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Finance Brief: Mnuchin Said to Favor Jerome Powell as Fed Chairman


Government Brief

  • Treasury Secretary Steven Mnuchin is advocating for President Donald Trump to choose Federal Reserve Gov. Jerome Powell as the next chair of the central bank, three people close to the selection process said. Mnuchin is said to feel comfortable with Powell, who is considered more of a deregulatory voice than the current Federal Reserve chairwoman, Janet Yellen. (Politico)
  • Trump threatened again to withdraw from the North American Free Trade Agreement as the leader of one of NAFTA’s members, Canadian Prime Minister Justin Trudeau, was visiting the White House. Negotiators from NAFTA countries are currently meeting for the fourth round of talks in the Washington area. (The Hill)
  • Rep. Patrick McHenry (R-N.C.), a senior member of the House Financial Services Committee, is poised to introduce legislation that would require the three major credit reporting bureaus to stop using Social Security numbers for verification purposes by 2020. The bill would apply to TransUnion, Experian Plc and Equifax Inc., whose data breach has prompted a debate about Congress’ role in protecting financial data. (The Wall Street Journal)

Business Brief

  • The International Monetary Fund included Citigroup Inc. in a list of nine global banks that should come under more regulatory scrutiny for their ability to succeed in the current economy because of “thin capital buffers” and “relatively weak profitability” to boost those buffers. Other banks listed in the IMF’s report on global financial market stability include Deutsche Bank AG and Barclays Plc. (MarketWatch)
  • HSBC Holdings Plc said John Flint, the head of the bank’s retail banking unit, will take over as chief executive on Feb. 21, 2018, succeeding Stuart Gulliver. Flint, who once served as Gulliver’s chief of staff, was Gulliver’s preferred candidate. (Financial Times)
  • In spite of a ban on advertisements for payday loans that Google implemented nearly two years ago, small-dollar lenders are still using the search engine to promote their products by using a loophole that allows ads that do not specifically mention the loans.  (American Banker)

Chart Review

Events Calendar (All Times Local)

Thursday
AEI/CRN housing risk conference 8 a.m.
Speaker Ryan speech at Heritage on tax reform 8:45 a.m.
House Financial Services hearing with HUD’s Ben Carson 9:30 a.m.
SEC Investor Advisory Committee meeting 9:30 a.m.
Carnegie Endowment for International Peace event on 20th anniversary of Asian financial crisis 11 a.m.
Friday
FDIC consumer research symposium 9:15 a.m.
Brookings event on regional development banks 2 p.m.
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General

Trump again threatens termination of NAFTA in meeting with Trudeau
Vicki Needham, The Hill

President Trump again floated the possibility that the United States may terminate the North American Free Trade Agreement (NAFTA) even as trade negotiators kick off the next round of talks across the Potomac. Trump gave the chances that the United States, Canada and Mexico could reach a deal on updating the 23-year-old NAFTA pact even odds during an Oval Office meeting with Canadian Prime Minister Justin Trudeau on Wednesday.

Trump’s Tough Talk on Nafta Suggests Pact’s Demise Is Imminent
Ana Swanson, The New York Times

The North American Free Trade Agreement, long a punching bag for President Trump, is edging closer toward collapse as negotiators gather for a fourth round of contentious talks here this week. In recent weeks, the Trump administration has sparred with American businesses that support Nafta and pushed for significant changes that negotiators from Mexico and Canada say are nonstarters.

House Panel’s Dodd-Frank Tweaks Won’t Add Up to ‘a Big Number’
Elizabeth Dexheimer, Bloomberg

President Donald Trump promised to do “a big number” on the Dodd-Frank Act. But a slate of bills House Republicans will take up Wednesday shows how difficult it is to get anything big through Congress these days. The House Financial Services Committee is set to consider almost two dozen legislative proposals targeting financial rules.

Bonds Rise, Dollar Drifts on Fed Inflation Debate: Markets Wrap
Adam Haigh and Cormac Mullen, Bloomberg

European bonds rose and stocks were mixed as investor focus switched back to central banks after the release of minutes of last month’s Federal Reserve meeting. The dollar drifted and Treasury yields declined. Futures on the S&P 500 Index decreased 0.1 percent to 2,550.00.

Banking

Mnuchin pushing Trump to pick Jerome Powell for Fed
Nancy Cook et al., Politico

Treasury Secretary Steven Mnuchin is strongly pushing for the White House to name Jerome Powell as the next chair of the Federal Reserve, the most powerful economic job in the U.S. government, according to three people close to the selection process. Mnuchin has privately recommended Powell to President Donald Trump, according to one adviser close to the administration.

Citi among 9 banks IMF says will struggle to be profitable
Greg Robb, MarketWatch

The International Monetary Fund on Wednesday said nine of the world’s biggest financial institutions may find it hard to thrive in the new global economy and deserve heightened attention from regulators.

HSBC appoints retail bank head John Flint as new CEO
Nicholas Megaw, Financial Times

HSBC has appointed John Flint – currently the head of the bank’s retail banking and wealth management arm – to succeed Stuart Gulliver as chief executive. UK regulators had encouraged Europe’s largest bank by assets to consider recruiting an outsider as chief executive, but Mr Flint – who joined the bank in 1989 and previously served as Mr Gulliver’s chief of staff – was Mr Gulliver’s preferred candidate.

JPMorgan’s profit rises, bond trading slumps
Sweta Singh and David Henry, Reuters

JPMorgan Chase & Co., the largest U.S. bank by assets, reported a 7.1 percent rise in quarterly profit on Thursday as gains from loan growth and higher interest rates more than offset a slump in trading revenue. Financial market trading was again a dark spot for the company with revenue from bond trading diving 27 percent compared with a year earlier, when it was boosted by higher market activity due to Brexit and the U.S. election.

Inflation cloud hangs over Federal Reserve
Sam Fleming, Financial Times

Worries about the risk of stubbornly low inflation hung over the Federal Reserve’s most recent policy meeting, even as the central bank held its course for a further rate rise as soon as the end of the year. Many of the US central bank’s policymakers declared at its latest rate-setting meeting that a further increase is likely to be needed “later this year” as long as the economy stays on track.

Goldman creates ‘brain trust’ in effort to boost deals business
Olivia Oran, Reuters

Goldman Sachs Group Inc is betting it can get its money-making mojo back by pitching creative deals to big, complex clients, marking a return to its investment banking roots as trading revenue slows. The Wall Street bank is forming a group, known internally as the Innovation Lab, focused on generating compelling deal ideas for companies like Warren Buffett’s conglomerate Berkshire Hathaway Inc or Japan’s SoftBank Group Corp’s $93 billion investment fund, people familiar with the matter said.

Goldman Has a New Way for You to Bet on the Next Banking Crisis
Alastair Marsh and Tom Beardsworth, Bloomberg

Less than a decade after the last major banking crisis, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are offering investors a new way to bet on the next one. The two financial giants are now making markets in derivatives that allow investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble.

Financial Products and Investments

Key House Republican Plans Bill to Rein In Credit Bureaus After Equifax Hack
Andrew Ackerman, The Wall Street Journal

A top House Republican is moving to boost federal oversight of credit-reporting companies, the first broad legislative effort to rein in the industry in response to the massive hack disclosed by Equifax Inc. last month. Rep. Patrick McHenry of North Carolina plans to introduce a bill on Thursday that is expected to require the companies to submit to regular federal cybersecurity reviews.

Payday lenders are finding ways around Google’s ad ban
Kevin Wack, American Banker

The payday loan chain ACE Cash Express had a brief moment of notoriety in 2014, when an ill-advised illustration from an internal training manual slipped into public view. Surprisingly forthright, the graphic depicted the cycle of debt for which payday lenders frequently get criticized.

U.S. SEC moves to simplify corporate compliance paperwork
Patrick Rucker, Reuters

The U.S. Securities and Exchange Commission proposed rules on Wednesday to simplify the disclosures that publicly traded companies must file with the agency when communicating with investors.  Republican U.S. President Donald Trump has vowed that his administration will cut red tape for businesses and SEC Chairman Jay Clayton endorsed the proposed rules at his first open meeting on Wednesday.

Texas payday lenders face tougher standards with new federal rules
Matthew Choi, The Texas Tribune

The rules — which are scheduled to be fully implemented in the summer of 2019 — would prohibit lending without verifying a client’s ability to repay the loan. In Texas, a state where payday lending is largely unregulated, advocates for increased oversight view the new rules as a crucial step in protecting vulnerable borrowers.

The New Rules That Could Make ETFs Unstoppable
Julie Edde et al., Bloomberg

Passive investments, already eating away at active managers’ assets, are getting another boost. That effect is on the radar of companies such as BlackRock Inc., which has $5.7 trillion in assets.

Housing and GSEs

TRID clarifications go into effect, but more sought on ‘black hole’
Bonnie Sinnock, National Mortgage News

Amendments aimed at clarifying the TILA-RESPA integrated disclosure rule have gone into effect and the Consumer Financial Protection Bureau’s consideration of additional clarification some mortgage companies want is moving forward. Mortgage companies that are ready to fully implement the changes can start now, but they don’t become mandatory until Oct. 1 of next year.

How Trump tax plan would alter mortgage interest deduction
Josh Boak, Associated Press

Each year, taxpayers subsidize America’s homeowners by roughly $70 billion, with the benefits flowing disproportionately to coastal areas with high incomes and pricey homes, from New York and Washington to Los Angeles and San Francisco. The subsidy for homeowners comes in the form of a deduction from their taxes for the interest they pay on their mortgages.

Taxes

Top Republican predicts Christmas Eve vote on tax revamp
Sylvan Lane, The Hill

A top House Republican on Wednesday predicted Congress would vote to pass a tax bill on Dec. 24, saying the effort to overhaul the tax code would go down to the wire. Rep. Patrick McHenry (R-N.C.), the House GOP chief deputy whip, said he expected both the House and Senate to finish work on a tax revamp bill on Christmas Eve.

Trump Rethinks State-Local Tax Issue Over Middle-Class Concerns
Kevin Cirilli and Sahil Kapur, Bloomberg

Months after the White House proposed ending a tax break for people in high-tax states, President Donald Trump grew angry when he learned that the change would hurt some middle-income taxpayers, according to two people familiar with his thinking. Trump’s concerns led him to say this week that “we’ll be adjusting” the tax-overhaul framework, the people said — but it’s not clear how he and congressional leaders would make up for the revenue that would be lost without ballooning the deficit or torpedoing support for the plan.

Ted Cruz, Bernie Sanders to debate GOP tax reform
Joseph Lawler, The Washington Examiner

Ted Cruz and Bernie Sanders will debate the Republican tax plan next week in an event hosted by CNN, the network announced Wednesday. The face-off will pit one of the Senate’s most conservative Republicans and an advocate of major tax cuts against one of the most liberal members of the Senate who has long opposed tax cuts for high earners, and has proposed raising taxes to fund larger government projects.

Trump takes tax plan to the public as GOP senators struggle to find agreement
Damian Paletta and John Wagner, The Washington Post

President Trump on Wednesday took his case for massive tax cuts directly to the public, even as Senate Republicans struggle to unite behind the proposal ahead of a key Senate vote that could derail his entire approach. During a speech to truckers and others here, Trump touted what he alleges are the tax cuts’ benefits for the working and middle classes, making grand-but-disputed claims about the additional dollars workers would see if tax rates were cut for corporations.

Financial Technology

Still Alive: NY Judge Delays Decision in Fight Against BitLicense
Michael del Castillo, CoinDesk

“Is he paying you in bitcoins?” The question directed by a court security guard to the legal counsel of New York resident Theo Chino yesterday, highlights a central issue long facing regulators considering the technology – is bitcoin a currency or commodity?

Opinions, Editorials and Perspectives

U.S. Can’t Afford a Tax Bill That Worsens National Debt
Jim Costa et al., Morning Consult

The United States is in dangerous, uncharted waters when it comes to the national debt. This year, for the first time in U.S. history, the national debt surpassed $20 trillion – and it continues to increase at an alarming rate. We find ourselves here because our country has been on an unsustainable fiscal path for far too long.

Regulatory playing field for banks, nonbanks is anything but level
Scott Olson, American Banker

Policymakers in Washington often have the objective to level the regulatory playing field. But federal oversight of mortgage bankers has been anything but equitable.

A Trump tax plan to drive economic growth
Chris Spear, The Washington Times

While trucking sustains the vitality of the U.S. economy, we also carry a heavy tax burden, paying the highest corporate tax rate of any transportation mode, including rail. That is why we joined President Trump this week in Harrisburg, Pa., and support his plan to reform our tax code, and why we urge Congress to follow his lead and pass tax reform by year’s end.

Congress Should Help Hurricane Victims—but Pay for It, Too
Mark Walker, The Wall Street Journal

As unpredictable as hurricanes, earthquakes and tsunamis are, such emergencies should not be unexpected. It is only a matter of time before the U.S. faces the next catastrophe.

Puerto Rico, Trump and Taxes
Paul Krugman, The New York Times

Puerto Rico used to be a major tax haven for manufacturing corporations. Much of this tax advantage has now ended, but its legacy is still visible in trade statistics.

Research Reports

October 2017 Update to TIGER: A synchronized but sluggish recovery
Eswar Prasad and Karim Foda, Brookings Institution

The world economy has settled into a holding pattern, with a broad-based but plodding recovery characterized by weak productivity and investment growth. Both advanced and emerging market economies have maintained modest growth momentum, but policymakers seem averse to the broader and tougher reforms that may be necessary to kick growth into a higher gear.