Posted May 8, 2018
Gun Sales and Banking
On May 1, 2018, several Senate Democrats sent a letter to the CEOs of eleven firms regarding financial entities taking leadership on gun violence. The firms they sent the letter to were: BB&T, BNP Paribas, Cowen and Company, JPMorgan, Mitsubishi UFJ Financial Group, Morgan Stanley, PNC Financial Services Group, Regions Financial, TD Securities, US Bancorp and Wells Fargo. The letter was led by Sens. Schatz and Feinstein. Signatories included Sens. Murphy, Blumenthal, Markey, Gillibrand, Van Hollen, Whitehouse, Hirono, Smith, Booker and Harris. This issue has been getting a lot of attention on both sides of the aisle in Congress and according to recent media, some in the industry are looking at creating a new credit-card purchase code for firearms dealers.
Preview of the Congressional Work Period – May 2018
With the House and Senate currently planned to be in session for just 55 total days before the August recess (and the House is scheduled to be in only 40 of those days), Congress comes back for another three-week work period before recessing the last week of the month for Memorial Day. On the Hill, among other items, we expect to see the appropriations process ramp up as well as potentially seeing financial services regulatory reform cross the finish line to the President’s desk. May also marks the real start of the primary season, with eleven states holding elections throughout the month. These and other topics are highlighted below as we preview what we believe to be the focus in Congress this month, subject as always to external or unexpected events that could disrupt the expected schedule.
Financial Services Regulatory Reform – S. 2155
The most likely avenue for S. 2155 being signed into law remains the House taking up the Senate-passed legislation and sending it to the President’s desk. Recently, House Financial Services Chair Hensarling (RTX) began to relent some on his demand that additional measures be added to the package when he said he was “open to other pathways” should his provisions not get added. House Speaker Ryan (R-WI) too has moved up his timetable for the bill – he recently said legislation overhauling the Dodd-Frank Act would be on the President’s desk in the next month. As a reminder, Hensarling proposed a “bipartisan bucket” of approximately 30 different bills to be added to S. 2155 and, until recently, said that the House would not take up the legislation until such measures were considered. Hensarling offered these bills ahead of Senate passage of S. 2155, but the fragile compromise of support with Democrats prevented these measures from being added before it passed the upper chamber. Senate Democrat supporters of the bills have remained stalwart opponents to adding provisions to S. 2155, and it seems their resolve may soon pay off.
Bank Secrecy Act/Anti-Money Laundering
We still believe that BSA/AML reform is an area of focus for both the House Financial Services Committee and Senate Banking Committee for the remainder of the year, but other legislative priorities have slowed progress on the issue. Senate Banking is still in the initial information gathering phase, and the same team that is working on CFIUS is working on AML, so we don’t expect much progress until CFIUS is completed. The House Committee is further along in the process and has been working on a discussion draft for several months. We understand that some in the small business community have concerns about the beneficial ownership provisions in that draft that seem to be on their way to being cleared up, but at this point it is unlikely that such legislation will be marked up in May.
HFSC and SBC Markups Outside of S. 2155, CFIUS reform, and NFIP reauthorization (noted below) there are relatively few banking priorities outstanding in either chamber. Recently, House Financial Services Committee Chairman Hensarling requested that the Senate Banking Committee begin consideration of some of the 20-odd financial services bills passed by the House this Congress. Senate Banking has tentatively committed to holding a capital markets focused markup in late May. Committee Democrats originally pushed for this markup during the drafting of S. 2155, but it is uncertain if any of the House-passed financial services bills will be included, and Democrats are also likely to offer several corporate governance and consumer protection measures. Additionally, a Financial Services Committee mark-up originally schedule for this week appears to have been postponed until June.
Volcker Rule Simplification
After months of speculation and anticipation, financial regulators finally appear positioned to begin the process of revising the Volcker Rule. The Treasury Department targeted the rule for a series of changes in its July 2017 report reviewing the core principles of the U.S. financial regulatory system. While Congress has been quicker to propose and pass legislation addressing Treasury’s Volcker rule recommendations, the five financial regulators jointly tasked with Volcker oversight have been more deliberative in their approach. Federal Reserve Chair Powell, Federal Reserve Vice Chair for Supervision Quarles, Comptroller of the Currency Otting, SEC Chair Clayton, and CFTC Chair Giancarlo have each publicly voiced support for revisiting and streamlining the rule since taking their respective positions. Once FDIC Chair nominee McWilliams is in place, she is also expected to help further ease the interagency tailoring process. Recent comments by Otting indicate that a full interagency rule proposal to streamline Volcker could be released this Spring. The proposed rule is likely to include provisions aimed at improving regulatory coordination, simplifying the definition of proprietary trading, increasing market-making flexibility, relieving covered funds restrictions and reducing compliance burdens. Congress remains set to pass its own Volcker Rule relief, included within S. 2155, ahead of the August recess. Once S. 2155 is signed into law, banking entities with $10 billion or less in assets will be exempt from the Volcker Rule.
Gun Control and Financial Firms
The vocal and persistent efforts of students after the Parkland shooting have generated a lot of press and activism, but it continues to be unlikely that Congress will move to enact any gun control legislation this year (although the omnibus spending bill did contain language to improve background checks and research on gun violence). The Florida shooting and the public outcry also spurred corporate action, including decisions by retailers to enact gun safety measures and action by some financial firms to change lending practices to certain firearms manufacturers and clients who don’t have some gun control policies. While these actions have been applauded by Democrats, some of whom have encouraged other financial firms to follow suit (last week, twelve Senate Democrats sent letters to eleven financial firms pressuring them to follow the lead of Citibank and Bank of America who’ve announced such changes in lending practices), they have caught the ire of some Republicans who view this corporate action as a serious infringement on the Second Amendment. Senate Banking Committee Chairman Crapo (R-ID) has been speaking directly with financial firms on this issue and recently wrote to both Citi and BoA criticizing their moves to deny services for lawful businesses they disfavor. There also have been some Republican calls to cancel government contracts with financial firms who have waded into the gun control debate. While there could be hearings on the steps taken by these financial firms, all of this attention likely will only serve to amplify this issue on both sides leading up to the upcoming midterm elections.
The Treasury Department continues to work on their report discussing technological innovation in the financial system and nonbank institutions who offer bank-like services. This is the fourth and final report resulting from an Executive Order on “Core Principles for Regulating the United States Financial System.” Treasury is currently drafting the report and finishing stakeholder meetings. From there the report must be circulated for inter-agency review – a process we expect to take about a month. Current timing expectations are for the report to be released in June. According to recent remarks from Craig Phillips, Counselor to the Treasury Secretary, the report will look at “regulatory asymmetries” that exist between emerging financial technology companies and their traditional counterparts. Phillips also said the report will speak to rationalizing the federal vs state regulatory landscape many of these institutions face. Under former Comptroller Curry, the OCC floated a potential optional federal charter for financial technology companies as a way to alleviate some of these concerns. Expectations have begun building that Otting will address the proposal around the time the Treasury Department releases its financial innovation report (June).
While we thought we would see Jelena McWilliams come to the Senate Floor to be confirmed as FDIC Chair during last month’s work period, the Senate instead focused on ensuring that Mike Pompeo moved quickly through the process to become Secretary of State. McWilliams could still receive consideration this month, but with the backlog of nominees and consideration of high-profile positions, that could continue to slip. In an effort to resolve the nominee logjam, Senate Republicans are trying to move forward on a proposal to limit debate on certain candidates. Such a resolution passed the Rules Committee in late April on a party-line vote, so it faces tougher prospects to get Democratic support for 60 votes on the Floor. Republicans could always go nuclear on the rule change, but even that move is not guaranteed given the slim majority and absence of Sen. McCain (R-AZ). In other financial services positions, Randy Quarles continues to await confirmation for a full term as a Fed governor, and we expect to see the Senate Agriculture Committee hold a confirmation hearing soon on Dan Berkowitz to become a CFTC Commissioner, which would set the stage for him to be paired with Dawn Stump to be confirmed before the end of the summer.
As noted above, there are only 40 legislative days in the House before the August recess, but even that number likely overstates the amount of time the lower chamber will be in town, as we expect days to continue to be given back throughout the summer for Members to be able to be in their districts to campaign. And while some Members are preparing for November, there are several interesting primaries taking place this month for House and Senate seats as well as for governor’s mansions across the country. Of note is a Republican primary in West Virginia to determine who will take on Sen. Manchin, a bitter battle between two Republican House Members and a self-funded businessman to run against Sen. Donnelly in Indiana, the Republican primary in Ohio to determine who will run against Sen. Brown, the Democratic gubernatorial fight in Ohio between former congressman Dennis Kucinich and former state attorney general and CFPB Director Richard Cordray, and a primary challenge to Rep. Pittenger (R) in North Carolina. And that’s just tomorrow. Later this month, we’ll see Pennsylvania Republicans go to the polls to choose their candidate to run against Sen. Casey (Rep. Barletta is the current front runner in that primary), but all of these elections are just teasers to the 18 primaries on tap across the country in June.
Legislative Calendars for 2018
House 2018 Calendar
Senate 2018 Calendar