Finance Brief: Senate Panel Advances Hassett’s Nomination for CEA Chairman

Washington Brief

  • The Senate Banking, Housing and Urban Affairs Committee advanced the nominations of Kevin Hassett to lead the Council of Economic Advisers (The Wall Street Journal) and Pamela Patenaude to be deputy secretary of Housing and Urban Development (HousingWire). Sen. Elizabeth Warren (D-Mass.) was the only panel member to vote against each nominee.
  • The automobile industry brought to the White House its complaints regarding a proposed border adjustable tax on imports. The House GOP’s plan “would drive up the cost of every vehicle,” American International Automobile Dealers Association President Cody Lusk said after a meeting with National Economic Council Director Gary Cohn. (The Hill)
  • The Federal Open Market Committee raised interest rates for the second time this year, increasing the range to between 1 percent and 1.25 percent. In an indication of confidence in U.S. economic growth, the Fed also announced plans to begin paring down its $4.5 trillion balance sheet this year. (MarketWatch)

Business Brief

  • New lawsuits against Wells Fargo & Co. allege that the bank made inappropriate changes to customers’ mortgages by extending borrowers’ terms, leading to an increase in the number of monthly payments. A company spokesman said the mortgage modifications at issue “help customers stay in their homes when they encounter financial challenges” and were made with borrowers’ consent. (The New York Times)
  • Trading moves since Monday’s release of the Treasury Department’s report on financial regulations suggest that investors could be accounting for expected bank deregulation, according to one market indicator. (Financial Times)
  • Bank of America Corp. said it’s laying off employees in its technology and operations division as a cost-cutting measure. The company did not specify the number of layoffs expected. (Reuters)

Chart Review

Events Calendar (All Times Local)

Thursday
House Financial Services Committee marks up flood insurance bills 9 a.m.
Senate Banking Committee hearing on regional and large banks 10 a.m.
FSR event on financial regulation in the Trump administration 10 a.m.
Cato Institute event on financial crisis and GSEs 10 a.m.
National Journal webinar on what’s next for financial reform 11 a.m.
National Economists Club discussion with economist Anthony Elson 11 a.m.
FDIC teleconference on liquidity risk and funds management 2 p.m.
Friday
Harvard University event on state of nation’s housing 12 p.m.

 

General

Senate Panel Advances Nomination of Kevin Hassett as Economic Adviser
Josh Zumbrun, The Wall Street Journal

The Senate Banking Committee voted Wednesday to advance the nomination of Kevin Hassett, President Donald Trump’s pick to be chairman of the Council of Economic Advisers. Mr. Hassett’s final hurdle before taking office will be a vote of the full Senate.

GOP moderate urges bipartisan budget resolution, debt ceiling hike
Niv Elis, The Hill

Rep. Charlie Dent (R-Pa.) wants his party to team up with Democrats to pass a budget resolution and increase the debt limit before the summer recess. The GOP centrist asked Treasury Secretary Steven Mnuchin, who has urged a speedy, clean debt ceiling hike, to take the message back to the administration.

Why consumer groups are ready to fight Trump rollback of financial safeguards
Kevin McCoy and Roger Yu , USA Today

Now, new Trump administration plans to weaken that agency and change or eliminate many other financial-industry regulations and safeguards enacted after the financial crisis represent the opening shot in what consumer groups predict will be a long Washington siege. On Tuesday, the day after the Department of the Treasury issued the most detailed blueprint yet of proposed changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, banking and other financial groups celebrated Trump’s backing of changes they’ve sought for years.

Commodity Drop Saps Stocks; Dollar Gains After Fed: Markets Wrap
Garfield Clinton Reynolds and Samuel Potter, Bloomberg News

A broad decline in commodities dragged European equities lower, while U.S. stock futures also dropped on a report the probe into Russian meddling in the 2016 election may also examine President Donald Trump’s conduct. S&P 500 futures dropped 0.5 percent as of 10 a.m. in London.

Banking

Fed raises interest rates and sets plan to shrink $4.5 trillion balance sheet ‘this year’
Greg Robb, MarketWatch

The Federal Reserve lifted a key U.S. interest rate and laid out a plan to shrink its massive $4.5 trillion balance sheet starting “this year,” a pair of moves reflecting its view that an economic expansion now entering its ninth year no longer needs so much propping up. The Fed as expected on Wednesday raised its benchmark federal-funds rate by a quarter percentage point to between 1% and 1.25% — the third increase in a year and a half.

‘Notable’ swap spread moves point to bets on looser US bank regulation
Joe Rennison, Financial Times

Market measures of bank balance sheet constraints have moved markedly since the release of the Treasury’s report on financial regulation on Monday, suggesting some investors may be beginning to price in an easier regulatory environment for banks. Banks have complained in recent years of constraints stemming from burdensome capital rules that have inhibited their ability to hold assets on their balance sheets.

Bank of America to lay off more workers
Dan Freed, Reuters

Bank of America Corp has begun laying off employees in its operations and technology division, part of the second-largest U.S. bank’s plan to cut costs. On Wednesday the bank cut jobs across that division, many of which came from its Charlotte, N.C., headquarters, a spokesman said. He would not specify the number of jobs lost.

House Dems object to reported Fed vice chair pick
Ian McKendry, American Banker

Thirty-eight House Democrats sent a letter to President Trump on Wednesday voicing their concern that Wall Street insiders will be appointed to top spots at the Federal Reserve Board. Most important among the positions is the Federal Reserve vice chairman for supervision, a post created by the Dodd-Frank Act and nominally filled by former Fed Gov. Dan Tarullo, although he was never officially tapped for the job.

If Trump Unlocks $2 Trillion at Banks, Here’s Who May Get It
Dakin Campbell, Bloomberg News

If Donald Trump gets his way in overhauling banking regulation, it would free up some of the billions of dollars in capital that banks were forced to amass after the financial crisis. Less clear is what they’ll do with it. After the administration released a highly anticipated 150-page report this week, Wall Street analysts spent two days churning out notes digesting its proposals.

Two court decisions, one big blow for cities’ lawsuits against megabanks
Laura Alix, American Banker

Two recent court decisions may be complicating cities’ efforts to sue banks for predatory lending. While the courts have affirmed cities’ right to file such suits, they are also holding them to a higher standard in proving that banks knowingly steered minority borrowers into high-cost home loans.

Financial Products and Investments

Ex-Visium fund manager sentenced to 18 months after fraud conviction
Brendan Pierson, Reuters

A former portfolio manager at Visium Asset Management LP was sentenced to 18 months in prison on Wednesday following his conviction on securities fraud charges stemming from an investigation that led the New York-based hedge fund to close last year. Stefan Lumiere, 46, was sentenced by U.S. District Judge Jed Rakoff in Manhattan federal court, according to federal prosecutors.

Housing and GSEs

Wells Fargo Is Accused of Making Improper Changes to Mortgages
Gretchen Morgenson, The New York Times

Even as Wells Fargo was reeling from a major scandal in its consumer bank last year, officials in the company’s mortgage business were putting through unauthorized changes to home loans held by customers in bankruptcy, a new class action and other lawsuits contend. The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy.

Senate Banking Committee advances HUD Deputy Secretary nominee Pam Patenaude
Brena Swanson, HousingWire

Pam Patenaude is one step closer to being Housing and Urban Development Deputy Secretary, the right-hand position to HUD Secretary Ben Carson. The Senate Banking Committee advanced President Donald Trump’s nomination of Patenaude late Wednesday, passing it on to the full Senate for approval.

Economist: Fed rate increase doesn’t matter to housing market
Kelsey Ramírez, HousingWire

The Federal Reserve will determine if it will raise the federal funds rate in its June meeting, which will be announced Wednesday afternoon. The majority of experts believe this will be the second of three or even four rate hikes in 2017, although some experts disagree.

Taxes

Auto industry leaders raise concerns about border tax in White House meeting
Naomi Jagoda, The Hill

Representatives of the automobile industry raised concerns about House Republicans’ border-adjustment tax proposal during a meeting Wednesday with White House National Economic Council Director Gary Cohn. “America’s international nameplate dealers fully support federal tax reform but remain deeply opposed to the [border-adjustment tax] provision, which would drive up the cost of every vehicle on their lots by an average of $2,000 per vehicle,” said Cody Lusk, president of the American International Automobile Dealers Association.

Marco Rubio and Ivanka Trump Team Up on Tax Reform
Samuel Hammond, National Review

The White House has gained a surprising new ally on issues related to tax reform: Senator Marco Rubio. In an e-mail circulating through congressional offices, members of Congress have been invited to join Senator Rubio and First Daughter Ivanka Trump on Capitol Hill in the coming weeks for a discussion of “pro-family tax reform initiatives.”

Financial Technology

IBM is letting Watson loose on Wall Street regulations
Frank Chaparro, Business Insider

IBM is unleashing Watson, the tech company’s artificial intelligence platform, on financial regulations. On Wednesday, the New York-based technology firm rolled out a suite of software solutions that will help financial institutions manage their regulatory responsibilities.

AIG teams with IBM to use blockchain for ‘smart’ insurance policy
Suzanne Barlyn, Reuters

Insurer American International Group Inc has partnered with International Business Machines Corp to develop a “smart” insurance policy that uses blockchain to manage complex international coverage, the companies said on Wednesday. AIG and IBM completed a pilot of a so-called “smart contract” multi-national policy for Standard Chartered Bank PLC which the companies said is the first of its kind using blockchain’s digital ledger technology.

Why people are going crazy over bitcoin and other digital currencies
Jonnelle Marte, The Washington Post

Bitcoin and other virtual currencies are on a tear this year, surpassing the returns seen in stocks, bonds and most other investments. The price of bitcoin has tripled since the beginning of the year, surging above $3,000 for the first time Sunday before dropping by more than 10 percent the next day.

A Message from the Electronic Payments Coalition:

An overwhelming majority of consumers say big-box retailers are looking out for their own bottom lines, not main street interests as they may claim. The Durbin amendment has only benefited large retailers’ bottom lines, while harming consumers, small merchants, and community financial institutions. Isn’t it time we repeal this policy? Get the facts from the Electronic Payments Coalition.

Opinions, Editorials and Perspectives

Trump’s Plan for Financial Reform Is Half-Right
Editorial Board, Bloomberg View

The Trump administration’s latest plan to reform financial regulation starts in a very good place: It attacks the ridiculous complexity of the current system. But it fails to follow through with new rules that promote safety as well as simplicity. Put into practice, it could be a big step backwards. The Treasury Department’s new report is right to complain that the U.S. regulatory structure is far too unwieldy.

Regulatory ‘Reform’ That Is Anything But
William W. Buzbee, The New York Times

After decades of failed efforts to enact “regulatory reform” bills, Congress appears to be within a few votes of approving reform legislation that would strip Americans of important legal protections, induce regulatory sclerosis and subject agencies that enforce the nation’s laws and regulations to potentially endless litigation. This is not reform.

Tax Cuts That Last—With 51 Votes
Grover Norquist and David McIntosh, The Wall Street Journal

Americans know what kind of tax reform they want: a bill that cuts rates across the board, kills the death tax and the alternative minimum tax, expands the personal and family exemptions, and eliminates politically directed loopholes. If lawmakers passed such a plan, it would supercharge the economy and create millions of jobs.

Donald Trump’s NAFTA Trade Imbalance Delusion
Robert Samuelson, RealClearMarkets

The Trump administration is determined to renegotiate the North American Free Trade Agreement (NAFTA) — which created a single market from Mexico’s southern border to the Yukon — but the main political appeal of this policy rests on a popular myth: that “fair” trade requires the United States to have a surplus or balanced trade with both Mexico and Canada. We are supposed to feel especially aggrieved that Mexico regularly has a sizable surplus with us, $63.2 billion in goods in 2016, according to Commerce Department figures.

A Message from the Electronic Payments Coalition:

Voters agree: if merchants aren’t passing along savings, the Durbin amendment should be repealed. Evidence shows big-box stores have pocketed $42 BILLION at their customers’ expense-Congress must take action to end this failed policy. Learn more from EPC.

Research Reports

Opportunities for Improvement in FHFA’s Evaluation of Internal Control over Financial Reporting
Government Accountability Office

During its audit of the Federal Housing Finance Agency’s (FHFA) fiscal years 2016 and 2015 financial statements, GAO identified deficiencies in FHFA’s evaluation of internal control over financial reporting. This includes the FHFA Office of the Inspector General’s (FHFA-OIG) evaluation of its own internal control over financial reporting as FHFA-OIG’s reported amounts constitute a material portion of the consolidated FHFA financial statements.

Briefings

Finance Brief: Week in Review & What’s Ahead

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. While the report does not call for a full repeal of Volcker Rule limits on proprietary trading, it recommended exempting small institutions from the Dodd-Frank regulation.

Finance Brief: CFPB Proposes Changes to Prepaid Card Rule

The Consumer Financial Protection Bureau announced plans to make changes to its prepaid card rule, with public comments on the proposals due within 45 days. The CFPB’s proposals would adjust the rule to require consumers register any prepaid cards before filing a complaint, and would allow providers to send disclosure forms to consumers digitally in some cases.

Finance Brief: Warren Says Democrats Open to Loosening Regulations for Community Banks, Credit Unions

Sen. Elizabeth Warren (D-Mass.) said Senate Democrats are open to working with Republicans on “targeted” measures that would ease regulations affecting community banks and credit unions. Warren, who has shown little willingness to work with the GOP on loosening financial regulations, said she remains opposed to proposals that would limit consumer protections or weaken regulations for big banks.

Finance Brief: Treasury Department Recommends Changes to CFPB, Volcker Rule

The Treasury Department recommended a significant curbing of authority at the Consumer Financial Protection Bureau, along with allowing the agency’s director to be fired at will, in a report required by an executive order President Donald Trump signed in February. The report does not call for a complete repeal of Volcker Rule limits on proprietary trading but instead proposes exempting small institutions from the Dodd-Frank regulation.

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