing next week that will focus in part on the controversial border-adjustment tax provision in Speaker Paul Ryan‘s (R-Wis.) tax plan. The May 23 hearing, titled “Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas,” will be part of a series of tax-reform hearings that the Ways and Means Committee is kicking off on Thursday.

Senate GOP Gets Ready to Shape Tax Policy
Richard Rubin, The Wall Street Journal 

Senate Republicans have been slow and quiet in the tax policy debate this year, overshadowed by dramatic proposals from the House of Representatives and big promises from President Donald Trump. That’s starting to change.

AICPA calls for review of tax regulations
Michael Cohn, Accounting Today 

The American Institute of CPAs has sent a list of six tax regulations to Treasury Secretary Steven Mnuchin that it wants the Treasury Department to review under an executive order from President Trump calling for reducing overly burdensome tax regulations. Trump signed an executive order last month on identifying such tax rules, focusing on any regulations issued by the Treasury Department on or after Jan. 1, 2016.

Financial Technology

U.S. derivatives regulator to make major fintech announcement Weds: CFTC
Lisa Lambert, Reuters 

The acting head of the U.S. derivatives regulator will make a major announcement about financial technology, commonly called fintech, on Wednesday at the New York Stock Exchange, according to an announcement posted on Monday. J. Christopher Giancarlo, the acting chairman of the Commodity Futures Trading Commission, ordered a review in January of fintech and what the commission’s role should be in regulating the fast-developing sector.

SEC Petition Calls for Blockchain Token Rules
Stan Higgins, CoinDesk 

A New York-based broker-dealer has asked the Securities and Exchange Commission (SEC) to propose rules to cover blockchain-based assets. According to the petition, Ouisa Capital wants the SEC to weigh in on the use of crypto tokens and resolve “the lack of regulatory clarity with respect to the regulation of digital assets and blockchain technology”.

Hackers Just Stole $66,000 in Bitcoin. Now What?
Paul Vigna, The Wall Street Journal 

The hackers behind the massive WannaCry cyberattack have succeeded in extracting some ransom payments from people locked out of their computers. But they don’t yet have dollars to show for it.

A Message from SIFMA:

The Department of Labor must delay its harmful fiduciary rule until the review directed by President Trump is completed. Up to 14.7 million consumers could face significant changes to their retirement and financial advice, and lose up to $109 billion over 10 years. American investors deserve better. DOL needs to take the time to get this right and review the entire rule. Protect the retirement savers. Delay the DOL rule.

Opinions, Editorials and Perspectives

Republicans should bring Dems to the table to work on tax reform
Sen. Ron Wyden (D-Ore.), The Hill

I follow bipartisan tax reform the way some folks follow “Game of Thrones.” Political hacks will tell you never to take a position on tax reform until it actually happens — no reason to have the amalgamated rubber producers or multinational tire importers mad at you without actually passing a bill. I’ve ignored that advice, and written not one, but two bipartisan tax reform bills in recent years, and I’ve found Republicans popular with conservatives to walk that plank with me.

President Trump Should Push the Senate on GSE Reform
Norbert Michel, Forbes 

The House Financial Services Committee has just passed a major financial regulatory reform bill, the Financial CHOICE Act.  It’s a welcome and significant step toward repealing the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, an incredibly flawed law that neither reformed Wall Street nor protected consumers.

The CHOICE Act is just Dodd-Frank 2.0. We can do better
Jim Angel, The Hill 

As the Republicans consider financial reform, they appear to be making the same mistake the Democrats did with the original Dodd-Frank legislation in 2010. Rather than work with the Republicans to craft well-designed reforms, the Democrats hastily crammed through legislation that contained several serious flaws along with some much-needed fixes.

Tarp was not a bailout, and the government’s profit was huge
Edward Yingling, American Banker 

This incredible twisting of the facts, as well as the resulting loss of confidence in banks, caused tremendous harm to our economy and especially to the thousands of banks that had nothing to do with creating the financial crisis. My purpose here is not to relitigate whether Tarp was the right approach, but rather to point out the massive and disastrous communication failure related to Tarp on the part of government leaders — including members of Congress — and, of course, the media.

A Message from SIFMA:

The Department of Labor’s fiduciary rule is harming retirement savers and it must be delayed for a minimum of 180-days. Recently, the DOL provided a 60-day delay of the rule, which temporarily helped prevent further service changes, customer confusion and market disruptions. However, this is not enough time to fully review the consequential impact of the entire rule, as requested by the president. Further delay is needed to conduct the review and protect retirement savers from additional harm and turmoil.

Research Reports

The Border Adjustment Tax Impact by Industry
Freedom Partners and Americans for Prosperity

Leaders in the U.S. House of Representatives are proposing a new 20-percent tax on imports, or a Border Adjustment Tax (BAT), in order to pay for lower rates as part of comprehensive tax reform. This new tax, which would amount to over a trillion dollars in new federal revenue, would apply to everything that is imported into the U.S. — from tennis shoes and t-shirts, to crude oil and auto parts.

Briefings

Finance Brief: Week in Review & What’s Ahead

Thirty-four banks received passing grades on their stress tests, the first of two examination results set for release this month by the Federal Reserve. The stress-test results give financial deregulation advocates, including those in the Trump administration, a new point of argument in their push to roll back financial regulations, while advocates for regulations that arose from the 2008 financial crisis argue that the health of banks is an indication that the rules are working.

Finance Brief: Week in Review & What’s Ahead

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. While the report does not call for a full repeal of Volcker Rule limits on proprietary trading, it recommended exempting small institutions from the Dodd-Frank regulation.

Finance Brief: CFPB Proposes Changes to Prepaid Card Rule

The Consumer Financial Protection Bureau announced plans to make changes to its prepaid card rule, with public comments on the proposals due within 45 days. The CFPB’s proposals would adjust the rule to require consumers register any prepaid cards before filing a complaint, and would allow providers to send disclosure forms to consumers digitally in some cases.

Finance Brief: Warren Says Democrats Open to Loosening Regulations for Community Banks, Credit Unions

Sen. Elizabeth Warren (D-Mass.) said Senate Democrats are open to working with Republicans on “targeted” measures that would ease regulations affecting community banks and credit unions. Warren, who has shown little willingness to work with the GOP on loosening financial regulations, said she remains opposed to proposals that would limit consumer protections or weaken regulations for big banks.

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