Finance Brief: House Passes Bill That Would Strengthen Ties Between Banks and Fintech Firms


Top Stories

  • The House voted 245 to 171 to pass a measure that would allow high-interest loans to keep the rate they were initially issued by a bank when they are sold to third-party buyers. The legislation, which now heads to the Senate, would likely boost partnerships between banks and financial technology firms, if enacted. (The Wall Street Journal)
  • President Donald Trump’s budget request for the Internal Revenue Service came under fire from lawmakers in both parties, with Senate Finance Committee Chairman Orrin Hatch (R-Utah) saying it would be a “mistake” to further cut the tax collection agency’s funding amid implementation of the tax law enacted in December. Taxpayer services funding under the fiscal year 2019 budget request from the White House would go decline 8.7 percent compared to the enacted level for fiscal year 2017. (The Hill)
  • Members of the Commodity Futures Trading Commission are at odds over the extent to which the agency should oversee automated trading. Brian Quintenz (R) said the CFTC should focus on specific problems posed by the form of trading, while Rostin Behnam (D) said the agency needs to take broad oversight action quickly because of the risk that automated traders could affect other participants in the market. (Bloomberg)

Chart Review

Events Calendar (All Times Local)

Thursday
WITA event on tax & trade policy 9 a.m.
Senate Agriculture Committee hearing with CFTC’s Giancarlo 9:30 a.m.
House Ways and Means Committee hearing on budget request from Treasury’s Mnuchin 10 a.m.
House Financial Services subcommittee hearing on de-risking 10 a.m.
Friday
Economic Club of Washington event with Bank of America’s Moynihan 11 a.m.
Healthcare Leadership Council event on blockchain 12 p.m.

Tracking Trump: The President’s Approval Rating in All 50 States

The inaugural edition of Morning Consult’s new monthly approval tracker is now live. Explore the data state by state, month over month.

General

Mulvaney looks to neuter CFPB’s most potent weapon
Kate Berry, American Banker

Acting Consumer Financial Protection Bureau Director Mick Mulvaney is discarding many of the policy priorities of his predecessor, Richard Cordray, but none as consequential perhaps as the agency’s targeting of “unfair, deceptive or abusive acts or practices.” The Dodd-Frank Act prohibited so-called UDAAPs and tasked the CFPB with identifying such acts of wrongdoing and punishing firms that commit them.

Lloyd Blankfein: Odds of a ‘bad outcome’ for economy have gone up
Matt Egan, CNN

Lloyd Blankfein is worried that a spending spree by the Trump administration could overheat the American economy. “The odds of a bad outcome have gone up,” the Goldman Sachs CEO told CNN’s Christine Romans in an interview airing Wednesday.

Global Stocks Extend Rebound; Treasuries Decline: Markets Wrap
Natasha Doff, Bloomberg

The global stock rally marched ahead as investors took in stride a jump in benchmark Treasury yields toward 3 percent. Futures on the S&P 500 Index signaled U.S. stocks will open higher.

Banking

Amazon has partnered with Bank of America for its lending program: Sources
Eugene Kim, CNBC

In his shareholder letter two years ago, Amazon CEO Jeff Bezos said he was looking to team up with banks that could help his company expand its lending program for small businesses that sell on Amazon’s websites. CNBC has learned that Amazon Lending, which launched in 2011, ultimately found a partner in Bank of America Merrill Lynch, according to people familiar with the matter who asked not to be named because the alliance is confidential.

Charles Munger Says Wells Fargo Will ‘End Up Better Off’ After Fake-Account Scandal
Noah Buhayar and Katherine Chiglinsky, Bloomberg

Billionaire Charles Munger is optimistic about the future of Wells Fargo & Co. after its fake-account scandal. “Wells Fargo will end up better off for having made those mistakes,” Munger, 94, said Wednesday in Los Angeles at the annual meeting of Daily Journal Corp., the publisher where he’s chairman.

Financial Products and Investments

Flash-Boys Regulation Fight Returns to U.S. Derivatives Agency
Benjamin Bain, Bloomberg

Two top officials at the main U.S. agency that regulates derivatives are rekindling a fight over how aggressively it should police computer-driven trading strategies that dominate markets. Brian Quintenz, a Republican commissioner at the Commodity Futures Trading Commission, said Wednesday the watchdog should only focus on specific threats tied to automated trading, instead of proposing broad regulations for the industry.

Former CFTC commissioner: Whistleblower allegation about volatility index manipulation ‘rings true’
Matthew J. Belvedere, CNBC

The allegation by a whistleblower, in a letter to the Securities and Exchange Commission, of potential manipulation of the VIX, a key gauge of market fear and volatility, “rings true,” a former market regulator told CNBC on Wednesday. Formally called the Cboe Volatility Index, the VIX measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

Prudential pushes Trump officials to loosen oversight
Sylvan Lane, The Hill

The sole insurance company subject to stricter federal oversight under the Dodd-Frank Act is pushing Washington to set it loose. Prudential Financial is asking an interagency group of regulators to strip its designation as a “systemically important” nonbank financial institution.

MetLife hires investigators in search for missing pensioners
Alistair Gray, Financial Times

US insurer MetLife has hired investigators to track down thousands of pensioners as the company seeks to resolve a scandal over missing payouts that has wiped about $10bn off its market capitalisation. Executives on Wednesday said they were doing “everything humanly possible” to locate almost 13,500 people — owed on average $20,000 each — after they acknowledged MetLife failed to make proper efforts find them over 25 years.

Small nonbanks call for clearer exemption from CFPB audits
Brian Collins, American Banker

Nonbank mortgage firms are seeking formal assurance from the Consumer Financial Protection Bureau that they will not become subject to surprise audits or enforcement without involvement of a state regulator. In a joint letter to acting CFPB Director Mick Mulvaney, the Community Home Lenders Association and the Community Mortgage Lenders of America said the agency should practice “streamlined supervision” of smaller nonbanks, which is consistent with the Dodd-Frank Act.

When Trump’s SEC Punishes Wall Street, It’s Often Done Quietly
Matt Robinson and Benjamin Bain, Bloomberg

Under President Donald Trump, a top financial regulator isn’t embarrassing Wall Street as much as it used to. Take TPG Capital LP — the private-equity behemoth co-founded by billionaire David Bonderman.

Housing and GSEs

Jeb Hensarling rips Fannie Mae’s request for a $3.7 billion ‘bailout’
Joseph Lawler, Washington Examiner

House Financial Services Chairman Jeb Hensarling on Wednesday called for the termination of Fannie Mae’s government-sponsored enterprise charter, after the mortgage giant asked for a $3.7 billion loan from the government. “Today’s announcement that Fannie Mae has once again run out of money to pay its own bills is the latest example of why we need to repeal the GSEs’ government charters once and for all,” the Texas Republican said in a statement.

Fannie’s $3.7B drawdown not as bad as it looks, CEO says
Brad Finkelstein, National Mortgage News

Fannie Mae had warned of a fourth-quarter loss, but that didn’t dull the pain of the actual numbers when they were released Wednesday, nor did it eliminate the need for explanation — lots of it was required. The government-sponsored enterprise had recently been permitted to retain $3 billion for the quarter, but it had to burn that cushion and request a $3.7 billion draw from the Treasury to cover the $6.7 billion write-down of a deferred tax asset prompted by the new federal tax law.

Taxes

Senators criticize Trump budget request for IRS
Naomi Jagoda, The Hill

Key senators from both parties criticized the Trump administration’s budget request for the IRS on Wednesday, expressing concerns that the agency would not receive enough money under the proposal for taxpayer services. Trump’s fiscal 2019 budget proposes $11.135 billion in base funding for the IRS and also calls for an additional $362 million in a “program integrity cap adjustment” for enforcement and operations support.

IRS Criminal Investigations Unit Aims Team at Global Tax Crimes
Samuel Rubenfeld, The Wall Street Journal

The criminal investigations unit of the Internal Revenue Service is creating a team of agents dedicated exclusively to international tax enforcement as global cases account for more of its work. The 10-person operational team will bring together experts from the IRS criminal investigation unit to follow the funds of tax cheats and financial criminals, wherever they go around the world.

New tax law could increase pension risk transfers
Greg Iacurci, InvestmentNews

Pension risk transfers are poised to pick up this year as employers race to meet a tangential deadline imposed by the new tax law. A pension risk transfer allows employers to offload the risk associated with their defined-benefit plans to an insurance company.

Financial Technology

House Backs Bill That Would Benefit Fintech Partnerships With Banks
Lalita Clozel, The Wall Street Journal

The House on Wednesday approved a bill that would make the resale of high-interest loans more attractive to third-party buyers such as debt collectors—and bolster fintech firms’ partnerships with banks. The bill passed 245-171.

House Votes to Require SEC Subpoena for Traders’ Source Code
Yueqi Yang, Bloomberg

The House voted Wednesday to ensure the U.S. Securities and Exchange Commission would continue to have to seek a subpoena before accessing proprietary source code from high-frequency traders, the secret sauce that fuels profits. The bill, passed 271-145, applies to proprietary trading algorithms from broker-dealers, hedge funds, and other SEC-regulated entities.

Western Union Says It’s Testing Transactions With Ripple
Felice Maranz, Bloomberg

Western Union’s long-rumored relationship with Ripple is turning out to be real. After more than a month of speculation, the money transfer company said it’s evaluating blockchain technology and is testing transactions with Ripple, the San Francisco-based startup behind the cryptocurrency of the same name.

Opinions, Editorials and Perspectives

The Trump administration is trying to undermine the CFPB. It will fail.
Richard Cordray, The Washington Post

When I stepped down as the first director of the Consumer Financial Protection Bureau in November, I knew there would be changes. But what I have seen since has troubled me deeply.

New tax law will spur opportunity in distressed communities
Tim Scott, USA Today

Poverty has long been one of the most challenging social crises of our time. Despite good-intentioned efforts to generate positive change, currently 52 million Americans continue to face the dire circumstances of a lack of jobs, education, and the confidence that things will get better.

How Trump betrayed Michigan supporter with plan to defang consumer watchdog
Brian Dickerson, Detroit Free Press

Judy Bonenfant was in the midst of a challenging financial year when she cast her presidential vote for Donald Trump. She didn’t realize Mick Mulvaney was part of the package.

Research Reports

Are Banks Opaque? Evidence from Insider Trading
Fabrizio Spargoli and Christian Upper, Bank for International Settlements

We use trades by US corporate insiders to investigate bank opacity, both in absolute terms and relative to other firms. On average, bank insider sales do not earn an abnormal return and do not predict stock returns.