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Finance Brief: Trump Administration to Recommend Limiting CFPB’s Powers

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Washington Brief

  • The Trump administration is expected to call for limiting the authority of the Consumer Financial Protection Bureau, specifically its ability to examine financial firms. The recommendation will come as early as today in a Treasury Department report drafted in response to President Donald Trump’s executive order in February. (The Wall Street Journal)
  • House Freedom Caucus Chairman Mark Meadows (R-N.C.) called on congressional leaders to introduce their tax-reform legislation before the end of July. The conservative bloc has enough members to influence vote outcomes in the House. (Reuters)
  • The United States has “backup plans” in place if Congress doesn’t vote to raise the debt ceiling before the August congressional recess, according to Treasury Secretary Steven Mnuchin. The administration has been calling for lawmakers on Capitol Hill to increase the federal debt limit before the multi-week break that’s scheduled to start in early August. (Bloomberg News)

Business Brief

  • Companies that settle with the federal government for alleged wrongdoing will no longer have those settlement funds managed by outside groups that use them for projects to address corporate misdeeds, according to a memo from Attorney General Jeff Sessions. Instead, those funds will go directly to the U.S. Treasury or to victims of the company’s actions. (The New York Times)
  • Members of the House Freedom Caucus called for removing the border adjustment provision from the House GOP’s tax plan. The provision, which would tax imports while excluding exports, is a key revenue-raising component of the House GOP leadership’s proposal for rewriting the U.S. tax code. (The Hill)
  • Cyber crime, such as stealing assets and making illegal trades, is the biggest threat to U.S. markets, according to the two new heads of enforcement at the Securities and Exchange Commission. The agency has seen an increase in investigations involving hackers, accompanied by a rise in the number of brokerage account intrusions. (Reuters)

Chart Review

Events Calendar (All Times Local)

Monday
Century Foundation event on wages with Rep. Kaptur, Sen. Casey 12 p.m.
House Appropriations subcommittee hearing with Treasury’s Mnuchin 4 p.m.
Tuesday
SEC online seminar for Investment Company and investment adviser senior officers 9 a.m.
Peterson Institute event on NAFTA renegotiation 10 a.m.
Senate Banking Committee to vote on CEA, HUD nominees 10 a.m.
Wednesday
House Appropriations subcommittee hearing with Treasury’s Mnuchin 10 a.m.
House Financial Services Committee marks up flood insurance bills 10 a.m.
CompTIA webinar on blockchain 1 p.m.
Thursday
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 Economists Club discussion with economist Anthony Elson 11 a.m.
National Journal webinar on what’s next for financial reform 11 a.m.
FDIC teleconference on liquidity risk and funds management 2 p.m.
Friday
Harvard event on state of nation’s housing 12 p.m.

 

General

Trump Administration to Call for Curbs on Consumer-Finance Regulator
Ryan Tracy, The Wall Street Journal

The Trump administration will recommend limits on the U.S. consumer-finance regulator and a reassessment of a broad range of banking rules in a report to be released as early as Monday, according to people familiar with the matter. The report from the Treasury Department, drafted in response to a February executive order from President Donald Trump, is less sweeping than financial legislation approved by the House of Representatives last week, these people said.

Mnuchin Says U.S. Can Cope If Debt Ceiling Not Raised by August
Saleha Mohsin and Andrew Mayeda, Bloomberg News

The U.S. government has “backup plans” for funding itself if Congress doesn’t raise the debt limit before lawmakers leave for their August recess as hoped, Treasury Secretary Steven Mnuchin said. “I don’t want to leave any doubt, we have plans, backup plans for funding the government,” Mnuchin told reporters Friday at a press conference in Ottawa with Canadian Finance Minister Bill Morneau.

Settlements for Company Sins Can No Longer Aid Other Projects, Sessions Says
Tatiana Schlossberg and Hiroko Tabuchi, The New York Times

Attorney General Jeff Sessions, in a memo issued this week, directed the Justice Department to no longer include funding for projects managed by outside groups in settlements with corporate wrongdoers. The settlement money will instead go exclusively to the federal Treasury or to victims of the company’s actions, Mr. Sessions said.

Tech Selloff Spreads; Pound Slides as May Battles: Markets Wrap
Samuel Potter, Bloomberg News

S&P 500 Index futures retreated 0.3 percent. The benchmark gauge fell 0.1 percent on Friday, while the tech-heavy Nasdaq Composite Index dropped 1.8 percent.

Banking

The big banks may get to keep their risky investments after all
Renae Merle, The Washington Post

Goldman Sachs faced a looming deadline in July. Under new federal rules, the storied Wall Street bank was required to rid itself of about $6 billion in risky investments, such as stakes in hedge funds, that regulators fear could hamper it during an economic downturn.

House Financial Services chairman won’t support Glass-Steagall revival
Sylvan Lane, The Hill

The chairman of the House Financial Services Committee said Thursday he’s not interested in passing a modern version of a Depression-era banking law the Trump administration has talked of reviving. The Trump administration has called for a “21st-century” version of the Glass-Steagall Act, a 1930s law creating a legal firewall between investment and consumer banking.

Despite rhetoric, Dems and GOP want same things from reg reform
John Heltman, American Banker

As the Republicans’ signature Dodd-Frank reform bill approached a final vote in the House Thursday afternoon, the two parties were both assailing each other as proxies for Wall Street and painting themselves as defenders of community banking and the consumer.The truth is a little more nuanced: In some ways both parties are right, and both are wrong.

$2.5 billion merger between Jacksonville’s EverBank and TIAA completed Friday
Drew Dixon, The Florida Times-Union

It’s a done deal between EverBank Financial Corp. and TIAA. The two financial institutions completed their $2.5 billion merger Friday. Documents were filed with the Securities and Exchange Commission Friday morning giving official notice of the merger that now puts TIAA in control of all assets that were owned by the Jacksonville-based EverBank.

Financial Products and Investments

New SEC enforcement chiefs see cyber crime as biggest market threat
Sarah N. Lynch, Reuters

Hackers are increasingly breaking into brokerage accounts to steal assets or make illegal trades, prompting U.S. securities regulators to start tracking cyber crimes more closely, two newly appointed enforcement officials said in an interview on Thursday. On Thursday, the U.S. Securities and Exchange Commission named Stephanie Avakian and Steven Peikin as new co-directors of enforcement.

Despite Hopes, ‘Flash Boys’ Heroes Are Far From Reshaping U.S. Stock Market
Alexander Osipovich, The Wall Street Journal

Made famous by Michael Lewis’s 2014 book “Flash Boys,” IEX hasn’t made a dent in the businesses of the New York Stock Exchange, Nasdaq Inc. and Bats, each of which handles roughly one-fifth of U.S. equities volume. In May, it had a market share of 2.2%.

Illinois Bonds Fall as Budget Impasse Pushes Rating Toward Junk
William Selway, Bloomberg News

Illinois bond prices have dropped as Governor Bruce Rauner and lawmakers remain locked in two-year stalemate over the government’s budget, increasing the chance that it may become the first U.S. state ever cut to junk. Illinois’s 10-year bond yields, which move in the opposite direction as price, have soared to about 5.2 percent, or 3.36 percentage points more than top-rated municipal debt, according to Bloomberg’s indexes.

Housing and GSEs

U.S. joins whistleblower lawsuit that accuses Los Angeles of misusing HUD money
Ben Lane, HousingWire

The federal government is joining a lawsuit that accuses the city of Los Angeles of misusing hundreds of millions of dollars from the Department of Housing and Urban Development that were earmarked for providing accessible housing for people with disabilities, the Department of Justice announced this week. The lawsuit, which stems from a whistleblower complaint, alleges that the city of Los Angeles and the CRA/LA (formerly the Community Redevelopment Agency of the City of Los Angeles) falsely certified that they were in compliance with federal accessibility laws in connection with housing grants from HUD.

Does Anyone Remember How to Make a Subprime Mortgage?
Kirsten Grind, The Wall Street Journal

Brokers willing to learn the lost art of making risky mortgages are in demand again. Brandon Boyd was a high school junior during the financial crisis. Now, the former Calvin Klein salesman is teaching mortgage brokers how to make subprime loans.

Taxes

House Freedom Caucus chief calls for U.S. tax reform plan by end-July
David Morgan, Reuters

Members of the House Freedom Caucus called on congressional leaders Friday to introduce a formal tax reform proposal by the end of July, and suggested they could support a 2018 budget deal in exchange for adding welfare reform to any tax overhaul. The conservative bloc, which has enough members to stymie legislation in the Republican-controlled House of Representatives, will play a key role in efforts to agree on a 2018 fiscal plan that could determine whether President Donald Trump and Congress can deliver the biggest tax reform since the Reagan era.

Conservatives push to drop border tax from tax reform
Naomi Jagoda, The Hill

Conservatives are ramping up the pressure on House GOP leaders to abandon the border-adjustment tax proposal and move on with tax reform. The proposal to tax imports and exempt exports was a key plank of the tax blueprint Speaker Paul Ryan (R-Wis.) released last year but has been on life support for some time after dividing lawmakers and business interests.

Financial Technology

US State Department Forms New Blockchain Working Group
Chuan Tian, CoinDesk

The US State Department is looking to boost its research resources in support of a new working group focused on blockchain. According to a post on its website, the department, which serves as the US government’s chief diplomacy arm, wants to bring in an intern to support research efforts for its “[email protected]” working group.

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

It’s Little Wonder ESOP Employees Worry Less
Michael Wofford, Morning Consult

Despite a growing economy, millions of American continue to experience ongoing anxiety about their current and future economic well-being. Yet a new study indicates there is one group of workers who are feeling more financially secure and optimistic about their future than average workers: employees who work in private, employee-owned businesses.

Tax reform needs to be about more than a tax cut
William Simon, CNBC

The American economy is a lot like a puzzle. Government creates the pieces through regulations and the tax code, and business leaders move the pieces around to maximize returns for our shareholders. Too often the solution to that puzzle hurt the workers we need to protect.

How Badly Must a C.E.O. Behave Before His Pay Is Clawed Back?
Gretchen Morgenson, The New York Times

Companies often boast to shareholders about their robust pay-recovery policies. But saying and doing are two different things; boards typically have great leeway in determining when a clawback occurs.

Congress Offers Banks an Ill-Conceived Bargain
Editorial Board, Bloomberg View

Congressional Republicans’ latest effort to simplify financial regulation is a helpful reminder: Never underestimate politicians’ ability to turn a good idea into bad legislation. This week, the House of Representatives passed the Financial Choice Act, a bill founded on the laudable notion that regulation could be a lot less burdensome if banks were stronger.

New GSE proposal seeks to fill capital void
William M. Isaac, American Banker

One of the chief considerations in reforming the government-sponsored enterprises Fannie Mae and Freddie Mac is the need for capital. As long as the GSEs exist, they must have adequate capital so taxpayers will never again be compelled to help them meet their financial obligations.

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

Another week of weakening labor laws and making us more susceptible to a financial crisis
Heidi Shierholz and Celine McNicholas, Economic Policy Institute

In the midst of a chaotic week, Congress and the Trump administration found time to quietly attack important worker protections and undermine the rules and regulations that make our economy fairer for working people and their families.