Regulators testify 

• House Financial Services Committee Chair Maxine Waters (D-Calif.) and other House Democrats criticized Treasury Secretary Steven Mnuchin for reducing the Financial Stability Oversight Council’s role in supervising nonbanks, shortly after the council released its annual report saying it would focus on risky activities rather than on financial companies. In response, Mnuchin defended the council as doing “a lot on oversight” and contended that the lack of financial institutions designated as systemically important was a positive development. 

• The Federal Reserve is reviewing parts of its supervisory framework, particularly around bank liquidity requirements, in the aftermath of unusual overnight lending market volatility earlier this year, according to a growing chorus of Fed officials. 

• Mnuchin told the committee that he and Federal Reserve Chairman Jerome Powell have discussed creating a digital currency and agreed there is “no need” to do so. Mnuchin’s comment came after a lawmaker asked about Facebook Inc.’s planned digital currency Libra and China’s plans to create its own digital token.

Financial Stability Oversight Council

• The Financial Stability Oversight Council highlighted mortgage companies as a potential risk to the U.S. financial system for the first time, as well as pointing to high borrowing by nonfinancial companies and the growth of cryptocurrencies, while ranking overall risk as moderate. 

• The council also called on federal regulators to analyze and collect data on what made repo rates spike in September. The report also identified disruptions to the short-term lending market as a potential risk to the country’s financial system. 

Banks

• The Office of the Comptroller of the Currency told Wells Fargo & Co. that the bank needs to address thousands of employee complaints, an inadequate policy for reclaiming executive compensation and poor policies around pay, according to people familiar with the matter. The bank’s current pay structure falls short of preventing the behavior that led to Wells Fargo’s 2016 fake-accounts scandal, the regulator said. 

• Goldman Sachs Group Inc. will sidestep setting a strict profitability target at its investor day on Jan. 29, according to people familiar with the plans, as the bank hopes investors look at its core Wall Street business instead of its recent foray into consumer banking. Goldman is also preparing to detail its plan to compete with asset managers such as Blackstone Group Inc. by setting up a new merchant banking division with $135 billion of assets under management.  

• Scott Powell, head of Banco Santander SA’s U.S. branch, will be Wells Fargo & Co.’s chief operating officer, overseeing the bank’s relationship with regulators as it tries to convince the Federal Reserve to remove an asset cap. Powell’s appointment, which will begin Dec. 9, is part of Wells Fargo’s executive shakeup under new Chief Executive Charlie Scharf. 

• The Treasury’s Financial Crimes Enforcement Network, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Conference of State Bank Supervisors clarified that banks aren’t required to report suspicious activity reports on customers who produce hemp. Banks are still required to report suspicious activity regarding the hemp business, which was removed last year from a list of federally controlled substances.

• Wells Fargo will refund some checking account customers in 2020 following confusion from some customers over which debit card transactions allowed them to qualify for a waiver of monthly fees, Scharf said in a Dec. 2 letter to Rep. Katie Porter (D-Calif.). 

• Sen. Elizabeth Warren (D-Mass.) plans to introduce legislation that would more closely scrutinize bank mergers such as the recent BB&T Corp. and SunTrust Banks Inc. deal. Although it’s unlikely to become law, it signals Warren’s continued sights on the financial industry if she wins the Democratic party’s presidential nomination and the general election in 2020. 

Trade

• In a surprise move, President Donald Trump has announced immediate tariffs on steel and aluminum imports from Brazil and Argentina, which he said in a tweet have been “presiding over a massive devaluation of their currencies.” Trump then called again on the Federal Reserve to lower interest rates so countries can “no longer take advantage of our strong dollar by further devaluing their currencies.” 

• Gary Cohn, who formerly served as Trump’s top economic adviser, said tariffs on steel and aluminum are holding back investments from companies, along with uncertainty over the 2020 presidential election. Cohn said that if he were a company executive, “I wouldn’t be doing big cap ex right now.”

• Mnuchin said the United States objects to the World Bank’s Country Partnership Framework for China, a loan program worth more than $1 billion a year to fund green investments and other programs. The comment comes amid continued trade tension between the United States and China and the growing sense in Washington that China should no longer be considered a developing country.

• Trump said it might be “better to wait until after the election” to craft a trade deal with China, comments that led to a decline in U.S. stocks the same day. 

• The House and Senate are in session this week. 

• The Commodity Futures Trading Commission will hold an open meeting on Tuesday to consider a number of proposed rules, including one on capital requirements for swap dealers and major swap participants.

• The Senate Banking Committee will hold a hearing on Tuesday conducting oversight of the Securities and Exchange Commission.

• The United States is scheduled to impose 15 percent tariffs on about $160 billion of Chinese imports on Dec. 15 if no deal is struck between the two countries.

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