Finance Brief: Fed’s Powell Says Housing Finance System ‘Unsustainable’

Washington Brief

  • Despite significant reforms in the decade since the Great Recession, Federal Reserve Gov. Jerome Powell said the current U.S. housing finance system is risky for taxpayers given the concentration of mortgages in government-backed agencies Fannie Mae and Freddie Mac. Powell said the current setup is “unsustainable,” and he called for changes that would promote greater competition in the market and limit the possibility of taxpayer-funded bailouts. (Reuters)
  • A coalition of U.S. businesses urged members of the Senate Finance Committee to keep the tax deduction for companies’ interest expenses when lawmakers tackle tax reform. Congressional Republicans looking to rewrite the U.S. tax code for the first time in more than 30 years are divided on the issue, while the Businesses United for Interest and Loan Deductibility coalition said that without the deduction their income would be overstated. (The Hill)
  • Spending reductions proposed by the House Appropriations Committee would cut a total of more than $19 billion in regulatory costs affecting industries such as financial services, according to an analysis by American Action Forum. The most expensive item would be a repeal of Dodd-Frank’s Volcker Rule. (Washington Examiner)

Business Brief

  • MetLife Inc. requested another delay in a court case centered on the U.S. government’s labeling of the insurance firm as “too big to fail.” The company said the court should hold off on its ruling until the Trump administration publishes a review, expected in October, of the systemically important financial institution designation process. (Reuters)
  • Former Federal Reserve Chairman Paul Volcker said proposed GOP changes to Dodd-Frank’s Volcker Rule, which restricts banks from placing risky bets with their own capital, aren’t likely to change the principle of the statute. The Treasury Department has recommended easing some of those restrictions and exempting community banks from the regulation. (Bloomberg News)
  • HSBC is looking to ramp up its efforts to find a new chief executive officer for Europe’s biggest bank by assets. The board of the British-based bank, which earns most of its profits in Asia, is expected to announce its choice this year. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Friday
No events scheduled

 

General

Congress joins Trump war on regs, cuts a year’s worth in one week
Paul Bedard, Washington Examiner

Congressional lawmakers have gone all in on President Trump’s bid to slash Obama-era regulations, targeting $19 billion in rules and the elimination of enough red tape to free up 5,200 federal workers, according to a new analysis. The cuts proposed by the House Appropriations Committee this week amount to a year’s worth of regulations under the Obama administration, said the report from American Action Forum.

As E.U. and Japan Strengthen Trade Ties, U.S. Risks Losing Its Voice
Peter S. Goodman, The New York Times

In the master plan advanced by President Trump, an unabashedly aggressive United States is supposed to reclaim its rightful perch as the center of the commercial universe, wielding its economic dominance to dictate the rules of global trade. As it turns out, the rest of the planet has its own ideas.

Inside the White House’s Policymaking Juggernaut
Nancy Cook and Andrew Restuccia, Politico

For decades, the National Economic Council has been a home for wonks who have quietly helped grease the policy gears in the White House. But under director Gary Cohn, a former Goldman Sachs banker, the once staid and process-oriented NEC has become a central force in the vicious policy battles playing out in President Donald Trump’s White House.

Yields Stay Higher as Stocks Drop Before Jobs Data: Markets Wrap
Robert Brand, Bloomberg News

Futures on the S&P 500 Index were little changed for a decline of 0.5 percent this week. The underlying gauge slid 0.9 percent on Thursday, closing below its average price for the past 50 days.

Banking

Volcker Says Trump Changes to Volcker Rule Won’t Erode Principle
Yalman Onaran, Bloomberg News

Paul Volcker said he isn’t worried that the Trump administration will undermine the financial rule that bears his name. “If they can do it in a more efficient way, God bless them,” the former Federal Reserve chairman said in a phone interview about proposed revisions to the regulation.

HSBC to ramp-up hunt for new chief executive
Martin Arnold and Henny Sender, Financial Times

Mark Tucker, the incoming chairman of HSBC, is in a hurry to find a successor for Stuart Gulliver as chief executive of Europe’s biggest bank by assets and plans to announce the board’s choice this year. UK regulators have indicated to HSBC that it should give full consideration to recruiting an outsider as chief executive, as well as reviewing internal candidates, according to several senior people at the British-based bank, which earns most of its profits in Asia.

Wells Fargo creates new ‘stakeholder’ group
Dan Freed, Reuters

Wells Fargo & Co said on Thursday it had created a new division combining investor relations, corporate communications, government relations and public policy, the latest of several organizational changes following a sales scandal that tarnished the bank’s reputation. The new division, which the bank called a “Stakeholder Relations” group, will be led by Jim Rowe, who had previously been in charge of investor relations.

Voters Want Banking ‘Reform,’ New Poll Finds
David Baumann, Credit Union Times

A new poll appears to have good news for credit union officials pushing for an overhaul of Dodd-Frank—some 63% of those responding agree that a bill to “reform regulations on banks and financial services companies” is a top or important priority for Congress. On the other hand, only 5% of those responding to the POLITICO/Morning Consult poll said that an overhaul of the nation’s banking regulations is the most important issue facing Congress.

Battle brews between U.S. credit union, consumer protection regulator
Sarah N. Lynch, Reuters

A U.S. financial regulator on Thursday criticized the Consumer Financial Protection Bureau for how it polices credit unions, in a sign of growing tensions between regulators appointed by President Donald Trump and holdovers from the Obama administration. Republicans have been critical of the CFPB, saying it is too unaccountable to Congress because its budget is not appropriated and it is governed by a single director.

JPMorgan CEO meets Irish prime minister on post-Brexit growth
Conor Humphries, Reuters

JPMorgan Chase & Co Chief Executive Jamie Dimon met Irish Prime Minister Leo Varadkar in Dublin on Thursday to discuss expansion in the Irish capital two months after the U.S. investment bank bought an office building in the city with room for 1,000 staff. The bank in May said it plans to hire a significant number of people in Dublin in its expanding custody and funds services businesses over the next three years, as it focuses its European Union operations in Dublin, Frankfurt and Luxembourg after Brexit leaves its largest European office, in London, outside of the bloc.

Deutsche Bank Is Said to Retreat From London for Frankfurt
Steven Arons et al., Bloomberg News

Deutsche Bank AG is preparing to move large parts of the trading and investment-banking assets it currently books in London to its hometown of Frankfurt in response to Britain’s exit from the European Union, people familiar with the matter said. Germany’s largest lender would move most of the business reported in London to a so-called booking center in Frankfurt under the plan, said the people, who requested anonymity because the discussions aren’t public.

Banking could be at historic turning point with successful stress tests
Joseph Lawler, Washington Examiner

In early May of 2009, with the U.S. economy still losing hundreds of thousands of jobs a month, federal regulators announced the results of “stress tests” they had conducted on the country’s beleaguered big banks. After simulating what would happen to banks in the case of another financial crisis, government officials revealed that the institutions were close to healthy.

Financial Products and Investments

MetLife seeks new delay in ‘too big to fail’ case to wait for Trump
Lisa Lambert, Reuters

MetLife Inc on Thursday asked for another delay in the long-running case over whether the U.S. government should have labeled it as “too big to fail,” warning that the Trump administration may want to withdraw the government’s appeal. A U.S. Appeals court in May granted a 60-day abeyance in the appeal filed by the administration of Democratic former President Barack Obama.

U.S. Regulator Seeks to Fill Crisis-Era Gaps Riddling Swaps Data
Benjamin Bain, Bloomberg News

When Bear Stearns Cos. was collapsing in early 2008, U.S. officials struggling to contain the damage feared fallout from the bank’s derivatives trades could devastate already roiling markets. But they couldn’t tell how bad things could get, or who would be hit the hardest, because at the time banks didn’t have to report the details of their swaps transactions.

Housing and GSEs

U.S. housing finance system ‘unsustainable’: Fed’s Powell
Howard Schneider, Reuters

The U.S. housing finance system continues to put taxpayers at risk in a market dominated by government-backed agencies, Federal Reserve Governor Jerome Powell said on Thursday, calling for further reform of an “unsustainable” situation. A decade after doubts about the creditworthiness of mortgage-backed securities helped trigger the worst financial crisis since the Great Depression, systemic risk remains given the concentration of mortgages in Fannie Mae and Freddie Mac, he said.

Taxes

Biz coalition urges senators to keep interest deduction
Naomi Jagoda, The Hill

A coalition of businesses is urging senators to keep the tax deduction for companies’ interest expenses as lawmakers seek recommendations from industry groups on how best to overhaul the tax code. House Republicans proposed eliminating the deduction in the blueprint they released last year, but the administration would prefer to keep it.

President’s tax reform push enters next phase
Naomi Jagoda, The Hill

Since the release of President Trump’s one-page tax plan in April, administration officials have been meeting with lawmakers as they work to flesh out the proposal. Now, the officials are branching out to meet with business leaders, who are eager to make their priorities known.

Financial Technology

Goldman Sachs Eyes Spinoff of Simon, an Online Tool for Bond Sales
Liz Hoffman, The Wall Street Journal

Goldman Sachs Group Inc. is seeking to sell a stake in Simon, its two-year-old web app that sells complex financial products to retail investors. Goldman is soliciting investments that would value Simon at about $75 million and lay the groundwork for a spinoff of the business.

Commodity investors embrace algorithmic trading
Emiko Terazono, Financial Times

As computer models and algorithmic programs exert a greater influence on commodities prices, traders are trying to get to grips with the digital forces that are changing how raw materials are bought and sold. BayWa, the German agricultural trader, said this week it had partnered with Molinero Capital Management, a US fund specializing in computer-backed “quantitative” trading.

A Message from the Electronic Payments Coalition:

Taking a road trip to escape the heat this summer? Watch out for skimmers at gas stations, which can steal your card data-including PINs-and cause you a headache during your vacation. Learn more from EPC.

Opinions, Editorials and Perspectives

The Japan-EU Trade Warning
Editorial Board, The Wall Street Journal

In particular it contains a message for Donald Trump, who pulled the U.S. out of the Trans-Pacific Partnership deal with Japan and 10 other Pacific nations and has halted negotiations with Europe on the Transatlantic Trade and Investment Partnership. Trade will go on around the world whether or not the U.S. decides to participate.

Here’s how small lenders can support GSE reform
Bill Giambrone, HousingWire

It is time to put to rest the straw man argument that groups in Washington that want to recapitalize the government sponsored enterprises or build a capital buffer want to “recap and release” the GSEs without reforms. Congress needs facts and a proper and correct reminder of history as they debate allowing too big to fail (TBTF) institutions to become GSEs and whether to have a capital buffer.

CFPB protects Americans from predatory loan sharks
Michael Calhoun, The Hill

The CFPB, under Cordray’s tenure, has significantly improved the lives and expanded the freedom of people across the country, especially in our diverse communities. Since its inception, the CFPB has brought nearly $12 billion in relief to consumers who have been illegally harmed by financial businesses.

Republicans deep pockets over constituents
Editorial Board, USA Today

Faced with a choice between helping their constituents or helping themselves to a campaign donation haul, House Republicans are siding with deep pockets. All but one of the House’s 234 Republicans voted last month to gut a powerful agency — the Consumer Financial Protection Bureau — that banks, credit card issuers, debt collectors and other financial players have been seeking to weaken for years.

Urge lawmakers to stop Wrong Choice Act
Jaleessa McCoy, SCTimes

The Consumer Financial Protection Bureau is the first line of defense against financial scams for our servicemembers and veterans. Disappointingly, U.S. Rep. Tom Emmer voted for the Wrong Choice Act (H.R. 10), which dismantles the watchdog. It is up to Sens. Al Franken and Amy Klobuchar to stop these attacks.

SCOTUS to Resolve Circuit Split Over Dodd-Frank Whistleblowers
Jack S. Gearan and Todd D. Wozniak, National Law Review

On Monday, June 26, 2017, the U.S. Supreme Court agreed to review whether the Dodd-Frank Act (DFA) prohibits retaliation against internal whistleblowers or only covers individuals who report to the U.S. Securities and Exchange Commission (the SEC). This question has divided practitioners and lower courts alike since Dodd-Frank’s passage in 2010.

A Message from the Electronic Payments Coalition:

$2 BILLION! That’s how much theft from gas station skimmers cost consumers in 2014. The Electronic Payments Coalition (EPC) has tips to help you protect yourself when you’re filling up at home or traveling far and wide this summer.

Research Reports

Which 10 banks have the strongest reputations?
American Banker

As you’ll see from this list, regional banks are doing a better job bolstering their reputations than the big banks are, according to the 2017 American Banker/Reputation Institute Survey of Bank Reputations. Each of the 39 banks in the ranking earned an overall reputation score based on feedback from both customers and noncustomers.

Deregulation A Major Player In House Appropriation Bills
Sam Batkins, American Action Forum

According to the American Action Forum (AAF), recent House appropriations bills would address more than $19 billion in past regulatory costs and eliminate 10.4 million paperwork burden hours.

Briefings

Finance Brief: Fed Nominee Quarles to Tell Senators That Banking Rules Need ‘Refinements’

Randal Quarles, President Donald Trump’s nominee to serve as the Federal Reserve’s vice chairman of supervision, is expected to tell the Senate Banking Committee today that “some refinements” are needed to post-crisis financial regulations. Quarles will testify at the confirmation hearing alongside Joseph Otting, Trump’s pick to lead the Office of the Comptroller of the Currency.

Finance Brief: Trump to Nominate Peirce for SEC Seat

The White House said President Donald Trump plans to nominate Hester Maria Peirce, a former Senate aide who’s now director of the Financial Markets Working Group at George Mason University’s Mercatus Center, as a member of the Securities and Exchange Commission. Former President Barack Obama nominated Peirce, but she was not confirmed by the Senate.

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