Finance Brief: Trump Wants IRS Budget Reduced by $239 Million as Part of 4% Cut to Treasury

Washington Brief

  • President Donald Trump’s budget calls for a $239 million funding cut for the Internal Revenue Service, despite worries that reductions could diminish federal revenues by hampering the agency’s ability to go after tax evaders. The overall spending proposal would reduce the Treasury Department’s budget by 4 percent. (The Washington Post)
  • House Democratic leaders said they will not vote for an increase in the federal debt limit if it contains controversial, partisan riders. (The Hill)
  • Germany Finance Minister Wolfgang Schäuble said the United States cannot unilaterally impose a border adjustable tax system. Schäuble is due to meet this week with Treasury Secretary Steve Mnuchin, who is seen as a possible moderate voice within the Trump administration on the border adjustment debate. (Financial Times)

Business Brief

  • Banks charged about $33.3 billion in overdraft fees last year, the most since before a 2010 Federal Reserve rule designed to curb such charges. (The Wall Street Journal)
  • Deutsche Bank AG, Royal Bank of Scotland and Wells Fargo & Co. settled a lawsuit brought by pension funds claiming that the banks misled investors on the safety of mortgages that originated with NovaStar Mortgage. The still-pending settlement totals $165 million. (HousingWire)
  • The Office of the Comptroller of the Currency is moving forward with plans to allow financial technology companies to sign up for special bank charters. The plan has come under the scrutiny of lawmakers, including House Financial Services Committee Chairman Jeb Hensarling (R-Texas). (Bloomberg News)

Chart Review

Fed Dot Plot
Business Insider

Events Calendar (All Times Local)

FIA International Futures Industry Conference 7 a.m.
D.C. Blockchain Summit 8 a.m.
House Financial Services subcommittee hearing on monetary policy 10 a.m.
House Financial Services subcommittee hearing on flood insurance 2 p.m.
FIA International Futures Industry Conference 7:30 a.m.



Trump’s budget plan slices $239 million from IRS, but Treasury overall is spared severe cuts
Max Ehrenfreund, The Washington Post

President Trump is proposing to reduce the budget for the Internal Revenue Service, the federal tax collector that the president previously complained was treating him unfairly. The IRS would give up $239 million in Trump’s proposed budget, published Thursday morning, the latest in a series of cuts since 2010.

Dems vow to reject any debt limit hike with poison riders
Mike Lillis, The Hill

Democratic leaders are already warning Republicans ahead of a debt ceiling debate that they won’t support any package containing controversial riders. “If they expect Democrats to support a debt ceiling increase, it needs to be a clean bill,” Rep. Joseph Crowley (N.Y.), chairman of the House Democratic Caucus, told reporters Wednesday in the Capitol.

Trump’s Top Trade Adviser Quietly Plots an Alliance With Mexico
Andrew Mayeda, Bloomberg News

President Donald Trump’s top trade adviser is quietly working to forge an alliance with Mexico, even as U.S. plans to build a border wall and threats to withdraw from Nafta continue to inflame tensions with its third-largest trading partner. Peter Navarro, who as head of the White House National Trade Council will play a leading role in the effort to re-negotiate the North American Free Trade Agreement, said in an interview the U.S. wants Mexico and Canada to unite in a regional manufacturing “powerhouse” that will keep out parts from other countries.

Dovish Fed, Dutch Vote Spur Stocks as Oil Advances: Markets Wrap
Min Jeong Lee, et al., Bloomberg News

Stocks advanced with commodities as the U.S. Federal Reserve’s dovish message continued to feed into markets, and as pro-Europe parties claimed victory in the Netherlands election. The euro and Treasuries gave up some of Wednesday’s advance. Futures on the S&P 500 rose 0.2 percent after the benchmark gauge added 0.8 percent on Wednesday.


Bank Overdraft-Fee Revenue Bounces Back
Annamaria Andriotis and Peter Rudegeair, The Wall Street Journal

Banks and other financial firms in 2016 generated the highest level of fees in seven years related to overdrafts on checking accounts, marking a turnaround for a charge crisis-era regulation tried to rein in. So-called overdraft fees totaled $33.3 billion in 2016, up about 2.5% from 2015 and by 5.4% from 2011, according to Moebs Services Inc., an economic-research firm.

Yellen unsure what Glass-Steagall would look like today
John Heltman, American Banker

Federal Reserve Chair Janet Yellen cast doubt on the Trump administration’s call for a reinstatement of a Depression-era barrier between commercial and investment banking activities, saying the integration of those activities was note responsible for the financial crisis. Speaking during her press conference following the Federal Open Market Committee’s meeting March 15, Yellen said that she has not seen any concrete proposals from the administration or anyone else that would detail how exactly to reinstate the Glass-Steagall Act.

What Trump could do to the Federal Reserve
Danny Vinik, Politico

What happens when President Donald Trump gets his hands on the Fed? It’s the question gripping the economic world these days.

Wells Fargo’s CEO Gets 17% Raise After Scandal Prompts Promotion
Laura J. Keller, Bloomberg News

Wells Fargo & Co. granted its new chief executive officer a 17 percent raise for 2016 — but that’s still less than the package his predecessor got a year earlier, before the bank was mired in scandal. Tim Sloan, who rose to CEO in October, received $12.83 million in salary and equity, up from the $11 million he got as chief operating officer for 2015, according to a regulatory filing on Wednesday.

Europe Will Give U.S. Time to Bed In New Administration Before Basel III Deal
Todd Buell, The Wall Street Journal

A finalization of key international rules should take place this year, despite a delay caused by the new U.S. administration needing to fill key negotiating roles and determine positions, a top German central banker said Wednesday. “If we don’t get there this year, it’s going to be much more difficult,” said Bundesbank board member Andreas Dombret at a conference here.

Financial Products and Investments

As Fiduciary Rule Gets Reviewed, Class-Action Provision Is Under Microscope
Lisa Beilfuss, The Wall Street Journal

If the fiduciary rule survives a Labor Department review, it might do so without its teeth. The so-called right of private action in the fiduciary rule—which would require stewards of retirement accounts to act in clients’ best interest—significantly increases the ability of savers to bring possible class-action lawsuits against brokers whom they say have violated their fiduciary duty.

U.S. judge deals PwC a setback at MF Global malpractice trial
Jonathan Stempel, Reuters

A federal judge has rejected PricewaterhouseCoopers LLP’s bid to sharply restrict how the bankruptcy plan administrator for Jon Corzine’s defunct brokerage MF Global Holdings Ltd pursues its $3 billion malpractice case against the auditor. Ruling eight days after the trial began, U.S. District Judge Victor Marrero in Manhattan refused to force the administrator, which is seeking money for MF Global creditors, to stick to what PwC called its original theory of why MF Global went bankrupt on Oct. 31, 2011.

CFTC’s Giancarlo Lays Out Aggressive Policy Agenda
Tara Jeffries, Morning Consult

Christopher Giancarlo, President Donald Trump’s pick to lead the Commodity Futures Trading Commission, on Wednesday laid out a policy agenda that calls revising “flawed” swaps rules and having the CFTC play a more influential role on the Financial Stability Oversight Council. Giancarlo, the CFTC’s acting chairman, said he wants to change Dodd-Frank swaps trading requirements that isolate U.S. market participants from global transactions and slice the market into “liquidity pools” that limit overall growth.

Housing and GSEs

Deutsche Bank, RBS, Wells Fargo settle for $165 million over NovaStar mortgages
Ben Lane, HousingWire

Deutsche Bank, Royal Bank of Scotland, and Wells Fargo reached a $165 million settlement in class action lawsuit brought by pension funds over faulty crisis-era mortgages originated NovaStar Mortgage, the plaintiffs’ attorneys announced on Wednesday. If approved by judge, the settlement would bring a nine-year legal battle to a close.

Banks to Trump: Spare affordable housing programs
Alan Kline, American Banker

Under construction on a parcel of land in Boston’s inner city that has been vacant for more than four decades is a $21 million, five-story apartment complex that will eventually house 40 low-income families or individuals. Boston Private Bank is providing much of the financing, though Esther Schlorholtz, its director of community investment, said it could not do so without a fair amount of government support.


Wolfgang Schäuble hits out at US border import levy proposal
Stefan Wagstyl and Claire Jones, Financial Times

Germany’s finance minister has waded into the US debate about tax reform, hitting out against proposals from leading Republicans in Congress for a levy on imports. Wolfgang Schäuble criticised the plan for a “border adjustable” tax system being pushed by House speaker Paul Ryan and other top Republican lawmakers, warning that no country could introduce such a change unilaterally and doing so multilaterally was “rather unlikely”.

Mnuchin Tax Counselor May Help Fill Assistant Secretary Void
Allyson Versprille, Bloomberg BNA

Justin Muzinich—Treasury Secretary Steven Mnuchin’s recently appointed counselor for tax reform—could bring a much-needed focus to tax issues while the department searches for a new assistant secretary for tax policy, former officials said. “You see people looking at the tea leaves and you don’t see anything that looks imminent at the moment” for the Treasury Department’s assistant secretary for tax policy position or other top leadership roles, said Mark J. Mazur, the most recent assistant secretary for tax policy under former President Barack Obama.

Financial Technology

U.S. Agency Invites Fintech Firms Into Special Bank Charter
Jesse Hamilton and Elizabeth Dexheimer, Bloomberg News

Financial-technology firms in the U.S. will be permitted to apply for special bank charters under a regulatory policy change that Republican lawmakers have already warned against. The Office of the Comptroller of the Currency will open its doors to non-traditional financial companies that are willing to meet some of the rigors of regulated banking, including capital, liquidity and consumer-protection rules, according to a draft policy statement released Wednesday.

CFTC Chief Pick Says Commission Should Embrace Fintech
Andrew Ackerman, The Wall Street Journal

President Donald Trump’s pick to head the top U.S. derivatives regulator is moving quickly to get a better handle on the role his commission can play in fostering financial-technology products and how such innovations should lead the agency to modernize its rule book. J. Christopher Giancarlo, who Mr. Trump tapped Tuesday as the permanent head of the Commodity Futures Trading Commission, said in a speech here Wednesday he has instructed staff to examine the role the agency can play in promoting fintech in the multi-trillion-dollar derivatives markets it oversees.

Citadel Securities to trade Treasuries on Tradeweb
Joe Rennison and Robin Wigglesworth, Financial Times

Citadel Securities, Ken Griffin’s growing market-making outfit, will begin trading US government bonds on Tradeweb’s platform, as the electronic venue tries to expand beyond the banks that own it. Tradeweb, which was set up by 11 big banks that still retain an almost 50 per cent stake, has long been seen as a bastion of bank-dominated markets.

Opinions, Editorials and Perspectives

HUD Cuts: Keep Calm & Carry On
Vanessa Brown Calder, Morning Consult

President Donald Trump is expected to release some initial budget proposals today, and spending cuts are on the agenda. One agency targeted for cuts is the bloated Department of Housing and Urban Development, which is the rumored object of a 14 percent reduction.

A 21st-Century Federal Reserve
Todd G. Buchholtz, The Wall Street Journal

Janet Yellen and her Federal Reserve Board colleagues warn that they must nudge us out of the weird world of zero interest rates. But the entire decision-making apparatus needs to be nudged—or, better, shoved—into the 21st century.

How Good Tax Ideas Go Bad
Editorial Board, The New York Times

Habituated to pressing for tax cuts no matter how unjustified they are, House Republicans have marred their corporate-tax plan with a ploy that would slash taxes for the rich and pile up more federal debt. The overall plan would lower the corporate tax rate to 20 percent, from 35 percent.

Cordray’s Choice
Ronald L. Rubin, National Review

Hardly a day has passed since the 2016 election without several “Save the Consumer Financial Protection Bureau” editorials. They are irrelevant. Only the agency’s director, Richard Cordray, can save the CFPB — by resigning.

Goldman Sachs Is Riding High Over Trump
Carter Dougherty, Americans for Financial Reform

Over the past month, Goldman’s share price has hovered above its previous all-time high which was set in late 2007, just before the worst financial crisis since the Great Depression hit the global economy. That’s a 42 percent increase since Trump’s election!

Research Reports

Foreign exchange liquidity in the Americas
Bank for International Settlements

This report discusses FX liquidity metrics and their drivers, reaching four conclusions. First, changes in FX markets have reduced the usefulness of some conventional FX liquidity metrics; several metrics need to be assessed together to give a better picture of market liquidity. Second, some metrics suggest that liquidity in FX markets has declined during some recent episodes of market stress.