The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.
Trump Transition
President-elect Donald Trump nominated Exxon Mobil Corp. Chairman and CEO Rex Tillerson as the next U.S. Secretary of State. The announcement, which came by tweet on Dec. 13, championed Tillerson as "one of the truly great business leaders of the world."
Trump added another business executive to his team Dec. 12, announcing that Goldman Sachs Group Inc. President and COO Gary Cohn will lead the National Economic Council. Cohn, who had been lined up as a likely successor to Goldman CEO Lloyd Blankfein, will now lead Trump as an economic adviser in a role that does not require Senate confirmation. On Dec. 14, Goldman Sachs said it had named David Solomon and Harvey Schwartz as presidents and co-COOs to replace Cohn.
Trump also made waves by nominating former Texas Gov. Rick Perry as the next head of the Department of Energy on Dec. 13. Perry famously forgot the name of the agency while threatening to eliminate it during a presidential debate in 2011. Perry is also a board member of Energy Transfer Partners LP, the developer leading the controversial Dakota Access Pipeline project.
News
In its final meeting of 2016, the Federal Reserve announced it raised the U.S. central bank's key interest rate target by 25 basis points to a range of 0.50% to 0.75%. The Federal Open Market Committee cited "solid" job gains and inflation moving closer to their long-run 2% target in the decision. The rate hike, which was widely expected by financial markets, is only the second in more than a decade.
2016 isn't quite over for Wells Fargo & Co. On Dec. 13, the company was hit with restrictions on its international and nonbank businesses after failing to fix deficiencies in its 2015 "living will" plan detailing how the company would unwind in the event of distress or failure. The Federal Reserve and the FDIC said there were particular issues with the "legal entity rationalization" and "shared services" components of Wells Fargo's plan. The regulators will not allow the company to open any international bank entities or acquire any nonbank subsidiaries until Wells Fargo submits a revision to its plan, which is expected by March 31, 2017.
On Dec. 15, the Federal Reserve finalized its rule regarding long-term debt holdings and total loss-absorbing capacity, or TLAC, at the largest banks. After reviewing public comments from the rule's proposal in October 2015, the Federal Reserve made a number of changes to the rule that, based on an impact analysis, would reduce the total shortfall for long-term debt and TLAC requirements from $120 billion to about $70 billion. The rule is aimed at requiring global systemically important banks, or G-SIBs, to meet minimum thresholds to enhance banks' resiliency and resolvability in the event of failure.
The U.S. Court of Appeals for the D.C. Circuit rejected an effort from the National Association for Fixed Annuities to stop the Department of Labor's fiduciary rule, which would require brokers to minimize conflict of interest when providing investment advice. The annuities association argued that under the rule its members would face "irreversible and costly changes" while the Department of Labor cautioned the court against taking the "extraordinary step of enjoining lawful regulations issued after six years of public comment and consideration." The court refused to stop the rule, saying that the appellant failed to satisfy the "stringent requirements for an injunction pending appeal."
On Dec. 9, the Department of Education rejected Navient Corp. from its debt collection contract, awarding about $417.1 million in revenue to seven other companies. The award, which could last as long as 10 years, marks a large missed opportunity for Navient since the company has collected on defaulted student debt for the department since 1997, Bloomberg News reported.
Chatter
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, took advantage of the Fed's rate hike announcement on Dec. 14 to advertise the Financial CHOICE Act. Hensarling criticized the Fed's transparency, claiming that the Financial CHOICE Act would promote a rules-based monetary policy and give Americans "more certainty about what comes next so they could better plan for their future."
Former New Jersey Congressman Scott Garrett met with Trump's transition team Dec. 15, possibly indicating his candidacy for a top spot in the administration. The Wall Street Journal reported that Garrett, a House Republican that lost his re-election bid to Democrat Josh Gottheimer last month, has expressed interest in a role at the Federal Housing Finance Agency and the SEC. While SEC Chair Mary Jo White will step down in January 2017, FHFA chief Mel Watt has a term that doesn't expire until January 2019.
A former deputy general counsel for the Consumer Financial Protection Bureau said during a Dec. 14 webinar that Trump might not be able to muzzle the CFPB as many expect. Quyen Truong, who is now a partner with Stroock & Stroock & Lavan LLP, said "it's highly improbable in my opinion" that Trump fires Director Richard Cordray because of the judicial process involved with a lawsuit concerning the agency's constitutionality. A recent court ruling found the agency's structure to be unconstitutional, recommending the regulator be placed under the president's direction, meaning Trump could fire Cordray without having to show cause. But Truong said the CFPB's appeal of that ruling puts the unconstitutionality finding on hold. Truong said a decision to fire Cordray without cause would subvert judicial process, and it is not clear Trump considers that a worthwhile use of his political capital.
Senate Democrats are already playing defense against Trump's appointees, launching a website asking people to submit complaints about Treasury secretary nominee Steven Mnuchin. The website alleges that Mnuchin, at the head of OneWest Bank Group LLC, fueled a "foreclosure machine" that repossessed the homes of thousands of Americans between 2009 and 2015.
