Finance Brief: CFPB Seeks 6-Month Delay of Prepaid Card Rule

Washington Brief

  • The Consumer Financial Protection Bureau proposed a six-month delay of the Oct. 1, 2017, implementation date of its rule restricting prepaid accounts. The industry has been pushing for Republican lawmakers on Capitol Hill to overturn the proposal via the Congressional Review Act. (American Banker)
  • Treasury Secretary Steven Mnuchin requested Congress raise the debt ceiling, which is set to be reinstated on March 16 at about $20 trillion. (The Washington Examiner)
  • Senate Majority Leader Mitch McConnell (R-Ky.) cast doubt on the Trump administration’s August goal for tax reform legislation, saying he thinks the effort will take longer. (The Hill)

Business Brief

  • American International Group Inc. Chief Executive Peter Hancock said he will resign. The announcement comes after the insurer reported record losses in the fourth quarter of 2016, a major setback to Hancock’s turnaround plan. (The New York Times)
  • White House spokesman Sean Spicer said the administration intends to revisit the Glass-Steagall law, a campaign promise made by President Donald Trump. Bank stocks slid following Spicer’s remarks. (Financial Times)
  • A 10 percent reduction in the U.S. corporate tax rate could boost the Standard & Poor’s 500 index by 15 percent over a 12-month period, according to an analysis by S&P Global Market Intelligence. (TheStreet)

Chart Review

Events Calendar (All Times Local)

Friday
Georgetown Law trade event 8 a.m.
SEC Evidence Summit 9:30 a.m.

 

General

Steve Mnuchin asks Congress to raise the debt ceiling
Joseph Lawler, The Washington Examiner

Treasury Secretary Steven Mnuchin asked congressional leaders Thursday to raise the debt ceiling, just one week before the limit is set to be reinstated. “I encourage Congress to raise the debt limit at the first opportunity so that we can proceed with our joint priorities,” Mnuchin said in a letter addressed to House Speaker Paul Ryan and other leaders.

After lobbying from Trump, Orrin Hatch plans to run again
Manu Raju, CNN

Utah Sen. Orrin Hatch, the longest-serving GOP senator, told CNN he is planning to run for re-election next year, abandoning his plans to quit the chamber after four decades of service. The Utah Republican — who promised in 2012 that his current term would be his last — said he has changed his mind at this time, partially because he’s been getting encouragement from President Donald Trump and top Republicans to run again.

China warns of trade war, urges US to abide by WTO rules
Deutsche Welle

US ignorance of globally agreed trading rules could trigger a “trade war,” a Chinese government official said on Thursday, responding to recent statements from the White House that the Trump administration wouldn’t feel bound by the World Trade Organization’s (WTO’s) decisions. “If WTO members ignore the organization’s rules for their own sake and refuse to implement its rulings on disputes, the multilateral trade system will exist in name only and there could even be a repetition of the trade war of the 1930s,” Sun Jiwen, a Ministry of Commerce spokesman, said at a briefing in Beijing.

Stocks Gain as U.S. Debt Stems Worst Run Since ’12: Markets Wrap
Samuel Potter and Cecile Gutscher, Bloomberg News

Energy stocks rallied, leading a third day of gains for European equities as crude prices bounced. Futures on the S&P 500 added 0.4 percent.

Banking

Bank stocks slip as White House confirms intent to revisit Glass-Steagall
Jessica Dye and Adam Samson, Financial Times

Financials don’t seem too happy to hear that bringing back Glass-Steagall is still on President Donald Trump’s policy to-do list. In response to a question on Thursday about whether Mr Trump remains committed to a campaign promise to revisit the Great Depression era law — which prohibited commercial deposit-holding banks from engaging in riskier investment banking activities — White House press secretary Sean Spicer said that he was.

Trump discussed Cordray’s future in community bank meeting
Ian McKendry et al., American Banker

President Trump deeply impressed the community bankers he met with Thursday, listening attentively to their concerns while demonstrating a willingness to pull out all the stops to help get them regulatory relief, according to multiple participants. The president also openly consulted with his top economic advisers during the meeting, pondering the future of Consumer Financial Protection Bureau Director Richard Cordray while repeatedly asking whether he could fix community bank concerns through new executive orders.

Wells Fargo Shakes Up Consumer Banking Unit, Demotes Executives
Emily Glazer, The Wall Street Journal

Wells Fargo & Co. took further steps this week to restructure its retail-banking business, even as the firm continues digging into the causes of its sales-practices scandal, according to employees and memos reviewed by The Wall Street Journal. Some senior executives within the retail bank were demoted or had their responsibilities curtailed, according to one memo sent to employees Tuesday.

Financial Products and Investments

CFPB delays implementation of final prepaid rule, citing complaints
Kate Berry, American Banker

The Consumer Financial Protection Bureau said Thursday that it is seeking to delay the effective date of its final rule on prepaid cards by six months because industry participants need more time to comply. “We have learned that some industry participants believe they will have difficulty complying with certain provisions of the rule by the current October 1, 2017 effective date,” Kris Andreassen, a CFPB senior counsel, wrote in a blog post.

AIG’s Chief Executive to Resign After Turnaround Setback
Chad Bray, The New York Times

A little over a year after staving off calls by activist investors to break up the American International Group, Peter D. Hancock, the insurance giant’s chief executive, said on Thursday that he would resign after investors had lost faith in his efforts to turn around the company. Last month, the insurer reported a fourth-quarter loss of $3.04 billion – one of its worst quarters since the 2008 financial crisis and a major setback in Mr. Hancock’s efforts to reshape the company.

Morgan Stanley debuts fiduciary product for small 401(k) plans, with eye toward DOL rule
Greg Iacurci, InvestmentNews

Morgan Stanley Wealth Management is making a push into the small 401(k) marketplace, debuting a fiduciary product exclusively available to its advisers and offering a risk-controlled way to continue servicing those plans when the Department of Labor’s fiduciary rule comes into force. The wirehouse partnered with Ascensus, a retirement plan record keeper, on the product, called ClearFit, available to 401(k) plans with less than $10 million in assets.

Senate panel approves bill to promote ETF research
Mark Schoeff Jr., InvestmentNews

Legislation that would allow for wider distribution of research on exchange-traded funds advanced in the Senate on Thursday. The Senate Banking Committee approved the measure, the Fair Access to Investment Research Act of 2017, by a voice vote.

SEC acting chairman says getting ready for budget
Lisa Lambert, Reuters

The top U.S. securities regulator is preparing for the budget that President Donald Trump is poised to release next week, the Securities and Exchange Commission’s acting chairman said on Thursday, adding that it is talking with the White House’s budget office and holding daily meetings about spending plans. The acting chairman, Republican Michael Piwowar, added that the federal hiring freeze Trump put in place shortly after he was inaugurated in January is “already having an effect” on the commission’s work.

U.S. SEC commissioner raises questions about unequal voting rights
Lisa Lambert, Reuters

One of the two current members of the U.S. Securities and Exchange Commission on Thursday raised questions about the rights of investors, specifically highlighting unequal voting rights, saying the regulator should “focus on how some innovations may prove detrimental to investors.” “Unequal voting rights present complex and new issues that need to be understood and addressed. We also must be mindful of the precedent being created,” said Democrat Commissioner Kara Stein.

As Dodd-Frank Repeal Looms, Shareholders Gird for Annual Meetings
Vipal Monga, The Wall Street Journal

Investors will keep prodding companies to bring their executive pay in line with rivals’ and disclose more detail about their environmental and social policies during this year’s shareholder contests. Their push continues trends in corporate governance, despite a murky regulatory outlook that could change disclosure rules after this year, according to a new report.

Corzine tells court PwC audits were vital to trust in MF Global
Ben McLannahan, Financial Times

Audits signed off by PwC were vital in sustaining a network of trust in MF Global, Jon Corzine told a packed courtroom in New York on Thursday, as lawyers for the failed futures brokerage argued that flawed advice from the accounting giant was the cause of its downfall. Mr Corzine, a former Goldman Sachs chief and governor of New Jersey, was the CEO and chairman of MF Global when it collapsed in October 2011, laid low by big bets on European sovereign debt.

Housing and GSEs

Ben Carson calms fears of $6B HUD budget cut
Kelsey Ramirez, HousingWire

U.S. Department of Housing and Urban Development Secretary Ben Carson sent an email to his staff seeking to calm the storm of doubts left in the wake of the possibility of a $6 billion cut of HUD funding. Previously, it was rumored that housing could be impacted by President Donald Trump’s proposed budget cuts.

Freddie Mac Considers Backing Single-Family Home Rentals
Matt Scully and Joe Light, Bloomberg News

Freddie Mac is considering backing loans that finance single-family rental homes for the first time, mirroring a controversial transaction that Fannie Mae disclosed in January, according to people with knowledge of the matter. The company’s regulator is looking to allow Fannie Mae and Freddie Mac to experiment with a limited number of transactions, to better understand if the U.S.-backed housing finance companies should be allowed to do more, according to one of the people, who asked not to be identified because the matter is not public.

Congress Set for Heated Debate on Flood Insurance Program
Rachel Witkowski, The Wall Street Journal 

Congress is gearing up for a heated fight over a government-backed flood insurance program that owes billions of dollars to taxpayers and is set to expire this year. What to do about extending the National Flood Insurance Program divides Congress along regional rather than party lines.

Taxes

McConnell: Tax reform unlikely by August
Jordain Carney, The Hill 

Senate Majority Leader Mitch McConnell (R-Ky.) on Thursday poured cold water on the Trump administration’s goal of completing tax reform by the August recess. “I think finishing on tax reform will take longer,” McConnell said during a Playbook Live interview.

GOP faces difficult math on tax reform
Joseph Lawler, The Washington Examiner 

A closer look at the math underlying the House Republican tax reform plan shows the difficulty of moving such an ambitious package through Congress, but also that the arithmetic may be easier for Paul Ryan and company in some ways than commonly thought. The Committee for a Responsible Federal Budget, a nonprofit group that advocates lower deficits, ran through the numbers of the House GOP plan in a new analysis, looking at a few possibilities to determine whether it might lose money and by how much.

A Key Part of the GOP’s Plan to Overhaul the Tax Code is in Deep Trouble
Lynnley Browning, Bloomberg News

Since Donald Trump’s surprise election victory, the president and Republican leaders in Congress have described tax reform as a top priority—a once-in-a-generation chance to overhaul the tax code in a way that lowers rates for companies and individuals, encourages businesses to make things at home instead of abroad, and ends incentives for companies to book profits overseas. All without raising the budget deficit.

Corporate Tax Cuts Could Add 15% to S&P 500
Emily Stewart, TheStreet

The benchmark Standard & Poor’s 500 index could rise by as much as 370 points, or about 15%, over the course of the next year if President Trump and House Republicans achieve a 10% reduction in the corporate tax rate, according to an S&P analysis. GOP promises of across-the-board tax cuts for American companies have helped drive markets higher in recent months, and potentially for good reason.

Financial Technology

The biggest threat facing bitcoin has nothing to do with the SEC
Joseph Adinolfi, MarketWatch 

Many bitcoin analysts fear that if the Securities and Exchange Commission rejects the Winklevoss Bitcoin Trust, or one of its two rivals, the price of the cryptocurrency could plunge dramatically. But the biggest threat to the cryptocurrency’s lofty valuation has nothing to do with the U.S. federal government. Rather, it comes from within.

A Message from the National Black Chamber of Commerce:

Did you know the Durbin Amendment has made big box retailers $42 billion in profit? These corporations promised they would pass on profits made from lower debit transaction fees to consumers. But they have not kept their word and in many cases are charging consumers more.

Opinions, Editorials and Perspectives

American greatness starts with tax reform
Newt Gingrich, Fox News

Repealing and replacing ObamaCare and implementing President Trump’s plan to build $1 trillion-worth of infrastructure are massively important for the president’s bold vision to make America great again, but the key to President Trump’s success is tax reform. Many congressional Republicans are eager to solve the ObamaCare crisis and have gone forward with what they can do under reconciliation to stop the bleeding.

Insurance for the Border-Adjustment Tax
Stuart Leblang and Amy S. Elliott, Forbes

Major retailers are waging an intense campaign against the border adjustment tax (BAT), claiming it will raise the prices of essential consumer goods, increase the cost of gasoline and cause businesses with high import costs to cut jobs. Congress can design insurance to largely eliminate these risks.

The Practical Side of Trump’s Trade Policy
Simon Lester, Cato Institute 

While some of Trump’s trade policy staff obsesses over trade deficits or the number of Americans working in manufacturing, the practical side of trade policy these days is often about regulatory trade barriers such as these, which are said to be about food safety but are sometimes just disguised protectionism.  In this case, our trading partners definitely have a reason to be concerned.

Declare Bankruptcy in Puerto Rico
Antonio Weiss, Bloomberg View

In a rare show of bipartisan support, Congress passed a bill last June to save Puerto Rico from a debt spiral and certain economic collapse. Known as “Promesa,” the bill was a tough compromise based on hard facts about the state of the island’s finances.

A Message from the National Black Chamber of Commerce:

Enactment of the Durbin Amendment has led to $42 billion in extra profit for giant retailers. These corporations said they would pass on the profits to consumers in the form of lower prices, but they’ve broken that promise, pocketed the money and in many cases are charging consumers even more.

Research Reports

Benefits and Risks of Central Clearing in the Repo Market
Viktoria Baklanova et al., Office of Financial Research 

Recent regulatory changes have raised the cost of activity in the repurchase agreement (repo) market for bank-affiliated dealers. Many transactions between dealers are centrally cleared.

Briefings

Finance Brief: Week in Review & What’s Ahead

Senate Majority Leader Mitch McConnell (R-Ky.) said it is unlikely that Congress will pass a tax reform bill before the August recess. Senate GOP taxwriters are considering a tax proposal of their own that does not include the controversial border-adjustable tax on imports found in the House GOP’s blueprint.

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