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Washington Wrap: Dodd-Frank in White House's crosshairs

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.

At the White House

President Donald Trump on Feb. 3 signed an executive order calling for a review of the Dodd-Frank Act. White House Press Secretary Sean Spicer said in a press briefing before the signing: "The first is an executive order proposing guideline principles that sets the table for a regulatory system that mitigates risk, encourages growth and, more importantly, protects consumers."

While the action kicks off a process that could ease financial regulations, analysts said they expect policymakers to tweak rules, as opposed to outright repeal. Any actual reforms will take some time, said Alan Kaplinsky, a partner with Ballard Spahr focused on consumer financial law. The Dodd-Frank Act itself did not implement many regulations; rather, it called on regulators to write new rules. In a Feb. 3 note, analysts at Evercore ISI wrote that more than 500 regulations have been passed due to the law and that repealing them will require acts of Congress. The analysts wrote that they expect Trump's executive order to be a positive for the markets, but they pushed to temper enthusiasm.


Trump faced backlash from the business community after a Jan. 27 executive order enforcing a temporary travel ban against citizens of seven predominantly Muslim countries in the Middle East and Africa. A number of financial industry leaders, including Michael Corbat of Citigroup Inc. and Lloyd Blankfein of Goldman Sachs Group Inc., expressed concern over the measure. Jamie Dimon, CEO of JPMorgan Chase & Co., released a memo offering support to any affected employees. Dimon is a member of Trump's strategic and policy panel, and is rumored to have met with the president Feb. 3.


Late on Jan. 31, Trump announced that he had nominated Judge Neil Gorsuch to the Supreme Court. Gorsuch, who has served in the Court of Appeals for the Tenth Circuit since 2006, would replace conservative Justice Antonin Scalia, who died Feb. 13, 2016.

Gorsuch has a record of legal rulings that reveals a desire to rein in agency powers. His perspective on issues like the Chevron deference might reveal a desire to allow courts to restrict the amount of leeway regulators have in interpreting congressional statutes.


On Jan. 30, Trump signed an executive order eliminating regulations 2-for-1. The order, which follows through on a campaign promise to unleash businesses, directs any executive department of agency to identify at least two existing regulations to be repealed for every new regulation introduced.

On the Hill

A number of Trump's cabinet nominees weathered considerable drama as they inched closer to full confirmation this week.

The Senate Finance Committee had originally scheduled a vote on Treasury Secretary-designate Steven Mnuchin on the evening of Jan. 30. But Democrats refused to convene, forcing the committee to push back the vote to Jan. 31, when they were also scheduled to discuss the nomination of Tom Price for Secretary of the Department of Health and Human Services.

Democrats were a no show for that Jan. 31 vote, instead holding a press conference in the Senate hallway to protest how both candidates failed to properly answer their questions. Republicans were fuming in response, with Chair Orrin Hatch, R-Utah, calling the move "offensive" and claiming he would ultimately "get these people through."

The next day, Republicans reconvened as Democrats continued to stand out their boycott. Hatch, following through on his promise, suspended committee rules requiring at least one member of the opposing party to be present for official matters. The committee then voted twice in a 14-0 decision to send Mnuchin and Price to a full Senate vote.

Neither candidate is scheduled for a full Senate vote yet.

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The Senate did fully confirm former Exxon Mobil Corp. CEO Rex Tillerson as Secretary of State in a 56-to-43 vote on Feb. 1. Concerns were raised over Tillerson's ability to survive the confirmation process during a committee hearing in which Sen. Marco Rubio, R-Fla., described the corporate executive's answers on several questions as "troubling." Rubio ended up voting to advance Tillerson out of the Senate Committee on Foreign Relations.


Sen. David Perdue, R-Ga., introduced a bill Feb. 1 that would denounce the Consumer Financial Protection Bureau's proposed rule regarding prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act. The bill would employ the Congressional Review Act to reverse the entirety of the rule through a simple majority, bypassing the Senate filibuster that would have otherwise required 60 votes.

At the Fed

The Federal Reserve Board and the OCC on Feb. 3 released the scenarios they will use for the 2017 Dodd-Frank Act stress testing and Comprehensive Capital Analysis and Review. As opposed to 2016's test, the 2017 severely adverse scenario does not include negative short-term Treasury yields. It does involve a "slightly more severe" U.S. economic downturn. As for international developments, the scenario includes recessions in the eurozone and the U.K. that are more severe than last year's test, while the recessions in developing Asia are less severe.

Thirty-four banks with more than $50 billion in assets will undergo the Fed's stress tests and CCAR. The OCC's stress-testing guidelines will apply to banks with more than $10 billion in assets.


The Federal Open Market Committee held its first meeting of 2017, concluding Feb. 1 that they would leave the U.S. central bank's benchmark interest rate unchanged. In a relatively muted statement, the Fed said the economy had continued to expand at a "moderate" pace and noted strong job gains and higher inflation. Most of the policy statement repeated what was said in the December 2016 economic outlook in which the Fed lifted rates by 25 basis points.


On Jan. 30, the Fed finalized an exemption that would allow bank holding companies with total consolidated assets under $250 billion to skip the qualitative assessment of the Comprehensive Capital Analysis and Review process. The original proposed rule suggested removing companies with less than $10 billion in foreign exposure from the qualitative assessment as well, but the criterion was removed in response to comments.

In the final rule, the Fed also lowered the amount of additional capital a company can distribute to shareholders beyond whatever was authorized under its capital plan.

The final rule is effective for the 2017 cycle.


The Fed also teamed up with the North Carolina Office of the Commissioner of Banks to issue a cease and desist order against Winston-Salem, N.C.-based BB&T Corp. related to a consent order issued by the FDIC to the company's unit Branch Banking and Trust Co. The enforcement action concerns deficiencies in its anti-money laundering and Bank Secrecy Act programs. The company has 60 days to prove to regulators it can strengthen its board's oversight of its firmwide compliance risk management program.

Chatter

Although Trump has signed a number of executive orders, the administration has yet to substantively tackle the topic of financial regulation, prompting one reporter to press White House Press Secretary Sean Spicer in a conference Feb. 1. Responding to a question about whether or not Trump stands by the GOP platform of reinstating the bank-breaking Glass-Steagall bill, Spicer said "the president's position is consistent, yes."

Trump also mentioned Jan. 30 that he planned to do a "big number" on the Dodd-Frank Act, a landmark piece of financial regulation crafted in the wake of the financial crisis. Trump did not offer additional specifics on what that meant.


On Jan. 31, Rep. Patrick McHenry, R-N.C., sent a letter to Federal Reserve Chair Janet Yellen ordering the agency to stop negotiations with international groups that set regulatory standards. McHenry argued that its "unacceptable" that the Fed continues to negotiate with the Financial Stability Board, the Basel Committee on Banking and the International Association of Insurance Supervisors when the president has not fully assembled his cabinet yet. The letter, seen by S&P Global Market Intelligence, marks continued GOP pressure on the Fed to align itself more with the White House.


A spokesperson for the National Credit Union Administration said Jan. 31 that the agency determined that Trump's regulatory moratorium issued on inauguration day does not affect the NCUA because it is an independent federal financial regulator. But the agency said it would still adhere to the "spirit" of the order. Trump named J. Mark McWatters the new chairman of the NCUA on Jan. 26.


On Jan. 27, Sen. Elizabeth Warren, D-Mass., penned a letter to Acting Secretary of Labor Edward Hugler expressing concern about the disappearance of a website where Wells Fargo & Co. employees could file labor complaints or report illegal activity following its widely publicized fake accounts scandal. In the same letter, Warren further alleges that Wells Fargo may not have honored mortgage agreements, violated labor laws to satisfy internal risk inspections and terminated employees for calling the company's ethics line.


Anthony Scaramucci, originally set for a senior role in the White House, might not join the team after all, Bloomberg News reported Feb. 2. Citing a "senior administration official," Bloomberg reported that the SkyBridge Capital II LLC founder and Trump transition team member was set for a head role in the Office of Public Liaison and Intergovernmental Affairs, but a holdup in an ethics review of his financial disclosures could derail that plan. Scaramucci is rumored to be in consideration for an ambassadorship instead.


According to an analysis by The Real Deal, Trump reportedly began transferring 71 of his New York City real estate properties into a trust Dec. 31, 2016, and Jan. 1. Trump vowed that he would not have control over the New York-registered trust, which will instead be operated by his eldest sons Eric Trump and Donald Trump Jr.

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