Finance Brief: Quarles Said to Be Leading Contender for Fed’s Bank Regulator Post

Washington Brief

  • President Donald Trump is expected to select Randy Quarles, managing partner at an equity investment firm and a Treasury Department official under former President George W. Bush, as the Federal Reserve’s top bank regulator. (Politico)
  • Commerce Secretary Wilbur Ross characterized the International Monetary Fund’s warnings against U.S. protectionism as “rubbish.” He said the United States exhibits less protectionism than China, Japan and Europe. (Financial Times)
  • Trump appeared to link his decision not to label China a currency manipulator with receiving help from China regarding the North Korean nuclear threat. (Bloomberg News)

Business Brief

  • Wells Fargo & Co. shareholders may topple one or more of the lender’s directors at an annual meeting scheduled for April 25. Board Chairman Stephen Sanger is considered the most vulnerable member. (The Wall Street Journal)
  • HSBC Holdings Plc. agreed to pay about $2 million to settle a civil fraud lawsuit alleging the bank tried to get reimbursed by the U.S. Small Business Administration for loans it knew were based on fraudulent or potentially fraudulent information. (Reuters)
  • As bank executives shirk the idea of a modern-day Glass-Steagall Act, Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig is gaining ground for his own “ring-fencing” plan that would restrict bank holding companies’ support for risky activities. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Monday
SEC administrative hearing 9 a.m.
Tax Foundation event on North Carolina and tax reform in Raleigh, N.C. 12 p.m.
Fed’s Fischer speaks at Columbia University 5 p.m.
Tuesday
Hyman P. Minsky annual economic conference 8 a.m.
IMF/World Bank meetings in Washington 9 a.m.
Wednesday
Hyman P. Minsky annual economic conference 9 a.m.
IMF/World Bank meetings in Washington 9 a.m.
Heritage Foundation event on U.S.-U.K. trade relations after Brexit 10 a.m.
Thursday
SEC officials speak at Global Privacy Summit 8 a.m.
American Enterprise Institute event on Europe and pro-growth agenda 8:30 a.m.
IMF/World Bank meetings in Washington 8:45 a.m.
Brookings Institution event with Bank of Mexico governor 9:15 a.m.
National Economists Club event with American Action Forum’s Doug Holtz-Eakin 12 p.m.
American Enterprise Institute event on postcrisis economics 5 p.m.
Tax Foundation “Tax Freedom Day” event 6 p.m.
Friday
IMF/World Bank meetings in Washington 9 a.m.

 

General

IMF warnings of US protectionism ‘rubbish,’ says Ross
Shawn Donnan and Demetri Sevastopulo, Financial Times 

Warnings of US protectionism by Christine Lagarde, head of the International Monetary Fund, and others are “rubbish”, Donald Trump’s top trade official has said in a new attack on the big trade surpluses of China, Europe and Japan. Speaking ahead of the arrival in Washington of global finance officials for this week’s IMF and World Bank spring meetings, commerce secretary Wilbur Ross said those accusing the Trump administration of protectionism were firing at the wrong target.

Wall Street banker Cohn moving Trump toward moderate policies
James Oliphant and Svea Herbst-Bayliss, Reuters 

In a White House marked by infighting, top economic aide Gary Cohn, a Democrat and former Goldman Sachs banker, is muscling aside some of President Donald Trump’s hard-right advisers to push more moderate, business-friendly economic policies. Cohn, 56, did not work on Republican Trump’s campaign and only got to know him after the November election, but he has emerged as one of the administration’s most powerful players in an ascent that rankles conservatives.

Can the consumer watchdog Trump loathes win an Ohio election?
Lorraine Woellert et al., Politico 

Gary Cohn gave Richard Cordray, the head of the Consumer Financial Protection Bureau, an ultimatum over dinner a few weeks ago: Go the easy way, or go the hard way. Cohn, President Donald Trump’s top economic adviser, had heard the rumors that Cordray wanted to run for governor in Ohio.

Barney Frank: Don’t do away with CFPB
Kelly Cohen, The Washington Examiner 

Former Rep. Barney Frank warned congressional Republicans: Do not do away with the independent Consumer Financial Protection Bureau. In an interview with radio host John Catsimatidis on 970 AM in New York that aired Sunday, the Massachusetts Democrat said that the CFPB has “saved consumers a lot of money” and it would be “very unpopular” to eliminate it.

Trump taps Ex-Im critic to head agency
Victoria Guida, Politico 

President Donald Trump on Friday announced that he intends to nominate two former Republican lawmakers to fill empty seats on the Export-Import Bank’s board, one of whom has been a prominent opponent of the agency. Trump tapped Scott Garrett, an Ex-Im critic and a former House member from New Jersey, as president of the bank’s board, and Spencer Bachus, a former chairman of the House Financial Services Committee, as a board member.

Treasuries Extend Gain as Dollar Drops; Gold Rises: Markets Wrap
Jeff Sutherland and Samuel Potter, Bloomberg News

Futures on the S&P 500 index were down 0.1 percent. The gauge lost 1.1 percent for the holiday-shortened week.

Banking

Trump expected to pick Treasury veteran as top bank cop
Ben White and Victoria Guida, Politico 

President Donald Trump is expected to nominate former Treasury undersecretary Randy Quarles as the Federal Reserve’s top bank regulator, a person close to the decision said. The selection would send a clear signal that the administration is looking to take a pragmatic approach to paring back bank regulation, rather than choosing an ideologue who would seek to eviscerate the rules enacted since the financial crisis.

Wells Fargo Board Faces High-Stakes Vote
Emily Glazer and Joann S. Lublin, The Wall Street Journal 

Wells Fargo & Co. faces something few other big banks have dealt with since the financial crisis: a serious effort to vote out most of its directors. As the bank’s annual shareholder meeting approaches April 25, bank executives and directors are scrambling to meet with key investors and deal with the possibility that they could see one or more fail to win reelection, people familiar with the process said.

HSBC to pay $2 million to resolve U.S. civil loan fraud lawsuit
Divya Grover, Reuters 

HSBC Holdings Plc (HSBA.L) has agreed to pay about $2 million to settle a civil fraud lawsuit that alleged the bank improperly attempted to get reimbursement from the federally backed U.S. Small Business Administration (SBA) on bad loans it knew were based on fraudulent or potentially fraudulent information. Under the SBAExpress loan program, designed to help startups and small businesses, the SBA guarantees up to half the value of loans made to companies by lenders such as HSBC.

Support builds for watered-down version of Glass-Steagall law
Patrick Jenkins and Barney Jopson, Financial Times 

Support is emerging for a watered-down version of Glass-Steagall legislation, following renewed declarations of enthusiasm from the White House for a reintroduction of tough 1930s rules that would break up the big US banks. This month Gary Cohn — the former Goldman Sachs president who is now a top adviser to President Donald Trump — signalled the White House was open to a “21st century” version of the Glass-Steagall law that once split commercial from investment banking.

Regional banks ask bipartisan duo to let them out of ‘too big to fail’ category
Joseph Lawler, The Washington Examiner 

A coalition of regional banks asked the top Republican and Democrat on the Senate Banking Committee to release them from the stricter regulations aimed at capturing megabanks that pose a “too big to fail” threat to the country. The Regional Bank Coalition asked committee Chairman Mike Crapo of Idaho and top Democrat Sherrod Brown of Ohio on Thursday night to replace the Dodd-Frank cut-off for big banks, set at $50 billion in assets, with a calculation of the actual threat posed to the financial system by individual banks.

Financial Products and Investments

Trump Ties China Currency Decision to Help With North Korea
Ros Krasny, Bloomberg News

President Donald Trump explained the decision to not label China a currency manipulator, which reversed a promise he made during the election campaign, as a function of receiving Beijing’s help in reining in North Korea. “Why would I call China a currency manipulator when they are working with us on the North Korean problem? We will see what happens!” Trump said in a tweet early Sunday to his 28 million followers.

Fed Puts Together Plan to Unwind Securities Portfolio
Nick Timiraos, The Wall Street Journal 

The Federal Reserve is moving quickly to fill in the details of how it will wind down its securities holdings in the years ahead, a process that could start this year and become the next big challenge for investors grown accustomed to easy money from the world’s most important central bank. The Fed wants to move toward a smaller portfolio for several reasons.

Cohn’s Goldman Shares Sold as He Touted Financial Overhaul
Bill Allison, Bloomberg News

On the same day that President Donald Trump’s top economic adviser, Gary Cohn, publicly promoted the administration’s plans to overhaul financial regulations, part of Cohn’s stake in Goldman Sachs Group Inc. was sold, according to federal financial-disclosure documents. The bank’s share price rose that day by 4.5 percent on news of the planned regulatory review, as other financial-industry stocks also advanced.

SEC freezes brokerage accounts behind alleged insider trading
Reuters 

The Securities and Exchange Commission said on Friday it had frozen assets in two brokerage accounts used last week to reap more than $1 million in alleged insider trading profits in connection with a merger announcement by Liberty Interactive Corp and General Communication Inc. The agency said in a statement the traders, currently unknown, allegedly used foreign brokerage accounts in Britain and Lebanon to purchase call option contracts through U.S.-based brokerages and on U.S.-based exchanges in the days leading up to the announcement of the acquisition.

Housing and GSEs

On China Trade Shock, Economists’ Debate Shifts to Housing Boom
Bob Davis, The Wall Street Journal 

When we last checked in on the controversy over how badly Chinese imports harmed U.S. workers, a Gallup economist claimed he found “serious flaws” in the work by economists David Autor, David Dorn and Gordon Hanson—researchers who have become so famous in the field they are known simply as ADH. ADH batted away that critique, which had to do with dueling statistical analyses, by pointing out that the paper by Gallup’s Jonathan Rothwell had been turned down by an influential economics journal.

Taxes

Trump’s Renewed Focus on Health Bill Vexes GOP Tax Overhaul Strategy
Richard Rubin, The Wall Street Journal 

President Donald Trump’s revived enthusiasm for tackling health-care legislation before tax policy has highlighted the complicated interplay between Republicans’ health-care overhaul and their planned tax bill. Mr. Trump signaled last week that one of the reasons he has reprioritized health care is that he was relying on savings from the health bill to bolster the tax plan.

Trump’s ‘Reciprocal Tax’ Seen Affirming His Love of Tariffs
Lynnley Browning, Bloomberg News

Americans might want to brace themselves for political arguments about the “reciprocal tax,” the “matching tax” or the “mirror tax.” But if President Donald Trump has anything to say about it, they won’t be hearing much more about the “border-adjusted tax.”

Automakers voice opposition to Republican border adjustment tax plan
Brent Snavely, The Detroit Free Press

The automotive industry made it clear last week that it is strongly opposed to any proposal to adopt a border adjustment tax, saying it would raise the cost of cars and hurt both the industry and customers. The industry’, which has been careful to mostly praise the “pro-business” policies favored by the Trump administration, wants to make sure the administration and Congress knows it is strongly opposed to a tax on imports.

Border war: South Carolina manufacturers debate impact of import tax
David Wren, The Charleston Post and Courier 

With a $500 million manufacturing campus opening next year in Berkeley County, Volvo Cars executives say they have a lot to lose if Congress imposes a border adjustment tariff on imports as part of a corporate tax reform plan. “The customer is the loser, or we are the loser,” Lex Kerssemakers, president and CEO of Volvo’s North American division, said of the proposed tax during a media briefing in Charleston this month.

Tax Reform Still Possible by Year’s End, Grover Norquist Says
Fox Business News

As Tax Day approaches for Americans, Grover Norquist said Sunday he still expects a tax reform package to be completed by the end of the year.

Financial Technology

Hacker Group Says U.S. Tried to Breach Money-Transfer System
Robert McMillan, The Wall Street Journal 

A shadowy hacking group, which says it stole files from the U.S. National Security Agency, released documents and hacking tools that allegedly describe a U.S. effort to compromise users of the major international money-transfer system. The documents, released Friday by a group that calls itself Shadow Brokers, includes PowerPoint slides and other documents that describe an alleged effort by the NSA to target two “service bureaus” connected to the Society for Worldwide Interbank Financial Telecommunication, or Swift.

It’s not just manufacturers using robots – even this fintech business is using them
Oscar Williams-Grut, Business Insider 

Advances in robotics and artificial intelligence are set to radically reshape the jobs market globally over the coming decades, as technology makes more and more jobs obsolete.

Opinions, Editorials and Perspectives

In Farewell, Daniel Tarullo Offers Fixes on Bank Regulation
William D. Cohan, The New York Times 

Much to the relief of Wall Street executives, who feared and hated him in equal measure, Daniel K. Tarullo left his powerful perch on the Federal Reserve Board of Governors last week, but not before delivering one last lecture on how big banks should be regulated in his absence.

Donald Trump beats a retreat over China’s currency
Editorial Board, Financial Times 

Another week, another series of flip-flops by America’s president. Last week, along with reversing course on Nato, Federal Reserve chair Janet Yellen and the US Export-Import Bank, all of which he is much keener on now than he was a week earlier, Donald Trump did not, after all, designate China a currency manipulator.

Trump’s Art of the China Deal
Editorial Board, The Wall Street Journal 

President Trump is reversing some of his foreign-policy positions, but this should be no great surprise and so far the changes are mainly for the better. Mr. Trump is never going to pursue a consistent geopolitical strategy because he doesn’t think that way.

The Border-Adjustment Sleight of Hand
Veronique de Rugy and Daniel J. Mitchell, The Wall Street Journal 

With Republicans in control of Capitol Hill and the White House, this should be an opportune time for major tax cuts to boost American growth and competitiveness. But much of the reform energy is being dissipated in a counterproductive fight over the “border adjustment” tax proposed by House Republicans.

Why 100-year bonds aren’t crazy in Trump era
Michael Taylor, The San Antonio Express-News

The United States does not currently issue bonds with maturities longer than 30 years, but the idea of super long-dated national debt is back in the air. Long-dated, as in bonds due in 100 years.

Research Reports

Distortions and the Structure of the World Economy
Lorenzo Caliendo et al., The National Bureau of Economic Research 

We develop a model of the world economy as input-output relationships subject to distortions. We then propose a methodology to solve the identification problem, common to the literature on misallocation in input-output relationships, of separating sectoral TFPs from the sectoral distortions.