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Finance Brief: Trump Calls on Democrats to Join Him on Tax Reform


Government Brief

  • After striking a deal with Democratic leaders on extending the debt ceiling, President Donald Trump encouraged Democrats to join his quest for a “once-in-a-generation opportunity” to rewrite the tax code. In a speech Wednesday in North Dakota, where Trump was joined onstage by Democratic Sen. Heidi Heitkamp, the president backed a bigger standard deduction, a larger child tax credit and repeal of the estate tax. (The Wall Street Journal)
  • Trump is now unlikely to nominate National Economic Council Director Gary Cohn as the next Federal Reserve chair when Janet Yellen’s term ends in February, according to people familiar with the president’s thinking. Although Trump has said he saw Cohn as a potential successor to Yellen, Cohn’s criticism of the president’s response to the violence in Charlottesville, Va., has caused Trump to consider the possibility of other candidates or Yellen’s nomination for a second term. (The Wall Street Journal)
  • Puerto Rico’s diminished financial state has left the commonwealth’s public power works vulnerable as Hurricane Irma, one of the strongest storms recorded in the Atlantic, reaches the island. (The New York Times)

Business Brief

  • Payment processor Square is filing for an industrial loan company, which allows nontraditional financial institutions to access the Federal Reserve payments system and take deposits with a lesser degree of regulation than a traditional bank charter. The move follows a June industrial loan company application from online lender SoFi, which drew criticism from community bankers who say technology companies seeking the advantages of a bank charter should face the same level of supervision. (American Banker)
  • Thema International Fund Plc, an Irish investment fund that helped provide European cash for Bernard Madoff’s Ponzi scheme in the early 1990s, agreed to pay $687 million to victims of the fraud. The agreement will set total recoveries for victims at about $12.7 billion. (Bloomberg)
  • Under a measure backed by California lawmakers, Wells Fargo could be required to go to court with consumers who say they were harmed by the bank’s fake accounts scandal. The state’s Legislature sent a bill to Gov. Jerry Brown that would prohibit the San Francisco-based bank from relying on contractual arbitration clauses in disputes over accounts that were opened fraudulently. (The Associated Press)

Chart Review

Events Calendar (All Times Local)

Thursday
Urban Institute event on tax policy and immigrant experience 9 a.m.
FDIC fall research conference 9 a.m.
Senate Banking Committee markup of FSOC insurance bill, Quarles & Otting nominations 9:30 a.m.
Senate Banking Committee hearing on North Korea sanctions 9:30 a.m.
House Financial Services subcommittee hearing on financial regulation legislation 10 a.m.
National Economists Club luncheon on economic academia 12 p.m.
House Financial Services subcommittee hearing on FINRA oversight 2 p.m.FDIC fall research conference
Friday
FDIC fall research conference 8 a.m.

General

Puerto Rico’s Finances Add to Vulnerability in Hurricane
Mary Williams Walsh, The New York Times

Puerto Ricans have ample experience with hurricanes, but the storm approaching on Wednesday brought an added level of anxiety. The island’s dire financial straits have left essential public works, from power plants to retaining walls, weakened by years of scrimping on maintenance.

President Trump Unlikely to Nominate Gary Cohn to Become Fed Chairman
Michael C. Bender et al., The Wall Street Journal

President Donald Trump is unlikely to nominate Gary Cohn, his top economic adviser, as the next Federal Reserve chairman, according to people familiar with the president’s thinking, adding to the uncertainty over the U.S. central bank’s leadership and policies next year. Mr. Trump told The Wall Street Journal in July that he was considering Mr. Cohn as a potential successor to Fed Chairwoman Janet Yellen, whose term as central bank chief expires in early February.

U.S. Trade Gap Widens with China, Mexico
Eric Morath, The Wall Street Journal

The trade deficit with the largest U.S. trading partners, including China, widened this year, further evidence the Trump administration could use to advance its trade agenda. The trade balance in goods with China, Mexico and Canada—which collectively account for about 45% of total U.S. goods imports and exports—have all expanded through the first seven months of 2017, compared with the prior year, the Commerce Department said Wednesday.

Here’s How Trump Can Reshape the Fed
Craig Torres, Bloomberg

Stanley Fischer’s surprise early exit from the Federal Reserve makes President Donald Trump’s biggest economic decision of the next few months even starker: whether to preserve continuity at the top of the nation’s central bank — or not. Chair Janet Yellen’s term expires in February, and her reappointment hasn’t been seen as likely.

Rostin Behnam sworn in as a Commissioner of the CFTC
Valentina Kirilova, LeapRate

Rostin Behnam was officially sworn in to serve as a Commissioner of the U.S. Commodity Futures Trading Commission (CFTC), the federal agency that oversees the commodity futures, options and swaps industry. He was unanimously confirmed by the U.S. Senate on August 3. His term expires in June 2021.

Dollar Extends Decline; Stocks Swing Before ECB: Markets Wrap
Robert Brand, Bloomberg

The dollar weakened against most G-10 peers as tensions over North Korea and the increasingly cloudy Fed outlook outweighed positive sentiment from the U.S. debt ceiling extension. Futures on the S&P 500 Index dipped 0.1 percent.

Banking

Measure would force Wells Fargo to court over fake accounts
Jonathan J. Cooper, Associated Press

The California Legislature backed a measure Wednesday that could require Wells Fargo to go to court with consumers who say they were harmed by the bank’s fake account scandal. The legislation would prohibit the San Francisco-based bank in some cases from relying on contract provisions that require customers to settle disputes through arbitration rather than the courts.

Fed dodges key decision on faster payments
Kevin Wack, American Banker

Amid the push to build a faster, more secure U.S. payment system, the Federal Reserve is sidestepping a key decision that divides the nation’s big banks from their smaller peers. The issue is whether the Fed should have a substantial operational role in a modernized system, or should instead defer largely to the private sector.

Deutsche boss Cryan warns of ‘big number’ of job losses from tech change
Laura Noonan, Financial Times

Deutsche Bank chief executive John Cryan has warned that a “big number” of people working for Deutsche Bank will ultimately lose their jobs as the bank embraces its “revolutionary spirit” and ends the era of accountants acting like “abacuses”. The bank boss, who is mid-way through a five-year restructuring plan, made the comments at a conference in Frankfurt.

Financial Products and Investments

Madoff Investors Recover 72% of Losses With New Trustee Deal
Erik Larson, Bloomberg

The Irish investment fund that helped open a floodgate of European cash for Bernard Madoff’s bogus securities firm in the early 1990s agreed to pay $687 million to victims of the fraud to resolve a trustee’s lawsuit — the biggest settlement in the case in six years. The deal was struck with Dublin-based Thema International Fund Plc, part of a web of offshore entities linked to Austrian banker Sonja Kohn, an old friend of Madoff’s, and the Benbassat family of Swiss investment professionals.

Battle lines form as SEC considers new fiduciary rule
Mark Schoeff Jr., Investment News

The Securities and Exchange Commission should not blend investment-advice standards that apply to investment advisers and brokers, as the agency considers a new advice rule, the Investment Adviser Association said in a recent comment letter. The letter is one of dozens the SEC has received since putting out a June 1 request for comment on fiduciary duty.

Investor Who Lost Millions Finally Gives Up on His China Bet
Saijel Kishan, Bloomberg

Mark Hart spent seven years and $240 million waiting on a crash in China’s currency. He lost sleep. He lost clients. He damn near lost his sanity.

Craig Carton, Sports Radio Host, Is Accused of Ponzi Scheme
Benjamin Weiser, The New York Times

Craig Carton, a co-host of a New York morning sports-radio program “Boomer & Carton,” was arrested on Wednesday morning by the F.B.I. on charges that he helped orchestrate a fraudulent multi-million-dollar ticket-reselling scheme. Federal prosecutors in Manhattan accused Mr. Carton and another defendant of running a kind of Ponzi scheme in which they solicited investments from victims, including a Manhattan hedge fund, that the two men said they would use to buy and sell concert tickets.

Housing and GSEs

More People Paying Mortgages on Time
Robyn A. Friedman, The Wall Street Journal

Fewer borrowers are late making their house payments, according to a real-estate data firm, which credits strong employment numbers and tougher lending standards for the decline in delinquencies. Nationally, 3.2% of jumbo mortgages were 30 days or more past due in May, a 1.1 percentage-point decline from May 2016, Calif.-based data firm CoreLogic found.

Caliber Home Loans fires mortgage exec after Fed banned banker from industry
Ben Lane, HousingWire

On Tuesday, the Federal Reserve Board banned Daniel Brennan, a former executive at Regions Bank, from the banking industry for allegedly paying one Regions’ loan processors to approve mortgages that did not meet Regions’ lending standards. The ban was the result of Brennan’s alleged conduct while he was employed by Regions as a mortgage production manager and vice president of the bank between June 30, 2009 and June 1, 2016.

Taxes

Donald Trump Urges Democrats to Join Him on Tax Overhaul
Louise Radnofsky et al., The Wall Street Journal

President Donald Trump called on Democrats to support him in overhauling the tax code on Wednesday, fresh off a debt-ceiling and spending deal with the party leaders that amounted to an end-run around top Republicans lawmakers. Speaking in North Dakota, Mr. Trump was joined onstage by Sen. Heidi Heitkamp, a rare Democratic senator who has signaled she could back his still-forming tax proposal.

Trump’s deal with Democrats another hurdle for tax reform
Brian Faler, Politico

President Donald Trump’s stopgap budget deal with Democrats is bad news for Republicans hoping to rewrite the tax code. They had been planning to spend December focusing on putting the finishing touches on major tax legislation, their top priority ahead of next year’s elections.

Financial Technology

Square to apply for industrial bank, inflaming ILC debate
Lalita Clozel, American Banker

Payment processor Square is seeking an industrial loan company, according to several sources familiar with the matter, further sparking debate over whether fintech companies should be allowed to use the controversial charter. The company’s application, which is expected to be filed with regulators on Thursday, comes after online lender SoFi applied in June for an ILC, a type of charter that allows companies to own a bank without having to comply with Bank Holding Company Act requirements and face supervision by the Federal Reserve Board.

Citizens looks to gain on superregionals with robo adviser launch
Kristin Broughton, American Banker

Nearly a year after announcing plans to offer a robo adviser, Citizens Financial said Wednesday that it has launched the product on a large scale. The service, known as SpeciFi, marks the first move toward serving its so-called mass affluent customers, who are broadly considered well-off but not quite highly affluent.

A Message from the Electronic Payments Coalition:

A majority of voters are concerned with data breaches, yet there are no national data security standards to protect consumers at checkout. It’s time retailers share responsibility for data security. Learn more from the Electronic Payments Coalition.

Opinions, Editorials and Perspectives

Central banks are waking up to the threat of cryptocurrencies
Huw van Steenis, Financial Times

Few issues in central banking are more likely to provoke anxiety than the fear of losing control of one’s currency. The past few days have provided another perfect illustration of this point.

Go Ahead, Try to Stop Initial Coin Offerings
Elaine Ou, Bloomberg

China’s ban on initial coin offerings has provided a much-needed pause in the booming market, where people ranging from legitimate entrepreneurs to outright thieves attract money by selling digital tokens. But the move also raises a question: How can any government control a phenomenon that transcends national borders and rules?

Congress Can Rescind the CFPB’s Gift to Trial Lawyers
Ted Frank, The Wall Street Journal

Do Americans need more lawsuits? They’ll get them if the Consumer Financial Protection Bureau has its way.

Why Corporate Tax Reform Is a Bipartisan Cause
Laura Tyson, The Wall Street Journal

Corporate tax reform is one of the few issues that attract bipartisan support in Washington. Lawmakers from both sides agree that the current system is deeply flawed. Because the U.S. hasn’t updated its tax code in 31 years, Congress has a once-in-a-generation opportunity to level the playing field for American businesses and workers.

Women Entrepreneurs Stand to Prosper with a Fairer Tax Code
Caroline Bruckner, Morning Consult

More than a third of American companies are missing out on billions in tax incentives designed to spark small business investment and growth. Unfortunately for the nation’s economy, these business owners may not realize what they’re missing out on, and neither does Congress.

Low-tax Texas should pay its fair share of Harvey costs
Peter A. Barnes and H. David Rosenbloom, The Washington Post

As the floodwaters from Hurricane Harvey recede, the humanitarian need for federal aid to help Texas and its residents is starkly evident. Lots of aid. Right now, or as soon as Congress can approve an appropriation.

A Message from the Electronic Payments Coalition:

Four times as many voters trust financial institutions over retailers to create new, more secure ways to pay, which is just one reason why the payments industry is focused on innovation. Banks and credit unions are continuously working to provide consumers with the latest security features when they pay. Get the latest from EPC.

Research Reports

Bail-ins and Bail-outs: Incentives, Connectivity, and Systemic Stability
Benjamin Bernard et al., The National Bureau of Economic Research

This paper develops a framework to analyze the consequences of alternative designs for interbank networks, in which a failure of one bank may lead to others. Earlier work had suggested that, provided shocks were not too large (or too correlated), denser networks were preferred to more sparsely connected networks because they were better able to absorb shocks