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Washington Wrap — SEC's Jackson set to exit; Dems dial up CRA rule opposition

The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.

At the SEC

SEC Commissioner Robert Jackson Jr. will depart the agency in February, leaving just one Democratic representative on the commission.

A political independent who was appointed to the Democratic post in 2017, Jackson revealed Jan. 16 that he plans to return to New York University, where he teaches law, later this year. Jackson will leave the SEC on Feb. 14, his office said. His term officially ended in June 2019, but SEC commissioners can usually stay in their posts for up to 18 months after their terms end and before a successor is confirmed.

The move will make Allison Lee the sole Democratic commissioner.

That could set the stage for SEC Chairman Jay Clayton, a political independent appointed by President Donald Trump, to push forward proposals alongside the two Republicans on the commission, Hester Peirce and Elad Roisman.

Democratic lawmakers on Capitol Hill, led by Senate Minority Leader Chuck Schumer of New York, have reportedly suggested that the White House should nominate Caroline Crenshaw as Jackson's successor. But it could take months for Crenshaw, an attorney currently on Jackson's staff at the SEC, to be nominated, confirmed and sworn into the position.

In Congress

Democrats on the House Financial Services Committee opened the second session of the 116th Congress with two hearings on a pair of regulatory issues that could affect banks for decades.

At a Jan. 14 hearing, lawmakers exposed deep divisions between two proposals to modernize the Community Reinvestment Act. Members pitted two banking regulators' joint proposal against the Federal Reserve's separate approach. Fed Governor Lael Brainard introduced the central bank's proposal, which eliminates the controversial "single ratio" for measuring a bank's overall CRA activity.

In December 2019, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. introduced a long-awaited rule to modernize the outdated law intended to prevent banks from discriminating against low-income and minority consumers. But Democrats and community groups immediately criticized the proposed rule for introducing loopholes that banks could manipulate to achieve a higher CRA rating.

Subcommittee Chairman Gregory Meeks, D-N.Y., said a day after the hearing that all options are on the table to nullify the rule if the OCC and FDIC's proposal advances with few changes.

"I think that there would be a huge problem if the OCC moved forward and created different standards for CRA," Meeks said in an interview. Aspects of the OCC's proposal could be positive developments for the rule, Meeks said, but the proposal needs to be adjusted with others' input.

"If they insist on moving forward without dialogue with the Fed and others, then we have no other alternative," he said.

Meanwhile, full committee chair Rep. Maxine Waters, D-Calif., sent letters to Comptroller Joseph Otting and FDIC Chair Jelena McWilliams to ensure the public comments on the rule are not fake. In the letter, Waters asked for submission procedures at each agency for reviewing comments and detecting false identities. The chair also asked if there were fake comments submitted to the OCC during an advanced notice for proposed rulemaking period in 2018, when the OCC solicited the public for ideas to modernize the CRA.

Waters cited an occasion in late 2019, when the SEC's Clayton errantly quoted comments submitted by lobbyists posing as individual investors to show support for a rule.

"These fraudulent comments undermine legitimate debate on proposed rules by creating the false appearance that a position has widespread, grassroots support," Waters wrote to the policymakers. "Given the critical importance of CRA to low- and moderate-income communities, the committee is interested in ensuring any amendments to the CRA are made with full and accurate input from all interested parties."

Another subcommittee brought in Financial Accounting Standards Board Chairman Russell Golden to defend the group's landmark accounting standard that went into effect Jan. 1 for large, publicly traded companies.

Golden appeared Jan. 15 to defend the current expected credit loss accounting standard, known as CECL.

Lawmakers from both parties criticized Golden and FASB for a lack of a comprehensive economic analysis prior to CECL's finalization in 2016. Golden argued that a cost-benefit analysis was done "consistent with [FASB's] mission" while the standard was being developed.

Rep. Brad Sherman, D-Calif. and chair of the subcommittee, said he was open to advancing legislation and developing Senate allies to overturn CECL should a study by the U.S. Treasury Department show that the standard would adversely affect the economy.

At the Fed

The White House announced Jan. 16 that it intends to formally nominate two economists to fill top positions at the central bank.

The announcement comes six months after Trump announced on Twitter that he would nominate Judy Shelton and Christopher Waller.

Shelton, a conservative economist, is the U.S. executive director for the European Bank for Reconstruction and Development and has spoken favorably of a return to the gold standard. Waller is executive vice president and research director at the St. Louis Fed and previously chaired the economics department at the University of Notre Dame.

Policy analysts predicted in July 2019 that Shelton would have a tougher confirmation process than Waller, given Shelton's previous controversial comments.

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