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

Washington Brief

  • 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. (The Wall Street Journal)
  • The Trump administration could implement some of the regulatory changes recommended by the Treasury Department without congressional approval. Some of the recommendations include changing stress-testing procedures and making it easier for banks to comply with federal capital rules. (Financial Times)
  • House Freedom Caucus Chairman Mark Meadows (R-N.C.) said members of the conservative bloc of lawmakers want to raise the debt ceiling by $1.5 trillion. That figure is about $1 trillion lower than what the Trump administration wants, Meadows said, and if enacted would likely mean the debt ceiling would require congressional action shortly after the 2018 midterm elections. (Politico)

Business Brief

  • The top branch banking official at Wells Fargo & Co. said the company used its new compensation practices for the first time in May. The lender overhauled its compensation policy after its cross-selling scandal by placing an emphasis on rewarding teams instead of individuals. (Reuters)
  • Three former currency traders from the United Kingdom waived extradition and will voluntarily travel to the United States to face federal criminal trials regarding their alleged involvement in foreign exchange manipulation. The banks that previously employed them — Barclays Plc, JPMorgan Chase & Co., and Citigroup Inc. — have already paid civil penalties to the U.S. government related to the alleged rigging. (The New York Times)
  • One proposal in the Treasury Department’s financial regulation report calls for a Consumer Financial Protection Bureau database on consumer complaints and responses to be available only to the government, instead of its current public availability. While the report says a public database poses too many reputational risks to companies, one legal expert said the move would make it easier for companies to “take advantage” of consumers. (Bloomberg News)

Chart Review

Events Calendar (All Times Local)

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.
Senate Small Business Committee hearing on tax reform 3 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 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 event on state of nation’s housing 12 p.m.

 

General

A summary of significant Treasury proposals that *don’t* require Congress
Alexandra Scraggs, Financial Times

The US Treasury’s recommendations for financial regulation generally look like a reasonable banker’s wish list — not an Elizabeth Warren proposal, but not unexpected. It’s important to keep in mind that most of them can’t be implemented by Treasury alone.

Top GOP lawmaker optimistic on enacting Treasury’s Dodd-Frank revamp
Ian McKendry, American Banker

A key Republican lawmaker welcomed Treasury Department recommendations on how to reform financial regulations and expressed optimism that many of the suggestions could become law. “We now have a recommendation from the administration that we can start digging into,” Senate Banking Committee Chairman Mike Crapo said Tuesday during an appearance at a conference hosted by the Securities Industry and Financial Markets Association and The Clearing House Association.

Which Treasury reg reform priorities could become real?
John Heltman and Rob Blackwell, American Banker

As policymakers and industry observers began to digest the 150-page regulatory reform report released by the Treasury Department late Monday, attention quickly turned to what items on the wish list are most likely to actually be adopted. While many of the legislative proposals in the Treasury blueprint are similar to a House relief bill passed last week, they face an uphill battle in the Senate.

Meadows: Freedom Caucus eyeing $1.5 trillion debt ceiling increase
Rachael Bade, Politico

Some House Freedom Caucus conservatives want to raise the debt ceiling by a smaller amount than the Trump administration would like — just long enough to clear the 2018 mid-term elections, the group’s leader said Tuesday. The Freedom Caucus has not taken an official position on a specific number. But Chairman Mark Meadows emerged from a group meeting Tuesday night saying some of his conservative colleagues are looking at a $1.5 trillion lift in the nation’s borrowing cap.

Trump Wants to Hide Your Complaints About Wall Street
Shahien Nasiripour, Bloomberg News

A Republican refrain these last few years has been that the Obama administration went too far in policing Wall Street, resulting in higher costs and less choice for American households. So in February, when President Donald Trump directed his administration to apply a lighter touch, the first move he laid out was a desire to empower consumers instead of regulators so that they could make informed choices when it comes to financial products and services.

Mnuchin: ‘There could be a good shutdown’
Joseph Lawler, The Washington Examiner

A government shutdown could be justifiable in certain circumstances, Treasury Secretary Steven Mnuchin said Tuesday. “At times there could be a good shutdown, and at times there may not be a good shutdown,” Mnuchin said at a Senate Budget Committee hearing.

Tech Bounce Spurs Europe Stocks; Oil Drops on Data: Markets Wrap
Samuel Potter, Bloomberg News

European equity investors were in a bullish mood as technology companies extended their bounce, leading gains across almost all sectors. S&P 500 futures edged higher by less than 0.1 percent.

Banking

Elizabeth Warren Calls for Targeted Deregulation of Community Banks
Yuka Hayashi, The Wall Street Journal

Sen. Elizabeth Warren said Tuesday that Senate Democrats are willing to pursue targeted changes for regulations affecting community banks and credit unions as Congress moves to review postcrisis financial regulations. But the Massachusetts Democrat, Congress’s leading critic of Wall Street, said she would stand fast against changing laws to roll back consumer protection or to help big banks.

Wells Fargo employees paid for first time using new pay scheme
Dan Freed, Reuters

Wells Fargo & Co paid its branch employees for the first time in May using new goals that focus on customer service, branch banking chief Mary Mack said at an investor conference on Tuesday. The third-largest U.S. bank overhauled compensation practices in its branches in January following a scandal tied to a pay scheme that rewarded employees who sold multiple products to the same customer and punished those who did not.

Big banks’ critic Mike Mayo to join Wells Fargo
Laura Noonan and Ben McLannahan, Financial Times

Mike Mayo, a Wall Street analyst well-known for challenging bank chief executives at shareholder meetings, is to join Wells Fargo, one of the world’s biggest lenders. The US bank, which has spent much of the last year trying to recover from a mis-selling scandal that unseated its chief executive, announced Mr Mayo’s appointment as managing director and head of US large-cap bank research on Monday.

Wall Street Says Bank Regulatory Plans Are Better Than Expected
Julie Verhage and Felice Maranz, Bloomberg News

The U.S. Treasury Department’s banking regulatory proposals could be even better for finance firms than they initially hoped. Late Monday, the Trump administration laid out its highly anticipated plan for overhauling bank rules, and Wall Street likes what it sees.

Trump’s Wall Street game plan needs players
Pete Schroeder and Lisa Lambert, Reuters

Wall Street banks on Tuesday cheered U.S. President Donald Trump’s plans to loosen the leash put on them in the wake of the 2008 financial crisis but they do not expect significant change any time soon. The Trump administration has said the bulk of its plan for overhauling bank regulation can be done via executive order and through regulators, rather than requiring legislation from Congress.

Wall Street Veteran Leads Search for Next Fed Chief
Nick Timiraos and Kate Davidson, The Wall Street Journal

The White House is set to launch its search for the next Federal Reserve chief, according to a senior official, and it will be managed by Gary Cohn, the former Wall Street executive who some market strategists believe could be a candidate for the post himself. Officials won’t publicly outline any timetable for their decision or shortlist of candidates.

Financial Products and Investments

Ex-Traders in Britain to Face Currency-Rigging Charges in U.S.
Chad Bray, The New York Times

Three former traders in Britain have agreed to travel to the United States to face criminal charges that they were part of a conspiracy to rig foreign currency markets. The criminal case represents a stark contrast in the approach that British and United States authorities have taken in a long-running series of inquiries into whether bankers had colluded to manipulate the trading of currencies, an area that is lightly regulated.

Fed Considers Easing Capital Rule Seen as Hampering Swaps Market
Andrew Ackerman, The Wall Street Journal

An esoteric requirement that bankers and some U.S. officials have long said discourages firms from participating in the derivatives market—and makes the financial system less safe—is on the regulatory chopping block. At a private meeting in Washington this spring, senior bankers from J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and other large U.S. financial firms pressed policy makers for changes to the rule.

In GE Shakeup, the Return of GE Capital
Thomas Gryta, The Wall Street Journal

The finance guys are back in charge at General Electric Co. After 36 years under Jack Welch and Jeff Immelt, the conglomerate will soon be run by two GE  lifers who spent years working together at the once lucrative-yet-problematic GE Capital division.

Housing and GSEs

Morgan Stanley developing online mortgage application tool
Elizabeth Dilts, Reuters

Morgan Stanley is developing a new digital mortgage application tool in a bid to get more of its existing clients to turn to it for home loans, its wealth management technology head said on Tuesday. Morgan Stanley has invested heavily into growing its residential mortgage and customized lending business in recent years.

Taxes

Tax reform becomes Wall Street obsession
Sylvan Lane, The Hill

Financial analysts and investors are on constant alert for any crumb of news from Washington about tax reform as they try to game out which companies will win big and how it will affect profits going forward. But industry sources tell The Hill that the high hopes for a tax overhaul that fueled a stock rally after President Trump’s election are starting to fade, due in part to the slow pace of legislating and the administration’s decision to release a tax plan with few details.

Financial Technology

Blockchain’s Got No ‘Killer App’ Yet, Says Morgan Stanley, Even as Bitcoin Soars
Tiernan Ray, Barron’s

Fans of the financial ledger technology known as Blockchain may be interested to know Morgan Stanley analysts today unveiled a longish (43 pages) white paper on the state of the technology in the financial services business, declaring that there is yet not “killer app” for BlockChain, but rather “we are now firmly in the middle of the proof-of-concept phase of development.” The report also offers some thoughts about why Bitcoin, the crypto-currency that took off in tandem with Blockchain, has been soaring in value.

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

Small Business and Our Economy Need Tax Relief and Comprehensive Reform
Raymond J. Keating, Morning Consult

The first round of tax reform hearings in Congress is in the books, with another hearing set for today in the Senate Small Business and Entrepreneurship Committee. As they move forward, it’s critical that lawmakers continue to keep in mind that any proposals must encourage entrepreneurship, long-term growth, investment and job creation across the entire economy.

Bank rules need a trim rather than a buzz cut
Editorial Board, Financial Times

The US Treasury’s report on financial regulation reform was commissioned by a real estate magnate who built his career on debt, with periodic recourse to the bankruptcy courts. It was supervised by a former Goldman Sachs partner.

By reversing Wall Street regulations we’re risking another Lehman Brothers but ‘on a larger scale’
Pedro Nicolaci da Costa, Business Insider

They say human beings have short memories, but this is outright amnesia. Donald Trump and the Republican Party’s efforts to dissolve many of the new regulations imposed on major Wall Street banks in the wake of the worst financial crisis are most stunning because they ignore such glaring and recent lessons.

It’s time to get realistic about the debt ceiling
Editorial Board, The Washington Post

Politicians do some irresponsible things, but few could be more reckless than periodically fooling around with the “full faith and credit” of the United States. The ironclad quality of the federal government’s debt, established over centuries, has made Treasury securities universally tradable; these “risk-free” assets undergird the global financial system.

GOP right to drain Dems’ toxic Dodd-Frank swamp
Star Parker, The Atlanta Journal-Constitution

The House just passed the Financial CHOICE Act, which enacts major reforms to the Dodd-Frank Act, signed into law by President Obama in 2010. The 2,300-page Dodd-Frank Act was passed to fix what supposedly was broken in our financial system that led to the massive financial collapse in 2007.

The government’s new retirement rule may not stop your adviser from giving you bad advice
Michelle Singletary, The Washington Post

You don’t have to take the advice of your financial adviser. I need to say this because, already, some investment professionals are scaring clients into thinking that the federal government is forcing them to invest a certain kind of way — all to comply with the Labor Department’s new fiduciary rule.

A Border Adjustment Phase-in?
Kyle Pomerleau, The Tax Foundation

Today, House Ways and Means Committee Chairman Kevin Brady floated the idea of a five-year phase-in for the border adjustment. The border adjustment is a key piece of the House GOP’s proposal to replace the corporate income tax with a 20 percent “destination-based cash-flow tax” (DBCFT).

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

Geopolitical risks greater threat to investments than the economy, investors say
Wells Fargo & Co. 

While still quite positive relative to the blunted outlook after the recession, the Wells Fargo/Gallup Investor and Retirement Optimism Index held steady near its 16-year high recorded last quarter. Investors are more likely to say they worry about current geopolitical matters harming their investments than worry about harm from the economy.