Finance Brief: CBO Says Senate Banking Bill Would Increase Likelihood of Federal Bailouts


Top Stories

  • The bipartisan measure slated for a vote in the Senate this week that would roll back some Dodd-Frank rules would also increase the likelihood of federal bank bailouts, according to the nonpartisan Congressional Budget Office. The bill’s exemption from tougher regulatory oversight for banks with assets between $50 billion and $250 billion would make the small probability of bailouts “slightly greater” than under the status quo, the CBO said. (The Washington Post)
  • The Treasury Department and Internal Revenue Service might face legal challenges when they try to prevent taxpayers from avoiding new limits on the “carried interest” loophole, according to legal experts. Accountants and lawyers said the Treasury Department may not be able to use its regulatory authority to enforce the policy announced last week, and instead would likely need Congress to pass legislation clarifying that firms would not be able to use S corporations to avoid carried interest limits. (Bloomberg)
  • The Trump administration joined about 35 states and the District of Columbia in calling for the U.S. Supreme Court to overturn existing precedent that exempts online retailers from adding sales taxes to their prices. In a “friend-of-the-court” brief, Solicitor General Noel Francisco said states have “ample authority” to collect sales taxes from online purchases given the “pervasive and continuous virtual presence” of internet firms. (The Wall Street Journal)

Chart Review

Events Calendar (All Times Local)

Tuesday
Institute of International Bankers Washington conference 9 a.m.
Senate Finance Committee hearing on e-commerce and counterfeits 10 a.m.
House Appropriations subcommittee hearing with Treasury’s Mnuchin 10 a.m.
House Appropriations subcommittee hearing with DOL’s Acosta 10 a.m.
House Financial Services Committee markup of budget views and estimates 10 a.m.
Wednesday
RegTech Data Summit 9 a.m.
House Appropriations subcommittee hearing with CFTC’s Giancarlo 10 a.m.
House Financial Services subcommittee hearing on state insurance regulation 10 a.m.
Joint Economic Committee hearing with CEA’s Hassett 2 p.m.
House Financial Services subcommittee hearing on data security 2 p.m.
Wilson Center event on TPP 2 p.m.
Thursday
Managed Funds Association Legal & Compliance Conference 7:50 a.m.
Politico event with Mark Calabria of Vice President Pence’s office 8:30 a.m.
SEC Investor Advisory Committee quarterly meeting 9:30 a.m.
Friday
No events scheduled

The Most Polarizing Brands in America

From the NFL to CNN, here are the brands that divide Democrats and Republicans the most.

General

Trump Reaffirms Commitment to Tariffs but Opens Door to Compromise
Ana Swanson et al., The New York Times

President Trump, facing an angry chorus of protests from leaders of his own party, including the House speaker, Paul D. Ryan, insisted on Monday that he would not back down from his plan to impose across-the-board tariffs on steel and aluminum imports. But the White House was devising ways to potentially soften the impact of the measures on major trading partners.

Frustrated White House free traders mount campaign to weaken Trump tariffs
Andrew Restuccia et al., Politico

Since President Donald Trump announced plans last week to hit steel and aluminum imports with new tariffs, his trade adviser Peter Navarro and Commerce Secretary Wilbur Ross have been all over television celebrating their victory and rebutting suggestions that the move would incite a damaging trade war. But economic adviser Gary Cohn and other free-trade advocates inside the White House and the Treasury Department are mounting a last-ditch effort to blunt the impact of Trump’s head-turning decision, even as the president insisted Monday that he wasn’t going to be convinced out of it.

U.S. pushes NAFTA talks pace, warns of political headwinds
Lesley Wroughton and Sharay Angulo, Reuters

Mexican and U.S. officials pushed on Monday to speed up NAFTA negotiations, with the United States floating the idea of reaching an agreement “in principle” in coming weeks to avoid political headwinds later this year.  U.S. Trade Representative Robert Lighthizer, showing impatience at the slow pace of the talks, said Mexico’s presidential election and the looming expiry of a congressional negotiating authorization in July put the onus on the United States, Mexico and Canada to come up with a plan soon.

Crapo, Hensarling lead court brief supporting Mulvaney as CFPB head
Ian McKendry, American Banker

Over 100 Republican lawmakers filed a legal brief Friday backing Mick Mulvaney in the lawsuit challenging his appointment as acting head of the Consumer Financial Protection Bureau. The 38 senators and 75 House members — led by Senate Banking Committee Chairman Mike Crapo, R-Idaho, and House Financial Services Committee Chairman Jeb Hensarling, R-Texas — said President Trump had legal standing to appoint Mulvaney despite deputy CFPB Director Leandra English’s claim that she was the rightful acting director.

Stocks Rise as Trade Talk Rumbles On; Gold Climbs: Markets Wrap
Samuel Potter, Bloomberg

European stocks followed Asian peers higher, extending a rebound in risk assets after investors judged the selloff sparked by global trade fears as overdone. Futures on the S&P 500 Index rose 0.2 percent to the highest in a week.

Banking

Senate banking bill likely to boost chances of bank bailouts, CBO says
Jeff Stein, The Washington Post

A bipartisan bill that’s on the Senate floor this week would increase the odds of government funding going to bail out failed banks, according to a new report from the Congressional Budget Office. The bill, which is scheduled for an initial Senate vote Tuesday and is expected to pass the chamber as soon as this week, would roll back some of the regulations Congress put in place after the 2008 financial crisis.

Megabanks Get One Big Win in Senate Rollback Bill
Andrew Ackerman, The Wall Street Journal

Bipartisan legislation expected to clear the Senate this week has just one provision that is set to directly benefit the nation’s megabanks: a section aimed at making it easier for them to buy state and local bonds. The provision, championed by Citigroup Inc. and other large banks, would ease a new rule aimed at ensuring banks can raise enough cash during a financial-market meltdown to fund their operations for 30 days, requiring them to hold more cash or securities that are easily salable.

Financial Products and Investments

Chicago Stock Exchange Ends Proposed Sale to Chinese Investors
Alexander Osipovich, The Wall Street Journal

The Chicago Stock Exchange has ended a two-year effort to sell a major stake to Chinese investors, after U.S. regulators rejected the deal last month. The exchange and North America Casin Holdings Inc., the vehicle through which a group of Chinese and U.S. investors were seeking to buy the Chicago bourse, mutually agreed to terminate the deal, the two companies said in a joint statement Monday.

Fidelity puts 6 million savers on risky path to retirement
Tim McLaughlin and Renee Dudley, Reuters

For three years, the mutual funds in Fidelity’s flagship retirement franchise have outperformed at least 85 percent of their competitors, reversing a decade-long trend of subpar performance. And yet client money has continued to flow out of the firm’s Freedom Funds as retirement plan sponsors shift workers’ savings to rivals in the target-date fund business.

Housing and GSEs

AIG preps 1st RMBS under its own issuance shelf
Alison Bisbey, National Mortgage News

American International Group is preparing its offering of residential mortgage bonds through its own issuance shelf, according to rating agency presale reports. The global reinsurer has previously issued two private-label mortgage securitizations under Credit Suisse’s CSMC platform.

Ben Carson on His Vexing Reign at HUD: Brain Surgery Was Easier Than This
Glenn Thrush, The New York Times

Before Ben Carson accepted President Trump’s offer to become secretary of housing and urban development, a friend implored him to turn down the job to preserve the reputation he had earned as a brilliant neurosurgeon and lost, in part, as a politician. The confidant, Logan Delany Jr., who was the treasurer of Mr. Carson’s 2016 presidential campaign, described HUD as a “swamp” of “corruption.”

White House furious at embarrassing stories about HUD, Secretary Ben Carson
Rene Marsh and Dan Merica, CNN

Senior White House aides are furious about a series of negative stories about frivolous spending at the Department of Housing and Urban Development and have taken a more hands-on role in trying to stem the tide of negative news, sources with knowledge of the situation tell CNN. The decision to assert more control comes a day after reports that the former chief administrative officer at HUD filed a complaint saying she demoted after refusing to spend more than was legally allowed to redecorate Secretary Ben Carson’s new office.

Taxes

Mnuchin’s Move to End Hedge Fund Loophole Could Face Legal Challenges
Miles Weiss, Bloomberg

Treasury Secretary Steven Mnuchin’s plan to fix a gaping loophole for hedge funds in President Donald Trump’s new tax law could face legal challenges. Tax experts say a notice from Treasury and the Internal Revenue Service issued Thursday fails to give the legal basis for their power to close the loophole.

Trump Administration Joins States in Push to Expand Online Sales-Tax Collections
Jess Bravin, The Wall Street Journal

The Trump administration on Monday urged the Supreme Court to expand states’ authority to collect sales tax on internet transactions, joining a chorus of state officials seeking to overrule a 1992 precedent exempting many online retailers from having to add taxes to a consumer’s final price. In 1992, the justices “did not and could not anticipate the development of modern e-commerce,” Solicitor General Noel Francisco wrote in a friend-of the-court brief.

IRS action on prepaid property taxes slammed as ‘naked political payback’ against N.J.
Jonathan D. Salant, NJ.com

New Jersey Rep. Bill Pascrell Jr. and other Democrats on Monday accused the Internal Revenue Service of “naked political payback” for refusing to allow taxpayers to deduct their entire prepaid 2018 property taxes and threatening to step up enforcement of those who try to claim the tax break. In a letter to acting IRS Commissioner David Kautter, Pascrell, D-9th Dist., and the other Democrats on the House Ways and Means Committee said there was no legal justification for the IRS to decide that only 2018 property taxes paid in response to an assessment — which would cover just the first half of 2018 in New Jersey — were deductible.

Where Corporate Taxes Are Poised to Rise Because of Tax Overhaul: States
Richard Rubin, The Wall Street Journal

The amount of income subject to corporate taxes on the state level will increase by 12% because of the federal-tax overhaul, which removed or limited tax breaks, according to a business-backed study. When the top federal corporate-tax rate was 35%, state corporate-tax rates ranging from 3% to 12% were relatively insignificant for many big companies.

Financial Technology

Bitcoin Rises Above 50-Day Average for First Time Since January
Lisa Fu, Bloomberg

Bitcoin bulls may have just got the technical signal they’ve been hoping for. The world’s biggest cryptocurrency by market value rose above its 50-day moving average for the first time since mid-January, up as much as 5.8 percent on Monday, the most in two weeks.

US Marshals to Sell $25 Million in Bitcoin at Auction
Nikhilesh De, CoinDesk

The U.S. Marshals are set to auction off nearly $25 million worth of bitcoin later this month. The government agency announced Monday that it will put approximately 2,170 bitcoins on the auction block, with the sale planned for March 19.

Founder of defunct bitcoin exchange has a trail of lawsuits, judgments and at least one unpaid lawyer
Kate Rooney and Dan Mangan, CNBC

Even before being hit with a federal securities fraud lawsuit by the SEC and independent perjury charges by the Justice Department last month, the founder of a now-defunct cryptocurrency exchange had left a trail of lawsuits, legal judgments and a lawyer who says she never got paid by him. Jon Montroll, 37, was accused on Feb. 21 in a civil complaint by the Securities and Exchange Commission of running his cryptocurrency site BitFunder as an “unregistered securities exchange” and of defrauding users.

Citigroup, Kabbage Form Consortium on Fintech Cybersecurity
Lalita Clozel, The Wall Street Journal

Four financial companies including Citigroup Inc. C 1.00% and online lender Kabbage Inc. said Tuesday they have formed a consortium to address fintech firms’ cybersecurity risks, a sign of the industry’s growing links to traditional banks and insurers. The consortium, which was created in response to recommendations in a World Economic Forum report released Tuesday, also includes Zurich Insurance Group and Depository Trust & Clearing Corp., a U.S. securities clearinghouse.

How would regulators react to Amazon-JPM checking partnership?
Rachel Witkowski, American Banker

The negotiations between Amazon and big banks like JPMorgan Chase and Capital One to offer a checking-account-like product pose significant questions for regulators about the e-commerce giant pushing further into the banking space. Amazon is hardly new to the financial world.

Opinions, Editorials and Perspectives

Why Are Democrats Helping Trump Dismantle Dodd-Frank?
Mike Konczal, The New York Times

The Crapo bill is unusual in today’s hyperpartisan environment: It has over 10 Democratic co-sponsors, many from swing or red states and up for re-election this year — like Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota, Jon Tester of Montana and Claire McCaskill of Missouri — making its passage possible. Why would some Democrats provide support for a rollback of Dodd-Frank?

Dodd-Frank might just survive Republicans. Good.
The Editorial Board, The Washington Post

“We’re going to be doing a big number on Dodd-Frank,” President Trump promised in the early days of his administration, implying imminent achievement of the long-standing Republican goal of repealing, or gutting, the signature financial reform law of President Barack Obama’s tenure. What Mr. Trump neglected to mention, of course, is that the only relevant number, big or small, was 60: That’s how many senators it would take to pass new legislation.

Warren Democrats for Wall Street
The Editorial Board, The Wall Street Journal

The Senate this week will debate a bipartisan bill that would relax some of the 2010 Dodd-Frank law’s blunderbuss regulations. Progressives are denouncing the modest reforms as gifts to Wall Street, though the irony is that Dodd-Frank has been a boon for the biggest banks.

Community banks like mine sorely need regulatory relief
Kathryn Underwood, American Banker

You don’t need to be a community banker inside the beltway to know that partisanship and policymaking seem to go hand in hand in Washington these days. So, when an opportunity arises to enact meaningful reform — with the power to help my New Hampshire community bank and our customers — I can’t sit back and let the opportunity pass me by.

Corporate America invites a backlash
The Editorial Board, USA Today

As regular readers know, cutting the corporate income tax was one of the few parts of the recent tax bill that this Editorial Board supported. The previous rate of 35% was both exceptionally high and easily gamed.

Research Reports

Fintech decoded: The capital markets infrastructure opportunity
Siobhan Cleary et al., McKinsey & Co. 

The level of investment in CMI fintech is gaining. For providers, the key is to view fintech not as a strategy in itself but as a means to reach strategic priorities.