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Finance Brief: Week in Review & What’s Ahead

Week in Review

Housing finance system

  • Despite significant reforms in the decade since the Great Recession, Federal Reserve Gov. Jerome Powell said the current U.S. housing finance system is risky for taxpayers given the concentration of mortgages in government-backed agencies Fannie Mae and Freddie Mac. Powell said the current setup is “unsustainable,” and he called for changes that would promote greater competition in the market and limit the possibility of taxpayer-funded bailouts.
  • HSBC Holdings Plc is said to be in talks with the U.S. Justice Department to resolve a probe into the London-based bank’s sale of toxic mortgage bonds from a decade ago. The discussions are expected to provide insight into how the Trump administration will deal with international banks.

Tax reform

  • Twenty moderate House Republicans told Speaker Paul Ryan (R-Wis.) that GOP efforts to overhaul the U.S. tax code could be jeopardized by calls to include significant spending cuts in the fiscal 2018 budget resolution. Congressional Republicans need to pass a budget resolution in order to use a procedural tool known as reconciliation if they want to proceed without Democratic support on tax reform.
  • A coalition of U.S. businesses urged members of the Senate Finance Committee to keep the tax deduction for companies’ interest expenses when lawmakers tackle tax reform. Congressional Republicans looking to rewrite the U.S. tax code for the first time in more than 30 years are divided on the issue, while the Businesses United for Interest and Loan Deductibility coalition said that without the deduction their income would be overstated.

Financial regulations

  • Banking regulators published the “living wills” submitted by the nation’s eight biggest banks. The Fed and the Federal Deposit Insurance Corp. allowed American International Group Inc. and Prudential Financial another year to submit their plans for how they could be dissolved during a financial crisis.
  • MetLife Inc. requested another delay in a court case centered on the U.S. government’s labeling of the insurance firm as “too big to fail.” The company said the court should hold off on its ruling until the Trump administration publishes a review, expected in October, of the systemically important financial institution designation process.

What’s Ahead

  • Congress is in session this week. Lawmakers will be returning from their weeklong July Fourth recess.
  • Federal Reserve Chair Janet Yellen is scheduled to give her semi-annual testimony on monetary policy this week. She’s slated to testify before the House Financial Services Committee on Wednesday and before the Senate Banking Committee the following day.
  • The House Ways and Means Committee this week is scheduled to hold the first of two tax-reform hearings for the month of July. The focus of this week’s hearing will be on small businesses.

Events Calendar (All Times Local)

Monday
No events scheduled
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
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.
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.
Friday
No events scheduled

 

Morning Consult Finance Top Reads

1) Fed Officials Ready to Start Shrinking Portfolio in Months
Nick Timiraos, The Wall Street Journal

2) Moderate House Republicans warn of trouble for tax reform
David Morgan, Reuters

3) U.S. housing finance system ‘unsustainable’: Fed’s Powell
Howard Schneider, Reuters

4) Fed Chair Janet Yellen hospitalized and released
Patrick Gillespie, CNN

5) Explosion in money flowing into ETFs may lead to a market liquidity problem, Bank of America says
Jason Gewirtz, CNBC

6) Oregon becomes first state to launch auto-IRA program
Greg Iacurci, InvestmentNews

7) Trump’s Labor Department wants salary to count on overtime rule
The Associated Press

8) Wells Fargo Unsettles Mortgage Bond Market by Holding Back Funds
Alastair Marsh and Tracy Alloway, Bloomberg News

9) Congress joins Trump war on regs, cuts a year’s worth in one week
Paul Bedard, Washington Examiner

10) War or Recession Might Be Needed to Break Low-Vol, Goldman Says
Bloomberg News