Finance Brief: Senate Expands Scope of Bipartisan Banking Bill


Top Stories

  • New language in the Senate’s bipartisan legislation to roll back banking regulations includes a clarifying provision that would allow the Federal Reserve to strictly oversee foreign banks that maintain significant operations in the United States. Lawmakers also expanded the bill, which is expected to get a floor vote by next week, to deal with issues like identity fraud, commercial real estate lending and student loans. (The Wall Street Journal)
  • Timing for when President Donald Trump will formalize new steel and aluminum tariffs is now less certain, according to an administration official, because of legal documents that Trump needs to sign in order to enact the duties. The White House had invited industry workers to a tentative 3:30 p.m. ceremony, but an unnamed source said details on the announcement were still being worked out late Wednesday. (Politico)
  • Council of Economic Advisers Chairman Kevin Hassett, Goldman Sachs Group Inc. executive Jim Donovan, and Office of Management and Budget Director Mick Mulvaney are among the contenders to replace Gary Cohn as director of the National Economic Council, according to unnamed people familiar with the issue. Peter Navarro — the White House trade adviser who has pushed for new tariffs on steel and aluminum imports — has also been floated as a replacement, the sources said, but Navarro said he is not on Trump’s shortlist of candidates. (Bloomberg)

Chart Review

Events Calendar (All Times Local)

Thursday
Managed Funds Association Legal & Compliance Conference 7:50 a.m.
Politico event with Mark Calabria of Vice President Pence’s office 8:30 a.m.
SEC Investor Advisory Committee quarterly meeting 9:30 a.m.
Friday
Tax Foundation event on tax reform 12 p.m.

What Consumers Expect From Brands In The Gun Debate

With Americans demanding more from brands on political and social issues, how can companies decide what stances best serve their consumers?

General

Timing of Trump tariff announcement still up in the air
Andrew Restuccia, Politico

The timing of President Donald Trump’s announcement of steep tariffs on steel and aluminum imports remained up in the air on Wednesday as administration officials worked to complete a legal analysis of the proposal, according to administration officials. The White House had been tentatively planning for a 3:30 p.m. Thursday announcement and even invited steel and aluminum industry workers to attend.

107 House Republicans express ‘deep concern’ about Trump tariffs
Vicki Needham, The Hill

More than 100 House Republicans are urging President Trump to abandon his sweeping plan for global tariffs and narrow his focus to punishing perennial trade violators. House Ways and Means Committee Chairman Kevin Brady (Texas) and Ways and Means Subcommittee on Trade Chairman Dave Reichert (Wash.) gathered 107 GOP signatures on a letter sent to Trump on Wednesday calling on the president to tailor his plan for sweeping tariffs on all imported steel and aluminum.

Icahn says reduction of stake in Manitowoc not related to tariffs
Svea Herbst-Bayliss and Arunima Banerjee, Reuters

Carl Icahn, the billionaire investor who briefly served as an unpaid adviser to President Donald Trump, said on Wednesday he did not know about the administration’s plans to impose stiff tariffs on steel and aluminum before cutting his holding in a company that might be hurt by the move. Icahn said in a statement on his website that he reduced his position in crane maker Manitowoc Co Inc for “legitimate investment reasons” and dismissed any speculation that his sale of shares was prompted by knowledge about Trump’s plans.

Here Are the Names Circulating to Replace Gary Cohn
Jennifer Jacobs and Kevin Cirilli, Bloomberg

The White House is weighing contenders to succeed Gary Cohn as President Donald Trump’s top economic adviser, and names circulating include Goldman Sachs Group Inc. executive Jim Donovan, Council of Economic Advisers Chairman Kevin Hassett, and trade adviser Peter Navarro, people familiar with the matter said. Cohn’s departure, announced Tuesday, came as the president decided to move forward with a plan to slap tariffs on steel and aluminum imports — a move long opposed by Cohn and promoted by Navarro.

Stocks Climb, Bonds Mixed as Trade War Fears Ease: Markets Wrap
Eddie Van Der Walt, Bloomberg

Risk appetite improved across global markets as investor concern about a potential global trade war appeared to ease. Futures for the S&P 500 Index also climbed as traders spooked by tit-for-tat trade threats took solace from suggestions President Donald Trump’s tariff plan will spare select countries.

Banking

Lawmakers Expand Scope of Senate Bank-Deregulation Bill
Andrew Ackerman and Ryan Tracy, The Wall Street Journal

Senators expanded a bipartisan bill aimed at rolling back postcrisis rules on Wednesday, adding a provision aimed at limiting regulators’ ability to restrict commercial-real-estate lending and clarifying U.S. regulators can tightly oversee foreign banks with significant U.S. operations. The additions, which also touch on student-loan lending, identity fraud, corporate capital raising and other issues, still need to be approved by the Senate, which is expected to vote on the measure next week.

House Republicans warming to Senate deal on Dodd-Frank
Sylvan Lane, The Hill

House Republicans are warming up to a Senate bill that would loosen the banking rules put in place after the financial crisis. The Senate is poised this week to pass the most significant changes to the Dodd-Frank Act since it became law in 2010.

Nuns’ pressure leads Wells Fargo to publish causes of ‘systemic lapses in governance’
Jeff Blumenthal, CNBC

A group of nuns and religiously-affiliated investors said Wells Fargo & Co. has agreed to publish a review that shows the root causes of the systemic lapses in governance and risk management that have led to ongoing controversies, litigation and fines. As a result of the company’s commitment, the Interfaith Center on Corporate Responsibility will withdraw a resolution filed for the 2018 proxy calling for the review.

Financial Products and Investments

Free Credit Freezes Coming for All U.S. Consumers
Lalita Clozel and AnnaMaria Andriotis, The Wall Street Journal

Consumers are on track to get one thing from Congress in response to last year’s massive Equifax Inc. hack: free freezes of their data held by the credit-reporting companies. The bipartisan agreement, set to be approved in the Senate by next week as part of a broader banking bill, would require credit-reporting companies to let consumers block access to their credit reports to potential lenders without paying a fee.

Why Isn’t Wall Street Freaking Out About Trump?
Ben White, Politico

On election night in 2016, Treasury Secretary Jack Lew had an uneasy feeling. Lew was a Democrat and a native New Yorker, but decided not to join Hillary Clinton and other Democrats at a victory party in Manhattan.

Housing and GSEs

Non-bank US mortgage lenders pose systemic risk, study says
Sam Fleming and Alistair Gray, Financial Times

America’s rapidly expanding non-bank mortgage lenders are poorly equipped to weather financial shocks and present mounting risks to taxpayers, researchers from the Federal Reserve and University of California have warned. Analysis to be presented at a Brookings Institution conference finds that non-banks, which originated half of US residential home loans in 2016, are vulnerable to the kind of liquidity pressures that caused several to fail during the financial crisis.

GSE credit risk transfer programs are a housing reform model
Brad Finkelstein, National Mortgage News

The success of the government-sponsored enterprises’ credit risk transfer programs shows that they can be the basis for housing finance reform. But there are still steps that can be taken to maximize secondary market liquidity and broaden the investor bases, according to a paper co-written by Annaly Capital Management and the Federal Reserve Bank of New York.

Taxes

Tax Law Doesn’t Pay for Itself, Harvard Economists Find
Richard Rubin, The Wall Street Journal

The recent changes to the U.S. tax law will increase economic growth modestly but not fast enough to pay for themselves, according to a new estimate from a pair of economists from different sides of the political spectrum. In other words, the additional government tax revenue generated by higher growth won’t be enough to offset the drop in revenue due to tax cuts.

Financial Technology

Coinbase, a top cryptocurrency exchange, is launching an index fund
Brian Fung, The Washington Post

One of the world’s top cryptocurrency exchanges is opening up a new way for investors to seek a return on digital currencies such as bitcoin — by launching an index fund that tracks four of the biggest virtual currencies on the market. Known as the Coinbase Index Fund, the basket of cryptocurrencies resembles traditional index funds that mimic the performance of the S&P 500 or the entire stock market.

Bitcoin Steadies Amid U.S., Japan Regulatory Clampdown Concern
Camila Russo et al., Bloomberg

Bitcoin steadied after two days of losses as investors weighed the impact of a clampdown on cryptocurrency exchanges in Japan and renewed regulatory scrutiny of the venues in the U.S. The biggest virtual currency was flat at just under $10,000 as of 8:38 a.m. in London, after earlier slumping more than 4 percent during Asia trading hours.

Opinions, Editorials and Perspectives

Big Bank Custody Fight
The Editorial Board, The Wall Street Journal

The Senate is debating a bill that would relax Dodd-Frank’s chokehold on small banks, but a couple of provisions that ease capital and liquidity standards for the giants will make the financial system more vulnerable in a panic. Tucked into Banking Chairman Mike Crapo’s legislation is a directive to federal agencies to amend the “supplementary leverage ratio” for custodial banks by excluding deposits at a central bank.

The Race-Based Mortgage Penalty
The Editorial Board, The New York Times

As the Trump administration begins to gut federal enforcement of civil rights laws, minority communities that were targets for predatory home loans before the recession have become vulnerable yet again to mortgage discrimination. This time, many banks are simply writing off communities of color and denying them loans at all.

Trade tariffs do not put America First – low barriers, expanded access do
Sen. Chuck Grassley, Fox News

From his aggressive deregulation of burdensome and unnecessary Obama-era regulations to the continuing success of the Tax Cuts and Jobs Act, the president’s agenda is securing much-needed economic victories on behalf of Americans. But his recent tariff proposals would stall and ultimately undermine the progress he has made.

Corporate leaders must reject Trump’s tariffs
Charles Koch, The Washington Post

By many measures, America’s economy is strong. Unemployment is down, the stock market is up and consumer confidence is rising.

Tax cut offers long lasting economic benefits
Alan D. Viard, USA Today

Critics of the new tax law see the recent surge in stock buybacks as proof that the law is failing to boost the economy. Their argument is flawed.

Thanks, Gary Cohn
The Editors, Bloomberg

Often as not, government service is thankless work. For Gary Cohn, the latest adviser to President Donald Trump to announce his departure, it was especially so.

Research Reports

Stress Tests and Small Business Lending
Kristle Cortés et al., The National Bureau of Economic Research

Post-crisis stress tests have altered banks’ credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans.