Finance Brief: Nominee to Lead FDIC Withdraws From Consideration

Washington Brief

  • President Donald Trump’s nominee to lead the Federal Deposit Insurance Corp., Jim Clinger, asked the White House to withdraw his name from consideration. Clinger, a veteran House aide who was nominated last month, said his responsibilities to certain family obligations are “incompatible with the demands of leading an important federal agency like the FDIC.” (Politico)
  • A group backed by wealthy Republican donors Charles and David Koch is launching ads focused on the border adjustment tax proposal convoluting reform agreements on Capitol Hill. The digital ads target House Ways and Means Committee Chairman Kevin Brady (R-Texas) and Ways and Means tax policy subcommittee Chairman Peter Roskam (R-Ill.), saying they should exclude the border adjustment tax from overhaul efforts. (Morning Consult)
  • Members of the House Freedom Caucus said they might vote against a Republican budget resolution unless it includes details on the GOP’s tax-overhaul plan, including corporate rates. The conservative group’s leader, Rep. Mark Meadows (R-N.C.), said the House should join the Senate in postponing its August recess until a tax overhaul deal is reached. (Bloomberg)

Business Brief

  • The Royal Bank of Scotland will pay $5.5 billion to settle a lawsuit with the Federal Housing Finance Agency connected to the 2008 financial crisis. The settlement closes one of the last of 18 lawsuits filed by FHFA in 2011 claiming violations of statutory provisions by in the mortgage finance sector participants. (HousingWire)
  • Securities and Exchange Commission Chairman Jay Clayton committed to carrying out the Labor Department’s fiduciary rule for investment advisers. In his first major speech since becoming head of the SEC, Clayton also called for the agency to slash unnecessary corporate disclosures, reduce burdens on small companies and enforce protections for retail investors from fraud. (Investment News)
  • Randal Quarles, Trump’s nominee to lead bank supervision at the Federal Reserve, was part of a team that invested in failing banks while he was an executive at private equity firm Carlyle Group LP. Those investments earned hundreds of millions of dollars in profit after the banks were propped up by the Treasury Department. (Reuters)

Chart Review

Events Calendar (All Times Local)

Thursday
House Ways and Means Committee hearing on tax reform 10 a.m.
Fed’s Yellen testifies before Senate Banking Committee 10 a.m.
House Financial Services subcommittee hearing on the fiduciary rule 10 a.m.
Crowe Horwath webinar on Trump tax reform plan 12 p.m.
Friday
House Financial Services subcommittee hearing on fixed income market structure 9:15 a.m.

 

General

Yellen Says Economy Is Robust but Fed Will Stay Flexible
Binyamin Appelbaum, The New York Times

Janet L. Yellen, the Federal Reserve chairwoman, delivered an upbeat message to Congress on Wednesday on the state of the American economy, highlighting the strength of job growth and indicating that the Fed remains on course to begin reducing its bond holdings in the fall. She added, however, that the Fed was paying close attention to the recent weakness in inflation.

New data suggest debt ceiling crunch to hit in first half of October
Jeanne Sahadi, CNN

That so-called X date — which BPC expects to come in early to mid-October — is the point when Treasury won’t have enough cash and revenue on hand to pay all bills in full and on time. Previously, BPC had predicted the X date could occur sometime in October or November.

Global Equities Soar to Record High; Dollar Slides: Markets Wrap
Eddie Van Der Walt and Garfield Clinton Reynolds, Bloomberg

European bonds gained while the dollar fell against most major peers. S&P 500 futures added 0.2 percent.

Banking

Trump’s FDIC nominee Clinger withdraws from consideration
Zachary Warmbrodt, Politico

Jim Clinger asked the White House to withdraw his nomination to become chairman of the Federal Deposit Insurance Corp., the latest setback in the administration’s efforts to fill key financial posts. Clinger cited family issues.

Trump’s Fed nominee has history of benefitting from bailouts
Olivia Oran and Pete Schroeder, Reuters

President Donald Trump’s pick to lead bank supervision at the Federal Reserve benefited from the government bailing out or rescuing two banks during the 2008 financial crisis, but that may not prevent his confirmation by a U.S. Senate controlled by a business-friendly Republican party, policy analysts told Reuters in recent days.

Bank Earnings Are Coming: Five Things to Watch
Peter Rudegeair, The Wall Street Journal

Bank earnings season gets under way on Friday with four of the biggest U.S. lenders— Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co. and PNC Financial Services Inc. — due to report that morning. Next week, Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley will release their results.

Financial Products and Investments

SEC’s Jay Clayton makes fiduciary duty a priority, acknowledges issue is ‘complex’
Mark Schoeff Jr., InvestmentNews

In his first major address since taking office in May, SEC chairman Jay Clayton said a fiduciary rule is one of his priorities and that he would like to work with the Labor Department on an advice standard. “With the Department of Labor’s fiduciary rule now partially in effect, it is important that the commission make all reasonable efforts to bring clarity and consistency in this area,” Mr. Clayton said in a speech at the Economic Club of New York.

ETFs and Mutual Funds Square Off in the Post-Fiduciary-Rule World
Daisy Maxey, The Wall Street Journal

Exchange-traded funds and actively managed mutual funds are competing to see which can gain the most business as the result of the recently passed fiduciary rule. The U.S. Labor Department rule, which went into effect in June, requires advisers overseeing trillions of dollars of tax-advantaged retirement savings to act in clients’ best interest.

Latest Wave of of 401(k) Suits Yields Big Wins, and Big Losses, for Plaintiffs
Anne Tergesen, The Wall Street Journal

As 401(k) fee lawsuits have proliferated over the past year, a wider array of retirement industry practices have come under fire. Now the results are starting to come in—with some big settlements and some big losses for plaintiffs.

Housing and GSEs

RBS finally settles multibillion-dollar lawsuit with FHFA over mortgage-backed securities
Brena Swanson, HousingWire

The Royal Bank of Scotland Group finally shut the door on its settlement with the Federal Housing Finance Agency, as conservator of Fannie Mae and Freddie Mac, which was delayed after the election due to changes in the government. The FHFA announced a $5.5 billion settlement to resolves all claims in the lawsuit FHFA v. The Royal Bank of Scotland Group plc et al., in the United States District Court for the District of Connecticut.

Pimco sues Wells Fargo over crisis-era mortgage bonds
Joe Rennison, Financial Times

Wells Fargo has been sued by Pimco for withholding money allegedly owed to bond investors, in a dispute that could have implications for billions of dollars still locked up in US mortgage securities created before the financial crisis. The new action is the latest twist in a legal saga that has pitted investors, including Pimco, against banks over their actions as the administrators, or “trustees”, appointed to manage residential mortgage-backed securities.

Taxes

Ad Campaign Targets Brady, Roskam on Border Adjustment Tax
Ryan Rainey, Morning Consult

The conservative group Freedom Partners is for the first time targeting individual lawmakers involved in the tax-reform debate, with digital advertisements calling for them to support a proposal that does not include a border adjustable tax on imports. The border tax ad campaign focuses on two Republicans — House Ways and Means Committee Chairman Kevin Brady (R-Texas) and Ways and Means tax policy subcommittee Chairman Peter Roskam (R-Ill.).

House Conservatives Hold Budget Hostage Over Tax Plan Details
Anna Edgerton, Bloomberg

Conservative House Republicans are threatening to vote against a budget deal unless it lays out details of a plan to overhaul the U.S. tax code — including the specific tax rate that would be set for corporations. Representative Mark Meadows, head of the right-wing Freedom Caucus, said the House should cancel or delay the planned August recess until there is agreement on “a set of principles” for the tax plan that President Donald Trump and congressional leaders have promised since shortly after his election.

Dems on tax reform outreach: Talk is cheap
Naomi Jagoda, The Hill

Democrats say they have little reason to believe that Republicans are serious about doing tax reform on a bipartisan basis, saying they have yet to put meaningful action behind their words. While Republicans have expressed an interest in bipartisanship on the issue and held a few meetings with Democratic lawmakers, they are also planning to pass tax-reform legislation through a process known as reconciliation, which would allow a bill to pass the Senate with only GOP support.

Trump Tax Cuts Cost $7.8 Trillion, Aid Top Earners, Study Finds
Sahil Kapur, Bloomberg

President Donald Trump’s proposed tax cuts would lower federal revenue by $7.8 trillion over a decade and mostly benefit the highest earners, according to a new study released Wednesday by the nonpartisan Tax Policy Center. About 40 percent of the tax cut would go to the top 1 percent of earners, who’d see an average after-tax gain of 17.8 percent.

Financial Technology

Banks’ struggles in mortgage business linked to outdated technology
Kevin Wack, American Banker

U.S. banks are paying a sizable price for failing to modernize their mortgage application processes in the internet age, according to a study from researchers at some of the nation’s top business schools. The recently published paper found that deposit-taking banks have fallen behind certain nonbank competitors that let their customers apply for home loans online.

Bitcoin Acceptance Among Retailers is Low and Getting Lower
Lily Katz, Bloomberg

Retailers were already skeptical about letting customers pay with bitcoin before the cryptocurrency’s price underwent an astronomical rally this year. That rapid surge hasn’t made them any more accepting.

Opinions, Editorials and Perspectives

Introducing MAGAnomics
Mick Mulvaney, The Wall Street Journal

Lower tax rates and faster cost recovery are two levers that will reduce the cost of capital and thereby help ignite economic growth. And since 70% of business income goes to wages, the benefits flow to workers as well.

The Caution Light Blinking in Yellen’s Testimony
Daniel Moss, Bloomberg

The retreat of inflation and lack of meaningful wage growth are becoming increasingly dominant in the Federal Reserve’s deliberations. Near the center, literally, of Fed Chair Janet Yellen’s five-and-a-bit pages of written testimony to Congress was an acknowledgment that officials just don’t know when the current very low levels of unemployment will translate into a spurt in pay.

Seeking to protect client assets, SEC may have hurt the client
Edward H. Klees and James W. Van Horn Jr., InvestmentNews

For many people, the term “inadvertent custody” might describe the feeling a parent has upon finding someone else’s child in the family room a half hour after the birthday party has ended. In the world of investments, the term “inadvertent custody” may raise a feeling of unease as well.

Richard Cordray’s Financial Damage
The Editorial Board, The Wall Street Journal

President Trump still hasn’t dismissed Consumer Financial Protection Bureau director Richard Cordray despite several removable offenses. But Mr. Cordray is all but begging to be fired with his mandatory arbitration ban that brazenly flouts the law.

No one should have to rely on payday loans in retirement
Tom Dresslar, American Banker

California has passed a disconcerting milestone in payday lending. In 2016, residents 62 and older took out more payday loans than any other age group, according to industry data compiled in a new report from the Department of Business Oversight.

Research Reports

Populism and the Economics of Globalization
Dani Rodrik, The National Bureau of Economic Research

Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash.

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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