Top Stories

  • Tax returns must be disclosed to Congress unless the president asserts executive privilege, according to a confidential Internal Revenue Services legal memo that undercuts the Trump administration’s justification for denying a request from Democratic lawmakers. The memo also says the Treasury Secretary is not allowed to “exercise discretion in disclosing the information provided the statutory conditions are met,” which directly addresses the reason Treasury Secretary Steven Mnuchin has cited in denying the returns. (The Washington Post)
  • New guidance from the Securities and Exchange Commission will require exchanges to provide detailed disclosures when they want to adjust a fee, making it more difficult for the exchanges to impose increases. Following years of complaints from brokers and trading firms about fees charged by the New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc., the guidelines say the exchanges must release data and analysis that explains they aren’t abusing their market power. (The Wall Street Journal)
  • The Office of the Comptroller of the Currency and the National Treasury Employees Union, the union representing OCC workers, will go in front of a government mediator next week over a new collective bargaining agreement as Comptroller of the Currency Joseph Otting looks to cut costs at the agency, according to documents. Otting, a President Donald Trump appointee who is looking to reshape the way the agency does business, said in January that he slashed costs by more than 7 percent or $100 million in 2018 and that $20 million more is on the chopping block this year. (Politico)

Chart Review

Events Calendar (All Times Local)

05/22/2019
House Ways & Means Committee hearing: Enforcement in the new NAFTA 10:00 am
House Small Business Committee hearing: Immigration and the Small Business Workforce 11:30 am
House Joint Economic Committee hearing: The Economic Impacts of the 2020 Census and Business Uses of Federal Data 2:00 pm
View full calendar

Morning Consult’s Governor Approval Rankings

The definitive ranking of every governor’s approval in America, based on over 470,000 survey interviews.

Morning Consult is also tracking every senator’s approval, as well as the 2020 Democratic primary and Donald Trump’s approval. See more.

General

Mnuchin, Waters Set For Rematch as Secretary Returns to Testify Saleha Mohsin, Bloomberg

Treasury Secretary Steven Mnuchin is headed for another clash with Representative Maxine Waters as Democrats ratchet up pressure over his refusal to turn over President Donald Trump’s tax returns. Mnuchin will testify before the House Financial Services Committee on Wednesday at 8:30 a.m. An April session with the panel ended in acrimony after Mnuchin and Waters, the California Democrat who chairs the panel, bickered over when to end the questioning.

Two Top Treasury Officials Promoted to New Posts Kate Davidson, The Wall Street Journal

President Trump intends to promote the Treasury Department’s top lawyer to the position of its top financial diplomat, the White House said Monday. Mr. Trump will nominate Brent McIntosh, the agency’s general counsel, to become the undersecretary for international affairs, the job vacated by David Malpass when he took over as the head of the World Bank in April.

Xi Jinping Warns of New ‘Long March’ as Trade War Intensifies Alexandra Stevenson, The New York Times

President Xi Jinping of China called for the Chinese people to “start again” and begin a modern “long march,” invoking a turning point in Communist Party history as the country braces for a protracted trade war with the United States. “Now there is a new long march, and we should make a new start,” Mr. Xi told a cheering crowd Monday in Jiangxi Province as he started a domestic tour that is seen as an attempt to rally the nation as trade tensions with the United States escalate.

Wall Street Rules’ Chief Architect Says the Fed Is Blowing It Jesse Hamilton, Bloomberg

The “alpha dog” regulator who spearheaded Washington’s effort to write new rules for Wall Street after the 2008 financial crisis said his successors are making a mess of the road map he left for them. Former Federal Reserve Governor Daniel Tarullo, speaking at an event in Washington on Tuesday, said the agency is engaging in “low-intensity deregulation” that is sometimes easy to miss even as it weakens the banking system’s resiliency.

The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed. Jeanna Smialek, The New York Times

America’s job market is booming and the economy is strong, but that combination is not raising prices the way it used to. Biscuit Head, a North Carolina restaurant chain serving up gravy flights and homemade jam, would be charging more if the previous economic relationships held up.

Trump Calls on Democrats to Put Trade Pact Before Infrastructure Package Michael C. Bender, The Wall Street Journal

President Trump on Tuesday told Democratic congressional leaders that Congress should approve his trade deal with Canada and Mexico before taking up infrastructure legislation. Mr. Trump sent a letter to House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer the day before a White House meeting scheduled with them to discuss a potential infrastructure package.

Trump Held Off Punishing Huawei Until China Trade Talks Stalled Jenny Leonard et al., Bloomberg

The Trump administration held off on blacklisting Huawei Technologies Co. out of concern the move could disrupt trade negotiations with China and only took action after the last round of talks hit an impasse, according to people familiar with the matter. Plans to target the Chinese telecommunications equipment maker over security concerns had been on the table for months and included possibly subjecting Huawei to economic sanctions, according to the people, who asked not to be identified discussing internal deliberations.

White House, Democrats in Talks to End Holdup on USMCA Approval Jenny Leonard and Erik Wasson, Bloomberg

The White House and congressional Democrats have opened talks to resolve outstanding details that have thus far held up the new North American trade deal, according to people briefed on discussions between House Speaker Nancy Pelosi and trade chief Robert Lighthizer. Pelosi told Lighthizer that she will designate members of her caucus to be working group representatives to deal with labor, enforcement, environment and pharmaceutical provisions of the deal, two people briefed on the discussions said.

On China, Trump Leads a Coalition of the Unwilling Greg Ip, The Wall Street Journal

After two years of treating adversaries and allies alike as trade villains, President Trump pivoted last week. With China edging away from commitments to change its ways, Mr. Trump sharply ratcheted up tariffs and banned U.S. companies from doing business with Huawei Technologies Co.

How New York Democrats plan to unlock Trump’s taxes Bill Mahoney, Politico

A tax attorney from White Plains and a state senator whose district is across the street from Trump Tower may have figured out a way to achieve a goal Democrats have had their eyes on for nearly four years: getting a glimpse at President Donald Trump’s taxes. The New York Assembly is poised to pass legislation on Wednesday to allow the release of the president’s state tax returns to three congressional committees.

St. Louis Fed Chief Says Interest Rate May Be Cut to Meet Inflation Target Michael S. Derby and Steven Russolillo, The Wall Street Journal

Federal Reserve Bank of St. Louis President James Bullard said Wednesday the U.S. central bank may need to lower its short-term interest-rate target if inflation doesn’t appear on track to rise back to desired levels. The Fed “may want to consider ways to re-center inflation and inflation expectations at the 2% target” in a climate where it has consistently failed to achieve its price-rise goal, Mr. Bullard said in remarks prepared for a presentation that he gave in Hong Kong.

Fed Minutes to Shed Light on Inflation Outlook Nick Timiraos, The Wall Street Journal

The Federal Reserve releases the minutes of its April 30-May 1 meeting on Wednesday at 2 p.m. EDT, offering new clues about how officials assessed an unexpected downtick in inflation during the first quarter. Officials have signaled they are done raising interest rates for now, putting more attention on whether their next move might be to lower interest rates.

Stocks Struggle for Traction as Tech Tensions Grow: Markets Wrap Todd White, Bloomberg

U.S. equity futures drifted and European stocks edged higher after a mixed session in Asia as investors digested the latest in the Sino-American confrontation over technology. Oil declined and the dollar and Treasuries were steady before the latest Fed minutes.

Banking

JPMorgan Wins Shareholder Support for Bank’s Executive Pay Plan Michelle Davis, Bloomberg

JPMorgan Chase & Co. won shareholder approval for its executive pay plan even after an advisory firm criticized the firm’s policy as too subjective and opaque. A resolution to approve compensation for five named executive officers received backing from 72% of voters, according to a preliminary tally Tuesday at JPMorgan’s annual shareholders meeting in Chicago.

Trump, House Democrats square off in U.S. court over Deutsche Bank documents Brendan Pierson, Reuters

Lawyers for U.S. President Donald Trump, three of his children and the Trump Organization will demand in court on Wednesday that a judge stop Deutsche Bank AG and Capital One Financial Corp from providing financial records to Democratic lawmakers investigating Trump’s businesses. Republican Trump, who is seeking re-election next year, has aggressively sought to defy congressional oversight of his administration since Democrats took control of the U.S. House of Representatives in January.

Financial Products and Investments

Lawmakers Seek to Bar Financial Advisers From Client Inheritances Gretchen Morgenson, The Wall Street Journal

A bipartisan group of four U.S. senators has asked financial regulators to create rules barring financial advisers from inheriting money or property from their clients. In a letter to the Financial Industry Regulatory Authority, the lawmakers said such bequests are “inherently problematic” because of conflicts of interest between an adviser’s professional obligations and personal interests.

Can Data Ward Off College Debt? New Strategy Focuses on Results Kevin Carey, The New York Times

The Department of Education on Tuesday released a trove of information that shows the average amount of debt incurred by graduates of different academic programs at each college and university in America. This focus on discrete programs, rather than institutions as a whole, is gaining favor among political leaders and could have far-reaching effects.

Financial advice gap has widened since 2015, says report Kate Beioley, Financial Times

The gulf between those with and without access to affordable financial advice has widened in the past four years, according to a new study revealing that digital innovations have not been enough to help customers priced out of the market. A growing number of customers are falling into the so-called “advice gap”, according to investment service OpenMoney and YouGov, which surveyed more than 2,000 adults in a follow-up study to a landmark Citizens Advice report of 2015.

Housing and GSEs

Freddie Mac CEO Casts Doubt on Joint $125 Billion Fannie Funding Jesse Westbrook and Steve Matthews, Bloomberg

U.S. regulators want Fannie Mae and Freddie Mac to build up massive amounts of capital before being freed from government control. Freddie’s outgoing chief executive officer says that’s easier said than done. Don Layton, who plans to step down July 1, said Tuesday that a capital plan issued a year ago by the companies’ regulator would require the mortgage giants to raise a combined $125 billion, in part by selling shares.

Ben Carson confuses a real-estate term and a cookie Katy O’Donnell, Politico

Housing and Urban Development Secretary Ben Carson tussled awkwardly with freshman Rep. Katie Porter (D-Calif.) at a hearing on Tuesday over HUD real estate owned — or REO — homes, at one point asking if she was referring to an “Oreo.” REO homes are acquired by HUD after a foreclosure on a Federal Housing Agency-insured mortgage, and Porter said foreclosure rates for such properties were higher than for homes not backed by the FHA.

Separated by Design: How Some of America’s Richest Towns Fight Affordable Housing Jaqueline Rabe Thomas, ProPublica

A dirt field overgrown with weeds is the incongruous entrance to one of America’s wealthiest towns, a short walk to a Rodeo Drive-like stretch replete with upscale stores such as Tiffany & Co. But this sad patch of land is also the physical manifestation of a broader turf war over what type of housing — and ultimately what type of people — to allow within Westport’s borders.

Taxes

Emails Show How Much Pull Political Bosses Had Over State Tax Breaks Nancy Solomon and Jeff Pillets, ProPublica

A law firm linked to New Jersey political boss George E. Norcross III enjoyed extraordinary influence over the state’s tax break program, crafting new rules and regulations in hundreds of calls, meetings and messages with top officials in Trenton, newly released emails reveal. The emails, obtained by WNYC and ProPublica through a public information request, provide a rare look at how the Norcross family machine leveraged its access to top state officials to advance the interests of clients and friends allied with the political leader.

Democrats’ Tax Cuts Target Middle Class More Than Trump’s, Study Says Jim Tankersley, The New York Times

Tax plans from several Democratic candidates for president would cost less than President Trump’s signature tax cuts but deliver larger benefits to most low- and middle-income Americans, according to a new analysis by the Institute on Taxation and Economic Policy, a liberal think tank in Washington. The analysis is one of the first to examine the revenue losses and distributional effects of a growing number of tax-cut proposals from 2020 contenders that seek to draw contrasts with the $1.5 trillion package Mr. Trump signed into law in 2017.

Senate, House start to chip away at ‘kiddie tax’ hike Doug Sword, Roll Call

Both chambers are moving to reverse tax law changes that unintentionally subjected investment earnings of low-income children to the same tax rates paid by wealthier households. The House, which under the Constitution must originate revenue bills, plans to act later this week on a broader retirement savings bill that would eliminate the full set of changes to the so-called kiddie tax made by Republicans in the 2017 tax overhaul.

Goldman Doubles Projects Using Tax Breaks in Poor Neighborhoods Caleb Melby and Noah Buhayar, Bloomberg

Few banks have been as aggressive as Goldman Sachs Group Inc. in pursuing new tax breaks available to investors in low-income areas designated as “opportunity zones.” On Tuesday, an executive at the firm suggested that its portfolio of projects eligible for the incentives has doubled since last summer.

Senate passes bill to undo tax increase on Gold Star military families Naomi Jagoda, The Hill

The Senate on Tuesday passed a bipartisan bill to fix an issue where the 2017 GOP tax law raised taxes on military survivor benefits received by children, a sign that addressing the matter has become a high priority in Congress. Senators passed the measure by unanimous consent, and the House is expected to pass similar legislation this week.

Financial Technology

Thiel-Backed Crypto Startup Pays Out 6,567% Return Alastair Marsh, Bloomberg

Billionaire moneymen Peter Thiel, Alan Howard and Louis Bacon have seen plenty of big paydays—but probably none as unusual as this one. A buyback by Block.one, a cryptocurrency startup, will return as much as 6,567% to its earliest investors—in less than three years.

This fintech says it can help financial advisers take on banks Will Hernandez, American Banker

One product category (or the lack of it) has impeded financial advisers’ longtime ambition of becoming all-purpose fiduciaries for their clients: Bank accounts. Especially ones that pay generous interest. But Galileo Processing, a manager of prepaid card programs, says it has developed the equalizer for these wannabe bank challengers: a white-label digital banking product developed exclusively for financial advisers.

Opinions, Editorials and Perspectives

The Fed Is Likely to Make an ‘Insurance’ Rate Cut Tim Duy, Bloomberg

With the bond market pricing in at least one interest-rate cut by the Federal Reserve this year, there’s a debate whether such a move would only serve to benefit riskier assets. Federal Reserve Bank of Kansas City President Ester George recently said lower rates might spur asset price bubbles, create financial imbalances and eventually lead to a recession.

Research Reports

Risk Management in Financial Institutions Adriano A. Rampini et al., The National Bureau of Economic Research

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that better-capitalized institutions hedge more, controlling for risk exposures, both across institutions and within institutions over time.

Morning Consult