Finance Brief: Trump to Nominate Quarles as Fed’s Bank Supervisor

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Washington Brief

  • The White House said President Donald Trump intends to nominate former Treasury Department official and private equity investor Randal Quarles as the Federal Reserve’s bank supervisor. If confirmed by the Senate, Quarles would fill one of three vacant seats on the Fed’s board as vice chairman for supervision. (CNBC)
  • The House Freedom Caucus is supporting three options to tackle the debt ceiling before lawmakers adjourn for their August recess. Members of the conservative group said they would be open to plans that require the Treasury secretary to issue GDP-linked bonds to pay U.S. debt if the ceiling is breached; increase mandatory spending cuts if raising the debt ceiling is linked to the budget resolution; or tie the debt ceiling measure to efforts to repeal Obamacare. (The Hill)
  • The United States will use its leverage to gain the upper hand in post-Brexit trade talks with the U.K., according to business leaders and analysts. Trade discussions are set to begin July 24 and will likely focus on issues such as finance, trade regulation and agriculture. (Bloomberg)

Business Brief

  • A bipartisan group of 11 lawmakers called on the Securities and Exchange Commission to block the sale of the Chicago Stock Exchange to a group led by China-based investors. The SEC has until Aug. 9 to approve or reject the deal, which is aimed at transforming the small exchange into a listing destination for Chinese companies. (Reuters)
  • The Consumer Financial Protection Bureau adopted a rule that would ban bank and credit card companies from the common practice of forced arbitration and instead allow consumers to band together to file class-action lawsuits against financial firms. The regulation promises to invite pushback from the Trump administration and House Republicans who are attempting to loosen regulations for the financial industry. (New York Times)
  • MFS Investment Management was sued for allegedly “loading” retirement plans with high-cost, in-house funds that participants say cost them millions of dollars in savings. The lawsuit filed in a Massachusetts district court says MFS used two 401(k) plans, valued at about $700 million, to “to promote MFS’s mutual fund business and maximize profits at the expense of the plans and their participants.” (InvestmentNews)

Chart Review

Events Calendar (All Times Local)

Tuesday
Fed’s Brainard speaks at New York Fed conference 12 p.m.
Ken Rogoff speaks at National Economists Club 5:30 p.m.
Wednesday
FDIC discussion of current issues affecting community banking 9 a.m.
U.S.-China Economic and Security Review Commission hearing 9:30 a.m.
Fed’s Yellen testifies before House Financial Services Committee 10 a.m.
Heritage Foundation discussion on U.S. debt 12 p.m.
SEC’s Clayton speaks at Economic Club of New York 12 p.m.
House Financial Services subcommittee hearing on reg relief for community financial institutions 2 p.m.
Thursday
House Ways and Means Committee hearing on tax reform 10 a.m.
Fed’s Yellen testifies before Senate Banking Committee 10 a.m.
House Financial Services subcommittee hearing on the fiduciary rule 10 a.m.
Crowe Horwath webinar on Trump tax reform plan 12 p.m.
Friday
House Financial Services subcommittee hearing on fixed income market structure 9:15 a.m.

 

General

Lawmakers urge SEC to stop Chicago Stock Exchange’s China deal
John McCrank, Reuters

Eleven members of Congress asked the U.S. Securities and Exchange Commission on Monday to stop the sale of the Chicago Stock Exchange to a group led by China-based investors, saying the regulator lacks the ability to monitor the foreign buyers. The proposal to sell privately owned CHX for an undisclosed amount to a consortium led by Chongqing Casin Enterprise Group has drawn attention because it would be the first time a U.S. exchange has been bought by Chinese investors.

Freedom Caucus backs three debt ceiling options
Niv Elis, The Hill

The House Freedom Caucus is pushing for Republicans to adopt one of three possible approaches to the debt ceiling, calling for it to be addressed before Congress adjourns for the August recess. Treasury Secretary Steven Mnuchin has urged Congress to increase the debt ceiling before the August recess, but the Congressional Budget Office has estimated that the country will not run out of borrowing options until mid-October.

Business Casts Doubt on U.K.-U.S. Post-Brexit Trade Deal
Jill Ward and Charlotte Ryan, Bloomberg

The transatlantic trade deal U.S. President Donald Trump is offering U.K. Prime Minister Theresa May will ultimately prove easy to promise and hard to deliver. That’s the warning of business leaders and trade analysts after Trump told May last week that the post-Brexit accord she hankers after can be lined up “very, very quickly.”

Stocks Follow Crude Prices Lower; Bonds in Retreat: Markets Wrap
Cecile Gutscher and Blaise Robinson, Bloomberg

S&P 500 futures traded little changed. WTI failed to break through $45 a barrel as Goldman Sachs Group Inc. warned measures by the Organization of Petroleum Exporting Countries to clear a surplus won’t go far enough without sustained inventory declines and a drop in the rig count.

Banking

Trump to nominate Randal Quarles to Fed board
Christine Wang, CNBC

President Donald Trump will nominate Randal Quarles to the Federal Reserve board, the White House said Monday. For months, Quarles had been floated as a potential nominee to fill one of the vacancies at the central bank.

Wells Fargo $142 million fake account settlement nears final approval
Ben Lane, HousingWire

Wells Fargo customers who were affected by the bank’s fake account scandal are one step closer to receiving their share a proposed $142 million settlement, after the judge overseeing the class action lawsuit granted preliminary approval to the settlement. Back in September, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the city and county of Los Angeles fined the bank $150 million for more than 5,000 of the bank’s former employees opening as many as 2 million fake accounts in order to get sales bonuses.

Pot banking conundrum stymies California policymakers
Kevin Wack, American Banker

From auto emission standards to rules governing the size of chicken cages, policies established in the nation’s largest state often have reverberations well beyond its borders. So after Californians voted in November to legalize the recreational use of marijuana, State Treasurer John Chiang set out to tackle the U.S. pot industry’s persistent lack of access to the banking system.

Financial Products and Investments

U.S. Agency Moves to Allow Class-Action Lawsuits Against Financial Firms

The nation’s consumer watchdog is adopting a rule on Monday that would pry open the courtroom doors for millions of Americans, restoring their right to bring class-action lawsuits against financial firms. Under the Consumer Financial Protection Bureau rule, banks and credit card companies could no longer force customers into arbitration and block them from banding together to file a class-action suit.

Fund manager MFS sued for self-dealing in its 401(k) plans
Greg Iacurci, InvestmentNews

MFS Investment Management has been sued for self-dealing in its company 401(k) plans, becoming the latest fund firm to be targeted for stocking its retirement plan primarily with proprietary investments. The plaintiff in the lawsuit, Velazquez v. Massachusetts Financial Services Co. et al, claims the company “loaded” two MFS 401(k) plans, worth around $700 million total, with high-cost in-house funds that cost participants millions in lost savings.

Average FICO score hits an all-time high
Jessica Dickler, CNBC

When it comes to credit, Americans are faring better than ever. For the first time, the average national credit score has reached 700, according to FICO, developer of one of the most commonly used scores by lenders.

Housing and GSEs

HUD tenants rally against proposed budget cuts
Kelsey Ramírez, HousingWire

On Friday, tenants, homeowners and activists came together in more than 15 cities across the U.S. to band against the proposed budget cuts to the U.S. Department of Housing and Urban Development. Some protesters gathered at rallies at local HUD offices as others delivered letters and petitions to their members of Congress, demanding they vote against President Donald Trump’s proposed cuts.

Taxes

Tax reform push heats up this week, Sen. Hatch lays groundwork
Adam Shapiro, Fox Business

Sen. Orrin Hatch (R-Utah) will hit the ground running this week as he lays the groundwork for broad tax reform FOX Business has learned, and he is expected to use the sky-high corporate tax rate to make his case. At 35%, the U.S. corporate tax rate is the highest among developed nations which critics argue is hurting America’s global competitiveness.

Financial Technology

Chief of Bitcoin exchange Mt. Gox denies embezzlement as trial opens
Thomas Wilson, Reuters

The 32-year-old chief executive of defunct Mt. Gox pleaded not guilty on Tuesday to charges relating to the loss of hundreds of millions of dollars worth of bitcoins and cash from what was once the world’s biggest bitcoin exchange. French national Mark Karpeles filed the plea in response to charges of embezzlement and data manipulation at the Tokyo District Court, according to a pool report for foreign journalists.

Why Your Phone Will Be the Key to ATMs of the Future
Telis Demos, The Wall Street Journal

In 2015, Citigroup Inc. began testing an ATM that would scan a customer’s iris and make four-digit access codes obsolete. Two years on, Citi has quietly shelved the project.

Opinions, Editorials and Perspectives

A Pathway for Pro-Growth, Fiscally Responsible Tax Reform
Adam Michel and Chase Flowers, The Daily Signal

The tax code is in dire need of reform, but updating it is only one of the many items on Congress’ agenda for the remainder of the year. Many fear that tax reform may lose out to other priorities.

Tax Reform and the State and Local Tax Deduction Quandary
Ryan Ellis, Forbes

Back in June, 70 blue state Congressmen–including 20 Republicans–sent a letter to Treasury Secretary Steven Mnuchin urging that the itemized deduction for state and local taxes be retained in tax reform. The important figure there is the 20 Republicans on the letter, nearly enough by themselves to scuttle a tax reform package.

Passive Investing Might Not Be Great for Growth
Noah Smith, Bloomberg

In the U.S., passive investing — buying exchange-traded funds and index funds that include many or all of the stocks in an index — is rapidly becoming more common.

Research Reports

Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency
Matthijs Breugem and Adrian Buss, The National Bureau of Economic Research

We jointly model the information choice and portfolio allocation problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking increases an investor’s effective risk-aversion, which reduces his willingness to speculate and, consequently, his desire to acquire information.

Briefings

Finance Brief: Fed Nominee Quarles to Tell Senators That Banking Rules Need ‘Refinements’

Randal Quarles, President Donald Trump’s nominee to serve as the Federal Reserve’s vice chairman of supervision, is expected to tell the Senate Banking Committee today that “some refinements” are needed to post-crisis financial regulations. Quarles will testify at the confirmation hearing alongside Joseph Otting, Trump’s pick to lead the Office of the Comptroller of the Currency.

Finance Brief: Trump to Nominate Peirce for SEC Seat

The White House said President Donald Trump plans to nominate Hester Maria Peirce, a former Senate aide who’s now director of the Financial Markets Working Group at George Mason University’s Mercatus Center, as a member of the Securities and Exchange Commission. Former President Barack Obama nominated Peirce, but she was not confirmed by the Senate.

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