Finance Brief: Federal Regulators Agree to Rewrite Volcker Rule

Government Brief

  • Regulators agreed at a meeting of the Financial Stability Oversight Council to rewrite the 2010 Dodd-Frank Act’s limits on bank proprietary trading known as the Volcker Rule. A rewrite would likely ease rules on bank investments in hedge funds and private equity firms. (Bloomberg)
  • Lawmakers and administration officials are publicly optimistic about the prospects of concluding work on tax reform legislation before January. But other issues such as passing a debt ceiling bill and reauthorizing the National Flood Insurance Program could push consideration of a tax measure into 2018, according to a Senate aide. (Financial Times)
  • House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called for the Office of Special Counsel to investigate whether Consumer Financial Protection Bureau Director Richard Cordray violated the Hatch Act, which bars federal workers from running for elected office. According to Hensarling, it’s possible that Cordray asked a friend to place a story in an Ohio newspaper claiming that Cordray is planning to run for governor there next year. (The Hill)

Business Brief

  • Wells Fargo & Co. customers filed a proposed class-action lawsuit against the bank for forcing customers to purchase automobile insurance, sometimes unknowingly, without the customers needing or wanting the coverage. (Reuters)
  • Bitcoin will undergo a “fork” today that’s expected to split the cryptocurrency and create a new digital asset known as “Bitcoin Cash.” The new financial product is designed to ease the processing and scaling issues faced by bitcoin users. (CNBC)
  • The cryptocurrency exchange Coinbase said in a federal court filing that a narrowed Internal Revenue Service summons for data on its users could affect as many as 14,355 customers. Coinbase asked the court to throw out the summons request, arguing that it is too broad. (CoinDesk)

Chart Review

Events Calendar (All Times Local)

Senate Finance Committee hearing on affordable housing 10 a.m.
ABA webinar on cross-border issues in M&A and tax planning 1 p.m.
Federal Reserve Board conference on regional food system investments 10 a.m.
No events scheduled

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GOP chairman demands investigation into whether Cordray violated election law
Sylvan Lane, The Hill

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) is asking federal watchdogs to investigate whether the director of the Consumer Financial Protection Bureau (CFPB) violated federal election law. Hensarling asked the Office of Special Counsel in a letter dated Friday to investigate whether Richard Cordray broke the Hatch Act, which bans federal employees from running for elected office.

Five GOP senators to watch in CFPB arbitration rule appeal fight
Ian McKendry, American Banker

After a grueling defeat for their health care bill last week, Senate Republicans are expected to turn to other priorities, including attempting to repeal the Consumer Financial Protection Bureau’s rule banning mandatory arbitration clauses. Senate Banking Committee Chairman Mike Crapo, R-Idaho, said he hoped for a vote “before the August recess,” though it wasn’t clear that was going to happen.

Stocks Gain as Earnings Roll In; Dollar Steadies: Markets Wrap
Adam Haigh and Samuel Potter, Bloomberg

Global stocks advanced following the latest set of corporate results, with European shares tracking a jump in Asian peers on both earnings and promising economic data. The U.S. dollar traded sideways after Monday’s drop, as investors digested the latest developments in Washington.


Volcker Rewrite Is Set to Start as Trump Regulators Grab Reins
Benjamin Bain and Jesse Hamilton, Bloomberg

Wall Street regulators have agreed to rewrite the Volcker Rule, according to three people familiar with the matter, moving to loosen industry-despised restrictions that were central to the U.S. response to the financial crisis. The five agencies that wrote the original limits on banks investing with their own capital have decided to begin working together on a revision, said the people, who requested anonymity because the discussions aren’t public.

Lawsuit says Wells Fargo auto insurance charges were a fraud
Jonathan Stempel, Reuters

A new lawsuit accuses Wells Fargo & Co of racketeering violations and fraud after the bank admitted to charging several hundred thousand borrowers for auto insurance they did not ask for or need, causing many delinquencies. The proposed class action filed on Sunday in San Francisco federal court deepens the fallout from the latest bad practice uncovered at Wells Fargo.

CFPB issues warning: Don’t trick consumers into using costly pay-by-phone option
Ben Lane, HousingWire

Attention financial services companies: If you offer a pay-by-phone option and steer customers to said option unnecessarily, the Consumer Financial Protection Bureau may come knocking. The CFPB said Monday that it is issuing a warning to all companies under its supervision because the agency is concerned about companies “tricking” consumers into using expensive pay-by-phone options.

Fed’s Fischer says fiscal, regulatory measures best cure for global low interest rates
Greg Robb, MarketWatch

Monetary policy must take a back seat to fiscal and regulatory measures in the struggle to get the global economy out of its low-interest-rate doldrums, said Federal Reserve Vice Chairman Stanley Fischer, on Monday. Interest rates are not only near historic lows in the U.S., but also in the euro area, the U.K. and Japan, Fischer noted in a speech at a conference in Brazil.

Trump urged Washington to stop bank mergers in 2004 letter
Jason Lange and Pete Schroeder, Reuters

President Donald Trump warned the administration of George W. Bush in 2004 that big U.S. bank mergers were “totally out of control” and should be stopped as they were forcing businesses to borrow money from foreigners, according to a letter seen by Reuters. Though it is 13 years old, the unsolicited letter from Trump, when he was a New York real estate developer and businessman, to then-Treasury Secretary John Snow sheds some light on Trump’s attitudes toward big banks, which he has alternately lambasted and embraced since becoming a politician.

Financial Products and Investments

SEC charges four former reps with fraud for VA sales targeting federal employees

The Securities and Exchange Commission has charged four former Atlanta-area brokers with fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan retirement accounts into higher-fee, variable annuity products. The four brokers charged are Christopher S. Laws, Jonathan D. Cooke, Danny S. Hood and Brandon P. Long, who were licensed through BCG Securities, a Cherry Hill, N.J.-based broker-dealer that handles the securities business of Federal Employee Benefits Counselors (FEBC).

Stifel CEO raises doubts about future of DOL rule
Jeff Benjamin, InvestmentNews

While many broker-dealers are moving to comply with the Department of Labor’s new fiduciary rule, at least one CEO doesn’t expect the second phase of the rule to be implemented on schedule — if at all. Speaking to analysts during a second-quarter earnings call Monday, Stifel CEO Ron Kruszewski said he believes the January phase-two implementation “will be delayed.”

Housing and GSEs

Competitive purchase market drives rise in application defects
Brad Finkelstein, National Mortgage News

Loan application defects increased for the seventh consecutive month in June, due to the highly competitive purchase market, according to First American Financial Corp. For all applications, the First American Loan Application defect index increased 1.2% month-to-month in June to 84 from 83 in May.


Trump tax reform plan heads into quagmire
Sam Fleming and Barney Jopson, Financial Times

The Trump administration’s hopes of achieving tax reform this year are already being questioned by current and former congressional aides as Washington faces a fiscal quagmire over the next three months and intense wrangling over the details of the changes. Donald Trump on Monday swore in his new chief of staff John Kelly as he attempts to instil greater discipline on the White House and push forward with a policy agenda in the wake of failures like the repeal of Obamacare.

White House Calling for Tax Reform Consideration as Soon as October
Ryan Rainey, Morning Consult

The White House’s chief liaison with members of Congress said Monday that he expects tax writers will begin the legislative process for a tax reform package shortly after returning from August recess, with House floor action possible as soon as October. Marc Short, the White House director of legislative affairs, said at an event hosted by the conservative group Americans for Prosperity that the prospective schedule is “aggressive,” but represents the ideal scenario for GOP tax writers.

Norquist predicts GOP will release tax bill by late September
Naomi Jagoda, The Hill

Americans for Tax Reform President Grover Norquist on Monday said he expects that Republicans will unveil tax reform legislation by late September. “I think we’ll have a bill out of the White House, the Senate and the House by Sept. 28,” Norquist said on CNBC.

Trump aiming for 15 percent business tax rate, White House official says
Joseph Lawler, The Washington Examiner

Just because they have released a statement together doesn’t mean that the Trump administration and House Republicans agree on much about tax reform. And on Monday, a White House official laid out how the administration wants a bill to be drafted, including some goals that are at odds with those expressed by House Speaker Paul Ryan and other leaders.

Financial Technology

A new digital currency is about to be created as the bitcoin blockchain is forced to split in two
Luke Graham, CNBC

Bitcoin faces a pivotal moment as investors are about to receive an entirely new asset called Bitcoin Cash after the blockchain supporting the cryptocurrency is forced to split in two. “The creation of Bitcoin Cash is certainly a pivotal moment for Bitcoin and its community,” Charles Hayter, founder of digital currency comparison website CryptoCompare, told CNBC on Monday.

14,000 Coinbase Customers Could Be Affected by IRS Tax Summons
Stan Higgins, CoinDesk

Digital currency exchange startup Coinbase is pushing back against a renewed court effort by the Internal Revenue Service to obtain information on some of its customers. Earlier this month, the IRS sought to narrow the scope of its investigation of the startup’s customers after running into opposition from both Coinbase itself as well as several of its customers.

Opinions, Editorials and Perspectives

Why Strong Public Markets Are Good for Main Street
Brian O’Shea, Morning Consult

The Securities and Exchange Commission is often referred to as “Wall Street’s regulator,” and when people think about the SEC, their minds can often turn to the movies where lawyers in trench coats show up to bust somebody for bad behavior. Yes, the SEC does play a critical enforcement role as the regulator of America’s securities markets, but that’s far from its entire mission.

SEC takes jab at startups while leaving the big banks alone
William Michael Cunningham, American Banker

The Securities and Exchange Commission’s concern about “initial coin offerings” is understandable. There are significant problems in the ICO marketplace, but new markets always have issues.

The sequel to the global financial crisis is here
Frank Partnoy, Financial Times

The financial scene is familiar, the stuff of films like Inside Job and The Big Short. Rocket-scientist financiers buy up billions of dollars of risky loans and repackage them into complex investments with multiple layers of debt.

Research Reports

Case Selection Processes Result in Billions of Dollars in Potential Employer Underreported Tax Not Being Addressed
Treasury Inspector General for Tax Administration

Billions of dollars of potential employer underreported taxes are not being addressed because most discrepancy cases are not worked. TIGTA’s analysis of 137,272 Tax Year (TY) 2013 discrepancy cases found that the IRS worked only 23,184 (17 percent).