The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to firstname.lastname@example.org.
On Capitol Hill
The House Financial Services Committee backtracked a bit on its Dodd-Frank relief bill, the Financial CHOICE Act, by pulling a controversial provision concerning a cap on interchange fees that banks can charge retailers, called the Durbin Amendment. The CHOICE Act originally proposed repealing the amendment's ceiling on the amount of charges that banks with over $10 billion in total assets could collect, igniting debate within the Republican party over whom to support: banks or retailers.
"I've said before that repeal of the Durbin amendment was the most contentious part of the bill among Republicans," House Financial Services Committee Chair Jeb Hensarling, R-Texas, said in a statement. "I believe it belongs in the Financial CHOICE Act, but I recognize and respect that many members of Congress feel differently."
Speaking on NPR on May 25, Hensarling said a Republican conference whip count on the Durbin issue ultimately persuaded him to pull the provision so the bill could "move on." Rep. Ted Budd, R-N.C., who took a strong stance against the Durbin amendment, said in a statement that he ultimately "deferred to the will of the Chairman and the Conference on this."
The Retail Industry Leaders Association, which includes the likes of Best Buy and Home Depot, applauded the news as an "important victory" that would hopefully put the interchange fee debate "to rest." Meanwhile, the Electronic Payments Coalition, which represents a number of credit unions, community banks and trade associations, vowed to keep fighting for a repeal of the Durbin amendment, calling it a "crony handout" that helps the largest retailers.
According to the House calendar, the CHOICE Act, now without the Durbin repeal, is scheduled for full-chamber consideration during the week of June 5.
At the White House
The White House unveiled its budget proposal for 2018 on May 22, proposing a $54 billion increase in defense spending offset by deficit reductions through healthcare reform and broader spending cuts. The blueprint also includes assumptions for financial regulatory reform, projecting deficits decreasing by $13 billion through the restructuring of the Consumer Financial Protection Bureau and the elimination of the Securities and Exchange Commission's reserve fund.
Members of President Donald Trump's cabinet had to answer some tough questions over the revenue estimates within the budget. Treasury Secretary Steven Mnuchin admitted to the Senate Finance Committee on May 25 that a tax reform plan was not yet ready at the time of the budget's publication, making it hard to verify whether or not the budget's expenditures indeed balance against the inflow of tax revenue. Mnuchin maintained that tax reform would include cuts that could be offset by economic growth, adding that the budget was also baking in expectations for economic growth in its revenue calculations.
Goldman Sachs Group Inc. managing director Jim Donovan, once rumored to be Mnuchin's top deputy at the Treasury, announced that he was pulling his own name from the nomination May 19. Politico reported that Donovan said he wants to focus on his family and can no longer accept Trump's nomination to a Treasury post that would have involved engineering the administration's tax code.
At the Courts
At the U.S. Court of Appeals for the District of Columbia on May 24, justices held an en banc hearing to debate an appealed decision deeming the CFPB's one-director structure as unconstitutional. Lawyers in attendance said they do not expect the court's judges to find the CFPB unconstitutionally structured, although the court may rule that the agency overstepped its authority in its mortgage kickback enforcement action.
In the hearing, the CFPB had to address arguments from both PHH Corp., the plaintiff in the original case, and the Department of Justice, which filed a brief in support of PHH. Both PHH and the Justice Department argued that the CFPB's structure allows it to bypass presidential authority and arbitrarily regulate and fine financial institutions. The CFPB, meanwhile, maintains that its independent structure does not represent a stretch of power.
At the Fed
On May 24, the Federal Open Market Committee released its minutes from a May meeting where the committee decided not to raise interest rates. The committee acknowledged the slowdown in the pace of economic activity but continued to expect improving conditions that would warrant gradual increases. The Fed is still expected to raise rates a total of three times in 2017.
The FOMC minutes also reveal committee support for a proposal that would gradually increase a cap on the dollar amounts of Treasury and other securities that would be allowed to mature each month, as part of a balance sheet wind-down effort.
Economists from the International Monetary Fund and the New York Fed warned markets that bond market liquidity could be in the process of drying up. In an analysis released May 24, the economists found that bonds traded by regulated banks facing capital charges were less liquid than bonds traded by less-highly levered institutions. The note, however, also entertains the idea that while bond markets may have become less liquid, it is possible that the regulations could have prevented larger or more-frequent stress events.