Finance Brief: Justice Dept. Backs Effort to Declare CFPB’s Structure Unconstitutional

Washington Brief

  • The Justice Department switched its position on the constitutionality of the Consumer Financial Protection Bureau’s director position. Instead of taking the Obama-era position that the president should only be able to fire the bureau’s director for cause, the Trump administration is now saying the CFPB’s structure should be declared unconstitutional. (The Wall Street Journal)
  • White House spokesman Sean Spicer said the administration may begin its tax-reform efforts as early as late spring. (Reuters)
  • Treasury Secretary Steven Mnuchin was at the center of an “impasse” with G-20 financial ministers about whether a communiqué from their meeting in Germany over the weekend should say they agree to resist trade protectionism. (Financial Times)

Business Brief

  • Slowing revenues at Goldman Sachs Group led to a four percent cut in the 2016 pay of the bank’s chief executive, Lloyd Blankfein. (CNN)
  • G-20 finance ministers reiterated their call for the Basel Committee on Banking Supervision to finalize new bank capital rules, but they did not indicate a timeline for completion. (Bloomberg News)
  • The Internal Revenue Service said in court documents that 802 taxpayers reported capital gains from bitcoin investments in 2015. The information came as part of a larger argument in a court case about whether the bitcoin exchange Coinbase should turn over customer data to the IRS. (Fortune)

Chart Review

Events Calendar (All Times Local)

Monday
ABA government relations summit 8:30 a.m.
George Washington University event on tax reform 6:30 p.m.
Tuesday
ABA government relations summit 7:45 a.m.
FDIC board meeting 10 a.m.
House Financial Services subcommittee hearing on CFPB structure 10 a.m.
Urban Institute event on credit scoring methods 12:30 p.m.
House Financial Services subcommittee hearing on de novo bank applications 2 p.m.
Wednesday
Senate HELP Committee hearing on labor secretary nominee Alex Acosta 9 a.m.
SEC open meeting 10 a.m.
House Financial Services subcommittee hearing on World Bank 10 a.m.
House Financial Services subcommittee hearing on JOBS Act 2 p.m.
Thursday
Fed’s Yellen gives opening remarks at Community Development Research Conference 8:45 a.m.
WITA event on trade law 9 a.m.
Senate Banking Committee confirmation hearing for SEC nominee Jay Clayton 9:30 a.m.
Friday
No events scheduled

 

General

Justice Department Fires Salvo at Consumer Watchdog
Brent Kendall, The Wall Street Journal

The Trump administration took aim at a consumer finance regulator created after the 2008 financial crisis, backing a legal effort to have the structure of the Obama-era agency declared unconstitutional. The Justice Department, now under Trump administration leadership, filed court papers on Friday opposing the Consumer Financial Protection Bureau, an independent regulator, asking a federal appeals court to order the restructuring of the agency.

G20 ministers hit impasse with US over free trade
Claire Jones and Sam Fleming, Financial Times

Finance ministers from the world’s leading economies had gone into this weekend’s G20 meeting in the spa town of Baden-Baden eager to ease their most powerful member closer to the centre ground. But Steven Mnuchin could not be moved.

Choice of I.M.F. Critic Highlights Trump’s Reversal of Global Policy
Landon Thomas Jr., The New York Times

For nearly 20 years, Adam Lerrick, a conservative economist, has been a vocal scold of global organizations like the International Monetary Fund, arguing that such institutions burn through taxpayer money and foster an insular culture of elitism, bailouts and scant accountability. Now, Mr. Lerrick, a former investment banker and a visiting scholar at the right-leaning American Enterprise Institute, is set to get a chance to turn philosophy into policy, after the announcement last week that President Trump intended to nominate him as deputy under secretary of the Treasury for international finance.

Trump’s Tariff Could Kill Thousands of Small Businesses in China
Bloomberg News

Higher labor costs and stricter regulations keep nudging Eric Li’s glass factory in southeast China toward insolvency, even though his lampshades are on the shelves at Home Depot. President Donald Trump’s threatened tariff on his goods may be the final shove. Three of the four furnaces at Huizhou Baizhan Glass Ltd.’s dusty plant sit dormant, and the workforce making lampshades and vases for export to the U.S. has been slashed to 150 from about 1,000 just a decade ago.

Trump’s trade-war mongering is starting to rattle Wall Street
Pedro Nicolaci da Costa, Business Insider

Donald Trump made international trade, and his skepticism thereof, a centerpiece of his presidential campaign. Now that he’s in power, markets are starting to realize Trump has a lot more leeway to enact his trade agenda unilaterally than he does to act on the tax and regulatory fronts, where legislators and the judiciary will have a much greater say.

White House installs political aides at Cabinet agencies to be Trump’s eyes and ears
Lisa Rein and Juliet Eilperin, The Washington Post

Most members of President Trump’s Cabinet do not yet have leadership teams in place or even nominees for top deputies. But they do have an influential coterie of senior aides installed by the White House who are charged — above all — with monitoring the secretaries’ loyalty, according to eight officials in and outside the administration.

Oil Weighs on Europe Stocks as Dollar Pares Drop: Markets Wrap
Adam Haigh and Eddie Van Der Walt, Bloomberg News

Weaker oil prices helped drag European shares lower while a gauge of the U.S. dollar flirted with its longest losing streak since Donald Trump won the election.Futures on the S&P 500 Index were down 0.2 percent.

Banking

G-20 Nations Renew Commitment to Global Bank-Capital Overhaul
Alexander Weber and Rainer Buergin, Bloomberg News

Finance chiefs of the Group of 20 nations renewed their pledge to finalize an overhaul of global bank-capital rules, but stopped short of making progress on certain proposals that have led to a standoff between Europe and the U.S. In the statement capping a two-day meeting in the German town of Baden-Baden, the G-20 urged the Basel Committee on Banking Supervision to finalize the Basel III reforms “without further significantly increasing overall capital requirements,” sticking to previous language.

Lloyd Blankfein takes pay cut at Goldman Sachs
Matt Egan, CNN

Goldman Sachs might be flying high in the Trump era, but CEO Lloyd Blankfein’s paycheck has been trimmed. A filing made public on Friday shows that Blankfein took a 4% pay cut in 2016 due to the firm’s slumping revenue and a revamped compensation system that aims to hold senior executives more accountable.

House Democrat seeks interviews with Wells Fargo executives
Sarah N. Lynch, Reuters

The top Democrat on a key House of Representatives committee has demanded a chance to interview executives of Wells Fargo & Co, which has been embroiled in a scandal over fake accounts, because she said Republicans already had that opportunity in December. In a letter to the bank on Friday, House Financial Services ranking member Maxine Waters of California said she wants to ask Chief Executive Timothy Sloan and other senior Wells Fargo officials questions about the scandal.

Wells Fargo fallout has only started for other banks
Kristin Broughton, American Banker

Six months after the phony-accounts scandal at Wells Fargo began to unfold, two banks with otherwise pristine brands are confronting public complaints from employees of high-pressure sales environments, and they probably won’t be the last ones to do so. TD Bank Group addressed accusations, first aired on a Canadian broadcast network this month, that branch employees intentionally crossed the line to meet sales goals, such as increasing overdraft protection limits without consumers’ consent.

Financial Products and Investments

Judge dismisses CFPB case against payment processor
Kate Berry, American Banker

A district court judge on Friday dealt a blow to the Consumer Financial Protection Bureau by dismissing a lawsuit against the payment processor Intercept Corp. and its two top executives, arguing that it failed to present enough facts in the case. The CFPB filed a lawsuit last year against Intercept, a Fargo, N.D., third-party payment firm, and its co-owners, Craig Dresser and Bryan Smith, alleging that it processed electronic funds transfers on behalf of payday lenders in states where payday loans are illegal.

What to expect when senators question SEC chairman nominee Clayton
Francine McKenna, MarketWatch

When President Donald Trump’s pick for chairman of the Securities and Exchange Commission shows up for his confirmation hearing Thursday, Jay Clayton will likely enjoy lavish praise from Republicans for being a “job creator” but harsh criticism from Democrats about his conflicts. Trump communicated his goals for the agency to Clayton when he announced the nomination on Jan.4. Clayton, said Trump, “will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time.”

Trump administration rolls back protections for people in default on student loans
Danielle Douglas-Gabriel, The Washington Post

Days after a report on federal student loans revealed a double-digit rise in defaults, President Trump’s administration revoked federal guidance Thursday that barred student debt collectors from charging high fees on past-due loans. The Education Department is ordering guarantee agencies that collect on defaulted debt to disregard a memo former President Barack Obama’s administration issued on the old bank-based federal lending program, known as the Federal Family Education Loan (FFEL) Program.

Why Wall Street is excited about Trump’s first step toward deregulation
Bob Pisani, CNBC

Last week, on March 7, a curious item appeared in the Federal Register. The Department of Commerce issued a request for information from manufacturers: “The Department of Commerce is seeking information on the impact of Federal permitting requirements on the construction and expansion of domestic manufacturing facilities and on regulations that adversely impact domestic manufacturers.”

Puerto Rico Bondholders’ Legal Wrangling Intensifies
Andrew Scurria, The Wall Street Journal

Puerto Rico’s government reversed its stance on a $30 billion debt dispute while hedge funds escalated the continuing legal fight between competing bondholder groups. Puerto Rico’s fiscal agency said Friday that it would urge a federal judge to rule by April 30 on the validity of $17 billion in sales-tax bonds.

Housing and GSEs

Regulators Said to Weigh Appraisal Change That May Spur Lending
Jesse Hamilton, Bloomberg News

As President Donald Trump seeks to knock down government constraints on business loans, U.S. bank regulators have tentatively agreed to ease an appraisal requirement that could help commercial real estate borrowers, said people familiar with talks among the agencies. Regulators have decided the threshold for requiring appraisals on commercial property should be increased to $400,000 from $250,000, according to two people who asked that they not be identified because the discussions aren’t public.

How ‘Consumer Relief’ After Mortgage Crisis Can Enrich Big Banks
Matthew Goldstein, The New York Times

In every multibillion dollar settlement with a big bank that peddled faulty mortgage securities, a major provision has been a requirement that the bank provide “consumer relief.” In the case of JPMorgan Chase, for instance, the nation’s largest bank satisfied its requirement to provide $4 billion in consumer relief in September by modifying and restructuring mortgages for about 169,000 borrowers — many of them the bank’s own customers.

Taxes

White House tax reform may begin in late spring: Spicer
Conor Humphries, Reuters

President Donald Trump may begin his overhaul of the U.S. tax code as early as late spring, White House spokesman Sean Spicer has told Ireland’s Sunday Independent newspaper. “We are going to have tax reform after we get healthcare completed… I think we are looking at late spring to summer,” Spicer told the newspaper in an interview during Irish Prime Minister Enda Kenny’s visit to Washington late last week.

Pro-border tax group launches TV ad
Naomi Jagoda, The Hill

A coalition of businesses that back the House GOP’s border-adjustment tax proposal is launching its first television ad. The commercial, from the American Made Coalition, is airing on NBC’s “Meet the Press” on Sunday and will appear on cable news channels in the D.C. metropolitan area and several states through April 9.

Financial Technology

Only 802 People Told the IRS About Bitcoin—Lawsuit
Jeff John Roberts, Fortune

The Internal Revenue Service revealed new details about its investigation into tax evasion related to bitcoin, filing court documents that suggest only a tiny percentage of virtual currency owners are reporting profits or losses in their annual returns. The new documents, filed Thursday in San Francisco federal court, come in the midst of a closely-watched legal fight between the IRS and Coinbase, a popular service for buying and selling bitcoins that hosts over a million customer accounts.

Bitcoin Price Plunges on Fears of a Currency Split
Paul Vigna, The Wall Street Journal

Bitcoin shed about a fifth of its value over the weekend as an increasingly bitter split in the developer community behind the virtual currency threatened to literally break it in two. Bitcoin was trading at $999 on Sunday after trading as low as $970 on Saturday.

A Message from the Electronic Payment Coalition:

Don’t let retailers’ alternative facts fool you. Community banks and credit unions are faced with declining interchange revenue and costly routing requirements thanks to the failed Durbin amendment. Shouldn’t our policies help Main Street rather than big-box retailers? Get the facts from EPC.

Opinions, Editorials and Perspectives

Are We Better Off Curbing the Role of the Consumer Financial Protection Bureau?
Norbert Michel and Adam Levitin, The Wall Street Journal

The fate of the Consumer Financial Protection Bureau is unclear. The agency was authorized by the Dodd-Frank law that set new rules for the financial industry in the wake of the global financial crisis, and it began operating in 2011.

Why I Dissented
Neel Kashkari, Medium

On February 7, I published an essay, “Why I Voted to Hold Rates Steady,” which was a case study that explains the data I look at and framework I use to make my assessment of the appropriate stance of monetary policy. At the February 1 meeting of the Federal Open Market Committee, I voted with all of my colleagues to keep rates steady.

A Message from the Electronic Payments Coalition:

Voters have spoken out —- and they agree. It’s time to get the government out of interchange fees. Repealing the Durbin amendment would end harmful price controls and stop the $42 billion handout to big-box retailers. Contact your representative today to end the merchant markup once and for all.

Research Reports

Banking on Trust: How Debit Cards Enable the Poor to Save More
Pierre Bachas, et al., The National Bureau of Economic Research

Trust is an essential element of economic transactions, but trust in financial institutions is low, especially among the poor. Debit cards provide not only easier access to savings, but also a mechanism to monitor bank account balances and thereby build trust in a financial institution.

Briefings

Finance Brief: Week in Review & What’s Ahead

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. While the report does not call for a full repeal of Volcker Rule limits on proprietary trading, it recommended exempting small institutions from the Dodd-Frank regulation.

Finance Brief: CFPB Proposes Changes to Prepaid Card Rule

The Consumer Financial Protection Bureau announced plans to make changes to its prepaid card rule, with public comments on the proposals due within 45 days. The CFPB’s proposals would adjust the rule to require consumers register any prepaid cards before filing a complaint, and would allow providers to send disclosure forms to consumers digitally in some cases.

Finance Brief: Warren Says Democrats Open to Loosening Regulations for Community Banks, Credit Unions

Sen. Elizabeth Warren (D-Mass.) said Senate Democrats are open to working with Republicans on “targeted” measures that would ease regulations affecting community banks and credit unions. Warren, who has shown little willingness to work with the GOP on loosening financial regulations, said she remains opposed to proposals that would limit consumer protections or weaken regulations for big banks.

Finance Brief: Treasury Department Recommends Changes to CFPB, Volcker Rule

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. The report does not call for a complete repeal of Volcker Rule limits on proprietary trading but instead proposes exempting small institutions from the Dodd-Frank regulation.

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