Finance Brief: Ways and Means Committee to Kick Off Tax Reform Hearings Next Week

Washington Brief

  • The House Ways and Means Committee next week will hold its first major hearing of the year on legislative efforts to rewrite the U.S. tax code. The panel hasn’t named the witnesses scheduled to testify at the May 18 hearing. (The Hill)
  • President Donald Trump has yet to name a nominee to lead the Employee Benefits Security Administration, the Labor Department agency responsible for crafting and implementing the fiduciary rule for retirement advisers. The EBSA may be left without a director until the fall. (Bloomberg BNA)
  • Efforts to appoint new members to the Federal Reserve’s Board of Governors could stray into the fall because the White House is said to be at least weeks away from making nominations. (Reuters)

Business Brief

  • The United States and China reached a set of trade deals, including one that will allow U.S. credit card and credit ratings companies greater access to the Chinese market. (Financial Times)
  • Treasury Secretary Steven Mnuchin directed a handful of federal agencies to review the Volcker Rule, a regulation from the 2010 Dodd-Frank Act that limits proprietary trading. Mnuchin’s move is seen as the first of many aimed at giving banks more wiggle room to make trades under the rule. (Bloomberg News)
  • The federal agency responsible for overseeing Fannie Mae should consider firing Chief Executive Timothy Mayopoulos because of the conflicts of interest posed by a romantic relationship he had with an executive at Fifth Third Bank, according to the Federal Housing Finance Agency’s inspector general. Following the IG’s recommendation, FHFA Director Mel Watt said he has “complete confidence” in Mayopoulos. (The Wall Street Journal)

Chart Review

Events Calendar (All Times Local)

Friday
FDIC community banking event in Kansas City, Mo. 8:30 a.m.
Drexel University urban economic policy conference 12 p.m.
American Bar Association Section of Taxation meeting 12 p.m.

 

General

Trump administration hails US-China trade deal
Shawn Donnan and Tom Mitchell, Financial Times

China will open its market to US credit rating agencies and credit card companies as well as resume imports of US beef, part of a package hailed by the Trump administration as the first step in redefining the trade relationship between the world’s two largest economies. The 10-point package revealed on Friday was billed as an “early harvest” from the 100-day plan to reset the trade relationship that Chinese leader Xi Jinping and Donald Trump agreed to pursue when they met in April.

Lighthizer Approval as Trade Rep Paves Way for Nafta Talks
Andrew Mayeda, Bloomberg News

One of Lighthizer’s first orders of business will be to consult Congress on the administration’s plans to renegotiate Nafta, which Trump called a “disaster” during the election campaign. His confirmation clears a hurdle before the U.S. can start 90 days of consultations preceding Nafta talks. Trump has threatened to withdraw from the agreement with Mexico and Canada if he doesn’t thinks discussions are going his way.

Mexico says called Trump’s bluff when he eyed NAFTA exit
Mitra Taj, Reuters

Mexico said on Thursday it had called U.S. President Donald Trump’s bluff over his suggestion he only decided to stay in the North American Free Trade Agreement as a favor to the leaders of Mexico and Canada after they asked him to renegotiate the deal. However, Mexico’s government said it had sent a very different message to the United States during a crisis over NAFTA’s future late last month, when Trump considered starting the six-month process for withdrawing from the accord.

Commodity Rout Shows Signs of Easing as Gold Rises: Markets Wrap
Robert Brand and Adam Haigh, Bloomberg News

Gold climbed a second day amid a rebound for metal prices that helped ease a commodity rout even as oil remained depressed. S&P 500 futures were down 0.3 percent after the underlying gauge fell by the same amount Thursday.

Banking

White House weeks away from naming anyone to Fed: official
Jeff Mason and Olivia Oran, Reuters

U.S. President Donald Trump is weeks away from naming anyone to the board of the Federal Reserve, a White House official said, meaning it could be the fall before three currently empty seats are filled. The vacancies on the Fed’s seven member Board of Governors include the position of vice chair in charge of banking oversight, a critical role in Trump’s plan to revamp financial rules.

Mnuchin Said to Start Review That Could Ease Volcker Rule’s Bite
Benjamin Bain and Jesse Hamilton, Bloomberg News

The Trump administration is quietly helping Wall Street in its campaign to chip away at the toughest trading restriction imposed on banks after the financial crisis. At a closed-door meeting in Washington on Monday, Treasury Secretary Steven Mnuchin directed five key agencies to re-examine what’s permitted under the Volcker Rule, said two people familiar with the matter.

Can the OCC reinterpret the Volcker Rule on its own?
John Heltman and Lalita Clozel, American Banker

Acting Comptroller of the Currency Keith Noreika is floating the possibility of unilaterally reinterpreting an interagency ban on proprietary trading, but there are doubts about how far the agency can move on its own and whether that would be a good idea. Banks have long complained about the Volcker Rule, arguing that it’s overly complex and burdensome to comply with, and it has become a prime target of the Trump administration.

CFTC’s Giancarlo urges bank capital rethink
Helen Bartholomew, Reuters

Acting CFTC chairman Christopher Giancarlo has called on global regulators to recalibrate bank capital requirements to restore liquidity to markets in a bid to avoid ‘flash’ trading events. Speaking at ISDA’s annual general meeting in Lisbon, Giancarlo warned that stringent Basel III demands have sapped capital from trading activities, leading to reduced market liquidity that may have been the trigger for more than a dozen major flash trading events since the passage of Dodd-Frank.

Senate Dems say banking regulator is unvetted, inexperienced
Sylvan Lane, The Hill

Six Senate Banking Committee Democrats told Treasury Secretary Steven Mnuchin on Thursday that the recent shake-up of a federal bank regulation is a “political power grab.” The senators wrote in a letter to Mnuchin that they were “deeply concerned” with his recent appointment of former Wall Street lawyer Keith Noreika to lead the Office of the Comptroller of the Currency (OCC) without a Senate confirmation.

Financial Products and Investments

Agency That Oversees Fiduciary Rule May Be Leaderless Until Fall
Kristen Ricaurte Knebel, Bloomberg BNA

Now that Alexander Acosta is in place as the Secretary of Labor, attention shifts to who will lead DOL’s subagencies like the Employee Benefits Security Administration. There is some sense of urgency in getting an EBSA head in place, given that President Donald Trump asked the DOL to review the Obama-era fiduciary rule, which was drafted by EBSA, the subagency tasked with regulating employee benefits.

Goldman Sachs to revamp dark pool business
Nicole Bullock, Financial Times

Goldman Sachs on Friday will begin a reboot of its dark pool business as part of a deal with Nasdaq that is meant to boost competitiveness and offset regulatory burdens. Goldman is replacing its existing Sigma X dark pool, which now ranks 10th in market share, with a new iteration called Sigma X squared, according to a memo to clients obtained by the FT.

SEC Turns to Big Deals Lawyer to Spur More Public Companies
Dave Michaels, The Wall Street Journal

To spur more companies to go public, the new head of the Securities and Exchange Commission has turned to a veteran Silicon Valley lawyer whose career has involved some of the biggest deals in history. Bill Hinman has worked on initial public offerings and other transactions that involved Apple Inc. founder Steve Jobs, Google Inc. founders Larry Page and Sergey Brin, and Facebook Inc. chief executive Mark Zuckerberg.

Puerto Rico’s Bankruptcy Fight Is About to Plunge Into the Unknown
Emma Orr et al., Bloomberg News

Dealing with Puerto Rico’s crushing debt has started to resemble a circular firing squad. Simply put, the bankrupt island can’t pay everything it owes, so creditors are taking aim at each other as they squabble over who will get what’s left.

Housing and GSEs

Fannie Mae’s Overseer Has ’Complete Confidence’ in its Chief Executive
Andrew Ackerman, The Wall Street Journal

The government agency that oversees Fannie Mae is sticking by the mortgage-finance company’s chief executive, despite a watchdog’s recommendation it consider firing him. In a letter Thursday to House Government Oversight Committee Chairman Jason Chaffetz (R., Utah), Federal Housing Finance Agency Director Melvin Watt said he has “complete confidence” in Fannie Mae Chief Executive Timothy Mayopoulos.

Housing Regulator Is Pushed to Crack Down on Sales of Foreclosed Properties
Alexandra Stevenson and Matthew Goldstein, The New York Times

Lawmakers are pressing the nation’s housing regulator over the sale of thousands of foreclosed houses to investment firms that have pitched the promise of homeownership to people unable to get a traditional mortgage. Some local authorities and regulators are taking legal action against several of these firms, accusing them of engaging in predatory business practices by reselling these often rundown houses “as is” through rent-to-own and other seller-financed transactions, sometimes known as contracts for deed.

Wells Fargo eyes return to mortgage deals shunned since crisis
Dan Freed, Reuters

Wells Fargo & Co, the largest U.S. mortgage lender, is hoping this year to sell bonds backed by mortgages without government guarantees for the first time since the 2008 financial crisis, the head of the bank’s consumer lending division said on Thursday. More than $1 trillion worth of mortgages were packaged into such securities each year in 2005 and 2006. But investors lost their appetite after large volumes of risky subprime mortgages backing such securities went bad, nearly bringing down the global financial system.

Taxes

House panel to kick off tax reform hearings next week
Naomi Jagoda, The Hill

The House Ways and Means Committee is slated to begin holding tax-reform hearings next week, as the panel works to produce legislation that GOP lawmakers hope to pass this year. Committee Republicans announced in a news release Thursday that the panel will hold a hearing on May 18 about “how tax reform will grow our economy and create jobs across America.”

Financial Technology

Cybercrime Outbreak Targets French Banking Customers
Marie Mawad and Fabio Benedetti Valentini, Bloomberg News

There’s an outbreak of email and telephone hoaxes in France falsely attributed to the country’s central bank, as criminals multiply attempts to steal credentials from French companies and consumers, the Bank of France said. People have been receiving emails with fake bills, reports of bank accounts being frozen and of loans granted — all to trick them into handing over account numbers and other such data, France’s central bank said on Thursday.

Opinions, Editorials and Perspectives

Regulators: Keep It Simple, Stupid
J. Christopher Giancarlo, Morning Consult

Let this be a first in Washington: At the CFTC we are going to KISS and tell. We’re also going to put a whole new meaning on the phrase.

On Tax Reform, Ryan Knows Better
Laurence Kotlikoff, The Wall Street Journal

As Republicans push toward a major rewrite of the U.S. tax code, they must evaluate two competing proposals: the House GOP’s “Better Way” plan and President Trump’s framework, introduced last month. Either would greatly simplify personal and business taxation, but pro-growth reformers should hope that the final package looks more like the House’s proposal.

Judas, Tax Cuts and the Great Betrayal
Paul Krugman, The New York Times

The denarius, ancient Rome’s silver coin, was supposedly the daily wage of a manual worker. If so, the tax cuts that the richest 1 percent of Americans will receive if the Affordable Care Act is repealed — tax cuts that are, obviously, the real reason for repeal — would amount to the equivalent of around 500 pieces of silver each year.

Why are Republicans in such a rush to kill Dodd-Frank?
Mayra Rodríguez Valladares, The Hill

Like a chorus in a Euripides Greek tragedy, Republican members of the House’s Financial Services Committee have been bemoaning that the Dodd–Frank Wall Street Reform Act is killing jobs. It is the height of irony that the legislators who are opining on how to reform the financial sector with a proposed bill called the Financial Choice Act are not producing numbers to prove their claims.

Eliminating OLA is careless and shortsighted
Michael S. Barr, American Banker

The financial crisis produced the worst economic recession in the United States since the Great Depression, leading to the near-total collapse of the global financial system, wiping out retirement savings and costing millions of Americans their jobs, homes and livelihoods. At the height of the crisis, Lehman Brothers collapsed into disorderly bankruptcy, causing panic throughout the financial system.

Research Reports

Trends in Consumer Mobility Report
Bank of America

We are pleased to share findings from our latest Trends in Consumer Mobility Report, exploring emerging payments trends – specifically person-to-person payment technologies (P2P) that allow consumers to send money to others via their mobile device. This spring’s report finds the exchange of funds through P2P is the new social ‘norm’, ultimately replacing the IOU. While millennials are spearheading the charge of adoption, use spans generations, genders and lifestyles.

Community Bank Regulatory Relief: A Roadmap to Economic Growth & Prosperity
Independent Community Bankers of America

Community banks have served as America’s engines of local economic growth since our nation’s founding, and the United States remains the only country in the world served by a broadly based, vibrant community banking sector. As our economy and financial system continue to evolve, community banking must be preserved and strengthened.