Finance Brief: FDIC’s Hoenig Says Banks Should Split Off Riskiest Activities

Washington Brief

  • Federal Deposit Insurance Corp. Vice Chairman Tom Hoenig said large financial services companies should split off their riskiest operations into individual, well-capitalized holding companies. He framed the idea as an alternative to the types of regulations in the 2010 Dodd-Frank Act. (Reuters)
  • The Justice Department this week is expected to take the side of mortgage servicer PHH in a lawsuit that could determine whether the president has the authority to fire the Consumer Financial Protection Bureau’s director at will. (The Wall Street Journal)
  • The Senate Finance Committee’s confirmation hearing for Robert Lighthizer, President Donald Trump’s pick to be U.S. trade representative, has been rescheduled to 2 p.m. today because of inclement weather in the Washington region.

Business Brief

  • JPMorgan Chase & Co. plans to phase out the sale of commission-based individual retirement accounts beginning April 7. The decision comes as the Trump administration plans to alter the Obama-era fiduciary rule, which is aimed at preventing conflicts of interest in retirement advice. (The Wall Street Journal)
  • Moody’s said the AAA credit rating of the United States would not be adversely affected if the federal government fails to immediately raise the debt ceiling. (The Hill)
  • Boeing Co. and other aerospace manufacturing companies like Lockheed Martin Corp. and General Electric Co. endorsed a congressional tax reform plan based on the House Republican “blueprint” released last year. (Reuters)

Chart Review

Private vs. Public Equity at Large Banks
Federal Deposit Insurance Corp.

Events Calendar (All Times Local)

Tuesday
Institute of International Bankers annual conference 8 a.m.
FIA International Futures Industry Conference in Boca Raton, Fla. 8 a.m.
Senate Banking Committee hearing on flood insurance 10 a.m.
Business Roundtable release of Q1 CEO economic survey 11:15 a.m.
Senate Finance Committee hearing for USTR nominee Lighthizer 2 p.m.
Wednesday
FIA International Futures Industry Conference 7:30 a.m.
House Financial Services subcommittee hearing on JOBS Act 10 a.m.
Senate Banking Committee hearing on Russia sanctions 10 a.m.
D.C. Blockchain Summit 1:30 p.m.
House Financial Services subcommittee hearing on de novo bank formation 2 p.m.
Thursday
FIA International Futures Industry Conference 7 a.m.
D.C. Blockchain Summit 8 a.m.
House Financial Services subcommittee hearing on monetary policy 10 a.m.
House Financial Services subcommittee hearing on flood insurance 2 p.m.
Friday
FIA International Futures Industry Conference 7:30 a.m.

 

General

CFPB, Justice Department Poised to Square Off in Court
Yuka Hayashi, The Wall Street Journal

A court case questioning the structure of the Consumer Financial Protection Bureau is about to take an unusual turn, with the Trump administration’s Justice Department expected to oppose the independent watchdog agency—one of only a few instances in recent decades where two federal entities square off in court. Justice Department lawyers indicated earlier in March that they would side with PHH Corp., the mortgage lender challenging the CFPB’s structure, as they requested an extension of the deadline for submitting briefs weighing in on the case.

US loses focus on white-collar crime, lawyers say
David J. Lynch, Financial Times

Donald Trump often promises to crack down on violent criminals. But he has not had much to say about the crooks who target bank accounts rather than people.

U.S. Treasury Secretary to Push G-20 on Currency Vows and Trade Policies
Ian Talley, The Wall Street Journal

U.S. Treasury Secretary Steven Mnuchin will push the world’s top economies to abide by existing exchange-rate agreements and promote “open and fair” trade at a coming meeting of finance chiefs this week, a senior Trump administration official said Monday. But the senior U.S. Treasury official, in a briefing ahead of a two-day Group-of-20 meeting starting Friday, stopped short of committing to past G-20 vows to “reject protectionism.”

Stocks Drop Before Fed as Pound Slumps on Brexit: Markets Wrap
Garfield Clinton Reynolds and Samuel Potter, Bloomberg News

Most European stocks retreated as signs of caution started to show in markets before this week’s packed schedule of events, which includes a U.S. interest rate decision. Futures on the S&P 500 Index slipped 0.1 percent after the benchmark gauge ended Monday virtually unchanged.

Banking

Big banks should split off riskiest activities: FDIC’s Hoenig
Patrick Rucker, Reuters

Leading Wall Street firms should segment their riskiest businesses into separate highly-capitalized holding companies and shield taxpayers from a future bailout, a leading U.S. bank regulator said on Monday. Tom Hoenig, vice-chair of the Federal Deposit Insurance Corporation (FDIC), pitched his idea to bankers attending an industry conference as a more palatable alternative to the regulatory regime which has existed since the Dodd-Frank financial legislation was enacted after the 2007-2008 financial crisis.

Savers losing out on $5 billion at banks annually
Joseph Lawler, The Washington Examiner

Savers will have to pay extra attention to interest rates on bank accounts this year as the Federal Reserve moves to raise rates. U.S. savers are missing out on more than $5 billion annually by failing to take advantage of high-yield savings accounts, according to a new review from Nerdwallet, a website that provides comparisons of credit products.

USC Professor Named First African-American Head of a Fed Regional Bank
Ryan Rainey, Morning Consult

Former Obama administration official Raphael Bostic on Monday was named the next president of the Federal Reserve Bank of Atlanta, where he’ll be the first African-American to serve as head of a Fed regional bank. Increased diversity has been the focus of advocates who have criticized the racial and gender composition of Fed regional boards.

Financial Products and Investments

J.P. Morgan Moves Ahead With Plan to Drop Commissions in IRAs
Michael Wursthorn, The Wall Street Journal

J.P. Morgan Chase & Co. is moving ahead with its plan to drop commissions in retirement accounts that use a financial adviser, the latest brokerage to push forward with efforts to comply with an Obama-era retirement rule that is under review for repeal or revision. The New York bank told some wealth-management customers with individual retirement accounts that as of April 7 their “financial adviser will no longer be able to provide investment guidance,” according to a letter sent to clients and viewed by The Wall Street Journal.

Moody’s: Hitting debt ceiling won’t affect US credit rating
Sylvan Lane, The Hill

Hitting the debt ceiling won’t impact the United States’ standing with one key credit agency. Moody’s Investors Service said Monday that it won’t dock the country’s AAA credit rating if the government doesn’t immediately raise the federal limit on how much debt the U.S. can hold.

Debt Ceiling Fight May Be Too Tempting for Trump to Pass Up
Laura Litvan and Justin Sink, Bloomberg News

Treasury Secretary Steven Mnuchin has raised the alarm on the U.S. debt ceiling, and Republican leaders insist they won’t push it to the limit as in past years by using it as a bargaining chip for deep spending cuts. President Donald Trump hasn’t weighed in recently, but both he and his hawkish budget chief have criticized Republicans in the past for being too willing to raise the debt limit — a statutory cap on how much money the U.S. can borrow — and may be more willing than previous administrations to threaten a default.

PwC threatens MF Global mistrial; Corzine defends actions
Jonathan Stempel, Reuters

PricewaterhouseCoopers LLP on Monday said it may seek a mistrial in a $3 billion malpractice case over the collapse of Jon Corzine’s MF Global Holdings Ltd, saying it was blindsided when the plaintiff changed its theory of why the brokerage failed. The auditor has been accused by MF Global’s bankruptcy administrator of accounting negligence that let the former New Jersey governor invest $6.3 billion in European sovereign debt, leading to a liquidity crisis and an Oct. 31, 2011 bankruptcy.

Housing and GSEs

Freddie Mac prices largest whole loan securities deal to date
Kelsey Ramírez, HousingWire

Mortgage giant Freddie Mac announced the pricing of its fifth Freddie Mac Whole Loan Securities transaction, the first of 2017 and largest to date. The transaction consists of about $640 million of guaranteed senior and non-guaranteed subordinate actual loss securities.

Taxes

Boeing, aerospace manufacturers back U.S. tax overhaul
Alwyn Scott, Reuters

Boeing Co (BA.N) and about 90 other aerospace companies are urging Congress to overhaul the U.S. tax system, saying a set of changes Republicans proposed last year – including a big cut in the corporate tax rate – will make them more competitive globally and help create U.S. jobs. Boeing Chief Executive Dennis Muilenburg was among those who signed a letter to Republican and Democratic leaders in the U.S. House and Senate that was dated Friday and due to be released publicly on Tuesday, according to the Aerospace Industries Association (AIA).

‘No Way, Shape or Form’ Tax Reform Done By August, Says Bob Doll
Fox Business

Despite President Trump’s push to pass tax reform by the end of 2017, one market expert says it won’t be the end of the world if the administration misses that deadline. “The markets have responded to a better economy, but they’ve all responded to ‘we’re gonna get some tax cuts.’ So eventually it has to happen,” said Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management.

Downside of tax cuts: Less profitable muni loans
Andy Peters, American Banker

Most bankers grin at the mention of corporate tax reform because of the many ways it could boost profits, but little discussed has been the toll it could take on one of banking’s most popular niches — lending to municipalities and other government entities. Commercial banks’ loans and leases to states and other political jurisdictions rose 131% to $152 billion at June 30, 2015, compared with the same period five years earlier, according to the latest data from the Federal Deposit Insurance Corp.

Financial Technology

EU Draft Law Outlines Parliament Plan to Monitor Bitcoin Users
Stan Higgins, CoinDesk

EU Parliament members have published new draft legislation outlining their plans to regulate digital currencies. Legislative language published on 9th March details how MEPs plan to empower financial watchdogs in the EU, allowing them to collect more data on digital currency users.

North Korean Banks Under U.S. Sanctions Remain on Swift Network
Katy Burne, The Wall Street Journal

At least four North Korean banks under U.S. Treasury sanctions remain on the Swift money-transfer messaging network, even after the network deactivated a handful of the country’s banks sanctioned by the United Nations—the latest sign a squeeze on Pyongyang has failed to completely shut off the regime’s access to the global banking system. The U.S. Treasury-sanctioned banks that remain on Swift include the state-owned Foreign Trade Bank of the Democratic People’s Republic of Korea, the country’s primary foreign-exchange bank; Kumgang Bank; Koryo Credit Development Bank; and North East Asia Bank, according to people familiar with the network.

Opinions, Editorials and Perspectives

Consumer Protection Progress At Risk
Ruth Susswein, Morning Consult

How often must we read the day’s headlines and proclaim, “They’ve got to be kidding me!” Consumers have seen some major improvements in consumer protections, particularly in the past year.

Bitcoin Needs to Think Outside ETF Box
Christopher Langner, Bloomberg View

The hopes of Tyler and Cameron Winklevoss to list an exchange-traded fund based on bitcoin were dashed by the Securities and Exchange Commission. That suggests the digital currency’s future may not be in the U.S., and probably shouldn’t hinge on a fund that invests in nothing else.

More Bank Capital Could Kill the Economy
Tim Congdon and Steve H. Hanke, The Wall Street Journal

In the decade since the financial panic of 2008, politicians and bureaucrats joined in a remorseless and determined effort to tighten regulation. Banks have been required to hold more capital against their risky assets, in the belief that this would make them—and the economy—safer.

Fake bank accounts are rare, but there’s a bigger problem
Jim Miller, American Banker

The Wells Fargo fake-accounts scandal is shining such a bright spotlight on this one bank’s issues that more pervasive problems with the industry’s sales practices are getting lost in the shadows. If left unchecked, these problems have the capacity to do far more long-term harm than isolated cases of fraud.

Research Reports

The Making of Hawks and Doves: Inflation Experiences on the FOMC
Ulrike Malmendier et al., The National Bureau of Economic Research

We show that personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data.

Briefings

Finance Brief: Icahn Resigns as Special Adviser to Trump

Billionaire investor Carl Icahn resigned from his role as President Donald Trump’s unpaid adviser on regulatory reform issues just before The New Yorker published a profile that detailed potential conflicts of interests related to Icahn’s stake in a Texas-based petroleum refining company. Icahn cited “partisan bickering” in his resignation letter and denied he had profited from his advisory position.

Finance Brief: Week in Review & What’s Ahead

Members of President Donald Trump’s Strategic and Policy Forum, an advisory group of business leaders, decided to disband after Trump blamed the violence in Charlottesville, Va., on both white nationalists and the protesters who opposed them. Later, Trump announced the dissolution of that group and of an advisory panel on manufacturing. JPMorgan Chase & Co. Chief Executive Jamie Dimon, a Strategic and Policy Forum member, said in a memo to employees that he “strongly” disagreed with Trump’s comments.

Finance Brief: Week in Review & What’s Ahead

California Insurance Commissioner Dave Jones said the state will investigate whether or not Wells Fargo harmed hundreds of thousands of customers by selling them car insurance they didn’t need. The probe follows subpoenas issued by New York state’s banking and insurance regulator to two Wells Fargo units last week.

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