Finance Brief: Ryan Pitches Border Adjustment Tax Plan to Senate Republicans

Washington Brief

  • Speaker Paul Ryan (R-Wis.) met with Senate Republicans, including Finance Committee members John Cornyn (Texas), John Thune (S.D.) and Tim Scott (S.C.), to advocate for the House GOP’s border adjustment tax proposal. Some of those senators still have reservations about the plan. (The Hill)
  • In response to a letter from Rep. Patrick McHenry (R-N.C.), Federal Reserve Chair Janet Yellen said the central bank has the responsibility and authority to hold regulatory discussions with foreign counterparts. McHenry, a member of the House Financial Services Committee, where Yellen is scheduled to testify today, said the Fed must halt those discussions in the early stages of Trump’s administration. (Reuters)
  • Sen. John McCain (R-Ariz.) is the first Senate Republican to say he would “most likely” oppose the confirmation of Rep. Mick Mulvaney (R-S.C.) to lead the Office of Management and Budget. McCain criticized Mulvaney, a fiscal hawk, as being “anti-defense.” (The Charleston Post and Courier)

Business Brief

  • The U.S. Chamber of Commerce and other business groups want to roll back a Sarbanes-Oxley Act provision that requires companies to audit their internal fraud and error controls. A revamped version of House Financial Services Committee Chairman Jeb Hensarling’s Financial CHOICE Act is expected to expand exemptions to the provision. (The Wall Street Journal)
  • Morgan Stanley agreed to pay $8 million to settle Securities and Exchange Commission charges tied to risky inverse exchange-traded funds. (Reuters)
  • The Commodity Futures Trading Commission delayed enforcement of new “variation margin” derivatives rules until Sept. 1. The measures were slated to go into effect March 1. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Wednesday
SEC Advisory Committee on Small and Emerging Companies meeting 9:30 a.m.
Fed Chair Yellen testifies before House Financial Services Committee 10 a.m.
House Ways and Means Committee hearing on the geography of poverty 10 a.m.
House Small Business Committee hearing on tax reform and startups 11 a.m.
Boston Fed’s Rosengren speaks at New York Association for Business Economics 12 p.m.
Philadelphia Fed’s Harker speaks at La Salle University 12 p.m.
Thursday
Crain’s New York Business event with NYC regulators 8 a.m.
Washington International Trade Association event on U.S.-China trade 8:30 a.m.
Brookings Institution event on regulation 9 a.m.
Asia Society event on North American trade 9:15 a.m.
Andy Puzder confirmation hearing before Senate HELP Committee 10 a.m.
House Financial Services Committee hearing on covered agreements 10 a.m.
CFPB’s Cordray speaks at field hearing in West Virginia 11 a.m.
National Economists Club event on destination-based cash flow tax 12 p.m.
Peterson Institute for International Economics trade event 12:15 p.m.
Friday
SEC Miami office director speaks at panel discussion 1:45 p.m.

 

General

Mick Mulvaney faces losing support of John McCain ahead of budget confirmation
Emma Dumain, The Charleston Post and Courier

The Senate will begin debate Wednesday on whether to confirm U.S. Rep. Mick Mulvaney to be the White House budget chief. As of Tuesday afternoon, all indications pointed to another late-night legislative session due to near-unanimous Democratic opposition to the South Carolina Republican vying to lead the Office of Management and Budget.

Trump’s Pick for Labor Secretary May Be in Peril
Andrew Soergel, U.S. News & World Report

With Monday night’s confirmation of Steven Mnuchin to head President Donald Trump’s Treasury Department, outstanding leadership roles tasked with guiding the administration’s economic agenda are beginning to dwindle.

GOP bill would eliminate Consumer Financial Protection Bureau
Sylvan Lane, The Hill

Two Republican lawmakers introduced Tuesday companion bills to eliminate the Consumer Financial Protection Bureau (CFPB), the controversial watchdog agency long targeted by the GOP. The bills from Sen. Ted Cruz (R-Texas) and Rep. John Ratcliffe (R-Texas) would repeal Title X of the Dodd-Frank Act, which established the CFPB.

Why Stop at Dodd-Frank? Some Want Trump’s Regulatory Overhaul to Go Further
Michael Rapoport, The Wall Street Journal

President Donald Trump wants to dismantle the Dodd-Frank regulatory overhaul put in place after the financial crisis. Many companies don’t want him to stop there—they are targeting a long-contested provision of the Sarbanes-Oxley Act, passed in the wake of the dot.com bust. Business groups want to soften a Sarbanes-Oxley rule that requires companies to have auditors weigh in on their “internal controls”—the policies and procedures intended to prevent errors or fraud on their financial statements.

Yellen Fuels Bank Stocks as Traders Eye Inflation: Markets Wrap
Eddie van der Walt and Adam Haigh, Bloomberg News

Futures on the S&P 500 were little changed. The benchmark measure increased 0.4 percent on Tuesday in its sixth day of gains.

Banking

Yellen brushes off warning, says Fed has authority on global talks
Jonathan Spicer, Reuters

Federal Reserve Chair Janet Yellen, in response to a warning from a U.S. congressman to halt global regulatory talks in the early stages of Donald Trump’s presidency, said in a letter the Fed has the authority and responsibility to consult with its foreign counterparts and does so to benefit the United States. The pointed letter to Republican Representative Patrick McHenry, reviewed by Reuters, suggested the U.S. central bank will carry on as usual with international discussions on financial standards even while Trump and conservatives in Congress move to ease U.S. bank rules adopted after the 2007-2009 financial crisis.

Yellen Open to Dodd-Frank Changes for Community Banks
Ryan Rainey, Morning Consult

Federal Reserve Chair Janet Yellen told senators Tuesday that she favors adjusting financial regulations so they are less burdensome on small banks. Yellen told members of the Senate Banking Committee that Congress could exempt small institutions from some regulations in the 2010 Dodd-Frank Act, and she pointed to the Volcker Rule ban on proprietary trading and restrictions on incentive-based compensation as areas that are ripe for changes.

The Dodd-Frank Rule Banks Want to Keep
Ryan Tracy, The Wall Street Journal

Republican promises to dismantle the 2010 Dodd-Frank financial overhaul may prove good news for many financial firms. The bad news for Wall Street: A top target is a provision big banks would rather retain.

Goldman Sachs Denies Bonuses For 100 Investment Bankers
Dakin Campbell et al., Bloomberg News

Goldman Sachs Group Inc. didn’t pay 2016 bonuses to about 100 bankers who advise on takeovers and underwrite securities offerings, signaling to a bigger crowd of underperformers that they’re probably better off elsewhere, according to people with knowledge of the matter. The move is more draconian than in past years when many dealmakers who failed to impress their bosses still got something, said the people, who asked not to be identified discussing the firm’s compensation practices.

Financial Products and Investments

Morgan Stanley to pay $8 million to settle U.S. SEC charges
Susan Heavey et al., Reuters

Morgan Stanley has agreed to pay $8 million to settle charges related to single inverse exchange-traded fund investments that the firm had recommended to clients, U.S. financial regulators said on Tuesday. In a statement, the Securities and Exchange Commission said Morgan Stanley admitted to wrongdoing, adding that the company had from 2010 to 2015 “recommended securities with unique risks and failed to follow its policies and procedures to ensure they were suitable for all clients.”

US delays derivatives rules to avoid market disruption
Joe Rennison and Philip Stafford, Financial Times

US markets regulators will delay enforcement of new derivatives rules in a move that risks undermining a fragile coalition among global watchdogs on how to reform a market used to by everyone from companies to pension funds to hedge risk. The Commodity Futures Trading Commission, the chief US derivatives regulator, issued a “no-action” letter, meaning it will not penalise users of derivatives who breach rules that come into effect on March 1.

Deutsche Bank fails to dismiss U.S. currency rigging lawsuit
Jonathan Stempel, Reuters

A U.S. judge has rejected Deutsche Bank AG’s (DBKGn.DE) bid to dismiss a lawsuit claiming it delayed foreign exchange trades to get a “last look” at how prices were moving, enabling the German bank to extract more profit at customers’ expense. In a decision made public on Tuesday, U.S. District Judge Lorna Schofield in Manhattan said investors led by Axiom Investment Advisors LLC may pursue breach of contract claims over trades on Deutsche Bank’s “Autobahn” platform and on multi-dealer electronic communications networks, or ECNs.

Housing and GSEs

Fannie Mae selling off $1.76 billion in non-performing loans
Ben Lane, HousingWire

Fannie Mae announced Tuesday that it plans to sell off $1.76 billion in non-performing loans, the latest in the government-sponsored enterprise’s efforts to rid itself of deeply delinquent mortgages. According to details provided by Fannie Mae, this latest sale will include 10,000 delinquent loans split among four pools, totaling $1.76 billion in unpaid principal balance.

Taxes

Ryan tries to save tax plan
Alexander Bolton, The Hill

Speaker Paul Ryan (R-Wis.) met with Republican senators Tuesday afternoon to quell growing opposition to a core element of the House GOP tax plan, a 20 percent across-the-board tax on imports, also known as border adjustment. Ryan beseeched the senators to “keep your powder dry” while House tax writers hammer out the details of their plan and prepare to move it to a vote later this year, according to a GOP source ­familiar with the meeting.

Republicans May Find Few Answers on Who Pays for Border Tax
Lynnley Browning, Bloomberg News

Republican lawmakers say they need answers before they can support a plan to overhaul U.S. business taxes — especially in light of arguments from retailers and other companies that the changes would hurt consumers. But a new report suggests solid information may be hard to come by.

Kevin Brady promises ‘intensive’ effort with Mnuchin on tax reform
Joseph Lawler, The Washington Examiner

A top Republican tax writer said Tuesday to expect an aggressive joint effort between Congress and the White House to pass tax reform in 2017 but stopped short of saying that the Trump administration favors the controversial House Republican plan to adjust taxes at the border. “This will be a daily, coordinated, intensive effort to move tax reform in 2017,” said Rep. Kevin Brady, the chairman of the House Ways and Means Committee, speaking at a breakfast on Capitol Hill.

Amid Senate Tensions, Hatch Eyes Bipartisan Tax Deal
Alan K. Ota, Roll Call

Utah Sen. Orrin G. Hatch has launched a new push for a bipartisan Senate alternative to the contentious House Republican tax plan, as President Donald Trump begins to frame administration priorities. The Senate Finance chairman said last week he was meeting with Democratic tax writers one-on-one and hoped there would be leeway for deals, after bitter debates over Health and Human Services Secretary Tom Price and Treasury Secretary Steven Mnuchin riled the Senate and exposed deep partisan fault lines.

Financial Technology

Fintechs feature DOL fiduciary tools at T3
Liz Skinner, InvestmentNews

Many new tools that fintech firms are unveiling as the T3 conference opens this week are aimed at helping financial advisers meet requirements of the Labor Department’s fiduciary rule, which was due to take effect in less than two months but is now in limbo as President Donald J. Trump delayed implementation by six months. FinMason said Tuesday that its new risk tolerance and compliance tools will generate a “bright-line” agreement on risk from clients and screens portfolios each night to detect issues before they become problems.

A Message from the National Black Chamber of Commerce:

Did you know the Durbin Amendment has made big box retailers $42 billion in profit? These corporations promised they would pass on profits made from lower debit transaction fees to consumers. But they have not kept their word and in many cases are charging consumers more.

Opinions, Editorials and Perspectives

How the new treasury secretary can prove he’s serious about the job
Editorial Board, The Washington Post

We’re somewhat more hopeful that Mr. Mnuchin might be able to work with Congress on a permanent fix to the housing finance system, still dominated by the unsustainably semi-nationalized giants Fannie Mae and Freddie Mac. The good news is that both houses of Congress and the Treasury Department under Mr. Geithner thoroughly reviewed the plausible options for a new system that — unlike the old one — does not encourage excessive private-sector risk-taking, with taxpayers on the hook for losses.

Make Big Banks Put 20% Down — Just Like Home Buyers Do
Neel Kashkari, The Wall Street Journal

There’s a straightforward way to help prevent the next financial crisis, fix the too-big-to-fail problem, and still relax regulations on community lenders: increase capital requirements for the largest banks. In November, the Federal Reserve Bank of Minneapolis, which I lead, announced a draft proposal to do precisely that.

Who’d Want to Limit Retirement Plans? House Republicans
Editorial Board, The New York Times

There is no overstating how unprepared Americans are to retire. Nearly half of private-sector employees — some 55 million people — do not have an employer-provided retirement plan.

Labor nominee Puzder is the right choice for American prosperity
Rep. Ann Wagner (R-Mo.), The Hill

Recently the Hill published a story, the gist of which was that Andy Puzder’s “hometown” newspaper, the St. Louis Post Dispatch, thought that he was unqualified to be Secretary of Labor.  What The Hill does not mention is what all of us from St. Louis know only too well:  the editorial board of the Post will follow the line taken by the Democratic Left, and therefore is highly unlikely to find that anyone President Trump nominates to any office is qualified.

Dodd-Frank Repeal Also Targets Corruption-Fighting Measure
Shelley Goldberg, Bloomberg View

Rolling back Dodd-Frank is a mistake on many levels. First, the rule deters bribery and curbs corruption, poverty and instability, by making companies disclose payments to foreign governments.

What America’s Community Banks Need From a Dodd-Frank Overhaul
Frank Sorrentino, Fortune

The question is: what will a rollback of Dodd-Frank actually look like, and what potential impacts might it have on the banking industry and small businesses? With the law having generated more than 20,000 pages of regulations, it’s difficult to pinpoint how and where we’ll see the bulk of reform.

A Message from the National Black Chamber of Commerce:

Enactment of the Durbin Amendment has led to $42 billion in extra profit for giant retailers. These corporations said they would pass on the profits to consumers in the form of lower prices, but they’ve broken that promise, pocketed the money and in many cases are charging consumers even more.

Research Reports

Understanding the House GOP’s Border Adjustment
Kyle Pomerleau, Tax Foundation

In 2016, the House Republicans released a tax plan that would lower the corporate income tax rate to 20 percent and convert it into a “destination-based cash-flow tax.”