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Finance Brief: SEC Expected to Hire Dalia Blass as Top Regulator of Mutual Funds, ETFs

Washington Brief

  • Dalia Blass, an attorney at the law firm Ropes & Gray LLP, is set to join the Securities and Exchange Commission as the agency’s top regulator of mutual funds and exchange-traded funds. Blass’ husband is about to step down as the top lawyer for the Investment Company Institute, a Washington-based trade group that represents the mutual fund industry. (The Wall Street Journal)
  • Senate Finance Committee Chairman Orrin Hatch (R-Utah) said he does not want to rule out including a border adjustable tax as a way to offset reduced tax rates in forthcoming legislation. The border adjustment provision, which would tax imports income while exempting exports, has been divisive among Republican lawmakers. (The Hill)
  • Labor Secretary Alex Acosta told a House panel that the Labor Department initiated its review of the Obama-era fiduciary rule by requesting information from the Office of Management and Budget about the regulation. Acosta suggested that the Labor Department did not adequately consider stakeholder comments when the rule was finalized during the Obama administration. (InvestmentNews)

Business Brief

  • The Consumer Financial Protection Bureau ordered Fay Servicing LLC to pay $1.15 million over allegations that it started to foreclose on houses after residents had started the process of trying to keep their homes. The mortgage servicer was not forthcoming about options consumers had in the event of a foreclosure, the CFPB said. (HousingWire)
  • The president of government and public affairs for Koch Companies Public Sector rebutted an argument from House Ways and Means Committee Chairman Kevin Brady (R-Texas) that the company opposes a border adjustable tax because it wants to maintain a “special interest” tax break. Although some products that Koch Industries imports, such as oil, would be affected by the tax, the company says its opposition to border adjustment is based on its worries about the possible effects on consumers. (The Washington Examiner)
  • Reps. Jared Polis (D-Colo.) and David Schweikert (R-Ariz.) requested that the Internal Revenue Service provide more guidance for companies on how virtual currency transactions should be reported. The agency’s inspector general for tax administration chided the IRS last year for not having a digital currency strategy, saying the omission could lead to tax avoidance. (CoinDesk)

Chart Review

Events Calendar (All Times Local)

Thursday
House Appropriations subcommittee hearing with CFTC’s Giancarlo 10 a.m.
House Appropriations subcommittee hearing with HUD’s Carson 10 a.m.
CFPB consumer advisory board meeting 10 a.m.
House Financial Services subcommittee hearing on virtual currency 10 a.m.
Senate Banking Committee hearing on economic growth 10 a.m.
Friday
Heritage Foundation discussion on tax reform with House Freedom Caucus members 9:30 a.m.

 

General

Paul Ryan’s debt ceiling conundrum
Rachael Bade, Politico

Speaker Paul Ryan is in a serious debt ceiling quandary. The House GOP conference — from Freedom Caucus hardliners to mainstream Republicans allied with leadership — are balking at the Trump administration’s request for a “clean” debt ceiling hike without spending cuts.

Hoyer backs clean debt-limit hike
Mike Lillis and Niv Elis, The Hill

House Minority Whip Steney Hoyer (D-Md.) deflated on Wednesday nascent Democratic plans for using the debt ceiling fight to extract political concessions from the GOP. “I think it’s not a responsible vote to vote against a debt limit that is clean,” Hoyer told reporters.

Donald Trump’s Nominee for Financial Post Backs ‘America First’ Policies
Ian Talley, The Wall Street Journal

The Trump administration’s nominee to be Washington’s top financial diplomat, ex-Bear Stearns chief economist David Malpass, advocated an America-first revision of the world’s economic architecture as senators reviewed his nomination Wednesday. Mr. Malpass, a former senior official in the Reagan and George H.W. Bush administrations, has long been critical of global trade agreements and multilateral financial institutions that represent the backbone of world economic diplomacy.

What Good Is a Treasury Department if You Don’t Have the Staff to Run It?
Saleha Mohsin and Robert Schmidt, Bloomberg News

Secretary of the Treasury Steven Mnuchin has one of the biggest to-do lists in Washington: Rewrite the tax code, spearhead a repeal of financial regulation, and persuade Congress to raise the debt ceiling. The agenda would be staggering in the best of circumstances, but he has a more urgent problem—a skeletal staff.

Is CFPB being stretched thin by litigation?
Kate Berry, American Banker

Litigation is soaking up a significant share of resources at the Consumer Financial Protection Bureau, which faces at least a dozen cases challenging its constitutionality and a surging number of legal disputes to its enforcement actions. Many smaller companies that traditionally would have rolled over and settled with the agency appear emboldened to fight given the political and legal uncertainty hanging over the CFPB.

Consumer bureau defenders brace for House vote on Dodd-Frank rollback
Sylvan Lane, The Hill

Some of the Dodd-Frank Act’s staunchest defenders are making a last-ditch effort to kill a bill that would strip much of the 2010 financial regulations. Progressive lawmakers and political groups are attempting to rally opposition before the House votes on the Financial CHOICE Act this week.

Investors Avoid Big Moves as Key Events Draw Near: Markets Wrap
Adam Haigh and Cecile Gutscher, Bloomberg News

Financial markets were mostly steady as investors avoided adding big positions ahead of key events in Europe and the U.S. Futures on the S&P 500 added 0.1 percent after the underlying gauge added 0.2 percent on Wednesday.

Banking

Dodd-Frank battle may not help America’s favorite banks
Larry Light, CBS News

The Republican overhaul of the Dodd-Frank banking law moving toward a House floor vote is a Washington cage fight, with Democrats and Republicans sharply divided. But one section of it seems to meet with widespread approval: regulatory relief for small banks.

Goldman Sheds Light on Changing Composition of Federal Reserve Board
Amey Stone, Barron’s

Goldman Sachs economists weighed in on the topic with a Q&A Wednesday that makes some interesting points about what the changes in personal could mean for the next Fed chair. They point out that if the Trump administration fills all three vacancies with new appointments, the next Fed Chair will have to come from the current slate.

Santander Rescues Troubled Rival in Test of Europe’s New Rules
Chad Bray and Jack Ewing, The New York Times

After the global financial crisis, Europe built a system designed to contain the collateral damage from failing banks. That new system appeared to pass its first test on Wednesday, as authorities efficiently dispatched a troubled Spanish lender.

Financial Products and Investments

SEC to Hire Dalia Blass as Top Regulator of Mutual Funds and ETFs
Dave Michaels, The Wall Street Journal

The Securities and Exchange Commission is poised to hire as its top mutual-fund regulator an attorney whose spouse is about to step down as chief lawyer for the industry’s trade group, according to people familiar with the matter. Dalia Blass is the leading candidate to run the SEC’s division of investment management, the people said, a smaller office within the 4,600-person commission that assumed a higher profile after the 2008 financial crisis.

Labor Secretary Acosta: Concerns with DOL fiduciary rule ‘not heard’ during original rulemaking
Greg Iacurci, InvestmentNews

Secretary of Labor Alexander Acosta hinted Wednesday that the Obama administration didn’t adequately consider “concerns” raised during the rulemaking process surrounding the Department of Labor’s fiduciary rule. Mr. Acosta made the remark during congressional testimony, after Rep. Steve Womack (R-Arkansas) asked: “Is it not obvious that [the fiduciary rule] is going to limit [investors’] options? Does it have some far-reaching effects that would be counterproductive to particularly younger generations’ savings opportunities?”

Taking a second look at the maker-taker model
Nicole Bullock, Financial Times

The winds of change that have blown into Washington DC may soon ruffle Wall Street. A new US administration promising reform of financial regulation and widespread staff moves at the Securities and Exchange Commission, including a fresh chairman in Jay Clayton, could signal a shift in one of the key practices underpinning trading: the issue of rebates, whereby equity exchanges and some other private venues pay brokers to provide prices on their platforms.

Housing and GSEs

CFPB hits Fay Servicing with $1.15 million fine for illegal foreclosure practices
Ben Lane, HousingWire

The Consumer Financial Protection Bureau announced Wednesday that it is fining Fay Servicing more than $1 million for “illegal foreclosure practices.” According to the CFPB, an investigation found that Fay Servicing was “keeping borrowers in the dark” about their foreclosure prevention options.

Taxes

Key Senate chairman doesn’t rule out border-adjustment tax
Naomi Jagoda, The Hill

Senate Finance Committee Chairman Orrin Hatch (R-Utah) said Wednesday that he’s not going to publicly rule out the border-adjustment tax supported by House GOP leaders, even as he acknowledged that the proposal faces opposition from many senators. “As far as I’m concerned, virtually any potential [offset] for reduced tax rates should be on the table, and that includes the so-called border-adjustment tax,” Hatch said at a conference hosted by Bloomberg BNA and Baker McKenzie.

Koch Industries denies it’s pursuing a special tax break
Joseph Lawler, The Washington Examiner

Koch Industries fought back Wednesday against a lawmaker’s suggestion that the Koch network is defending a special interest tax break in its relentless fight against the House Republican plan to create a border-adjusted corporate tax. The company, owned predominantly by the libertarian megadonors Charles and David Koch, argued that its efforts to defeat the border-adjustment provision are motivated by concern for consumers, not its own corporate interests.

Analysis says GOP border adjustment tax proposal would pass WTO test
Inside U.S. Trade

A new analysis commissioned by manufacturing and export giant Caterpillar attempts to dismantle arguments that the border adjustment tax contained in the House Republican tax reform “blueprint” would violate U.S. commitments under World Trade Organization rules.

Schumer links debt hike to tax cuts
Niv Elis, The Hill

Senate Minority Leader Charles Schumer (D-N.Y.) warned Tuesday that Democrats might not back a clean debt ceiling hike if Republicans separately seek to cut tax rates for the rich. “It’s going to be a lot harder to get a debt ceiling raised if our Republican colleagues insist on raising the deficit dramatically by huge tax cuts for the wealthiest of Americans,” Schumer said.

Budget office: People holding out for tax reform may be slowing revenue
Joseph Lawler, The Washington Examiner

Tax revenue is coming in lower than expected, and the slowdown might be attributable to individuals and companies shifting their income into the future to take advantage of tax reform, the Congressional Budget Office reported Wednesday. Total revenue hit $2.2 trillion in the first eight months of fiscal 2017, $60 billion to $70 billion less than estimated, the budget office said in a report on the deficit.

Debt limit showdown looms sooner as wealthy bet on Trump tax cut
David Morgan and Trevor Hunnicutt, Reuters

The U.S. Congress may be headed for a reckoning with the federal debt limit within weeks, thanks to wealthy Americans and corporations deferring tax payments in the hope that they would benefit from the lower tax rates promised by President Trump. Trump promised tax cuts during his election campaign last year and has reiterated those promises in recent months leading some wealthy Americans and businesses to shift accounting for income into the future, betting that lower tax rates will arrive, perhaps in 2018, wealth managers told Reuters.

Financial Technology

US Congressional Group Calls on IRS to Clarify Bitcoin Tax Guidance
Stan Higgins, CoinDesk

The leaders of a US Congress caucus focused on blockchain are calling for more guidance from the Internal Revenue Service (IRS) regarding the tax requirements for digital currencies like bitcoin. In a letter dated 2nd June and penned by Representatives Jared Polis and David Schweikert – co-chairs of the Blockchain Caucus, a congressional group which was founded last autumn – the two called on the tax agency to “issue additional guidance on the tax consequences and basic tax reporting requirements for transactions using virtual currencies”.

Opinions, Editorials and Perspectives

Republicans Can’t Really Repeal Dodd-Frank
David Dayen, The Nation

House Republicans will go into work tomorrow and pass a bill designed to strip away virtually everything of value in the last round of President Obama’s 2010 financial reforms. And then everyone will get on with their lives, because the bill has no chance whatsoever of becoming law.

Thanks to Dodd-Frank, The Dreamers Are Being Suffocated
Rep. Claudia Tenney, RealClearMarkets

Every successful company in our nation started as a small enterprise on a Main Street somewhere in America. Take Remington Arms and Chobani as examples: two local companies that today are among the most successful large corporations in the country.

Trump’s Labor Secretary Is About to Violate the President’s Agenda. Why He Should Delay This Obama-Era Rule.
Norbert Michel, The Daily Signal

A costly and burdensome rule issued by the Obama administration is set to go into effect Friday, barring action from the Department of Labor to delay it. Unfortunately, the new secretary of labor isn’t acting.

Our Debt Limit Nightmares Are Coming True
Brian Beutler, The New Republic

When the Republicans’ legislative agenda started drifting sideways early in Donald Trump’s presidency, it became easy to see how their dysfunction could precipitate a massive economic crisis. Just a few months later, we are nearing the brink of such a crisis.

Why Trump Could Use More Economists
Greg Ip, The Wall Street Journal

Economists once aspired to be like dentists: dull technocrats the public trusted. The last decade has been unkind to those hopes.

Unlocking the Liquidity Coverage Ratio
Bill Nelson, The Clearing House

The liquidity coverage ratio (LCR) requires certain banks and bank holding companies to hold high quality liquid assets (HQLA) sufficient to meet projected 30-day liquidity needs in a situation of severe idiosyncratic and systemic stress. The LCR is calculated as HQLA divided by projected 30-day net cash outflows under stress; the requirement is that banks maintain a ratio of at least 100 percent.

Research Reports

Q1 2017 State of Blockchain
CoinDesk

Aggregate cryptocurrency market cap hits all-time high of $25bn as every top 10 asset rallies. Bitcoin used more than ever with over 287,000 transactions per day, leading to .92 MB blocks and $0.62 transaction fees.