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.
On Capitol Hill
A key congressional panel took a major step to overhaul the U.S. housing finance system with a landmark hearing featuring three top federal housing finance regulators.
The Senate Banking Committee called Treasury Secretary Steven Mnuchin, Department of Housing and Urban Development Secretary Ben Carson and Federal Housing Finance Agency Director Mark Calabria to discuss in more detail their housing finance reform plans.
The hearing came days after Mnuchin's and Carson's departments released their long-awaited reports outlining steps to free Fannie Mae and Freddie Mac from conservatorship.
Plans to recapitalize the mortgage giants took center stage at the hearing, where Mnuchin said that if the government-sponsored enterprises raised about $100 billion in capital, they might avoid the too-big-to-fail designation.
Sen. Mark Warner, D-Va., expressed disappointment that Mnuchin would not commit to designating Fannie and Freddie as systemically important.
But Mnuchin clarified later to reporters that if capitalization standard-setting negotiations with the FHFA were sufficient, then and only then would the GSEs avoid a designation by the Financial Stability Oversight Council, which he chairs.
The next day, Calabria told a group of credit unions that a plan to recapitalize Fannie and Freddie would likely be released "very soon," with a year-end target for finalization.
The Senate Banking Committee also heard insurance regulators' dissatisfaction with a proposed international capital standard for insurers that may be at odds with U.S. regulations.
The standard, dubbed ICS 2.0, uses a "market-based valuation" approach that regulators are concerned could undermine long-duration insurance products commonly sold in the U.S., such as annuities and life insurance.
The International Association of Insurance Supervisors' vote to move forward with ICS 2.0 will take place in Abu Dhabi in November.
Regulators did not give a clear answer during the hearing on how they would vote. But they expressed commitment to staying engaged through the process and noted they are moving forward with a separate method that they hope will provide a comparable outcome to ICS 2.0.
Separately, committee Chair Mike Crapo, R-Idaho, is considering regulatory relief for banks that offer services to cannabis-related businesses, with a vote on a measure he may craft or adopt from a current Senate bill, POLITICO reported Sept. 13.
Crapo's comments represent a sharp change on the issue for the lawmaker, who had been adamant that the Department of Justice should de-designate cannabis as a narcotic before any action from Congress. Crapo signaled an openness in his stance at a hearing in July.
In other Senate news, the chamber confirmed Federal Reserve Governor Michelle Bowman for a full 14-year term at the central bank.
Bowman, who oversees community banking issues at the Fed, has been in her role since November 2018 but was serving a term that would have expired at the end of January 2020.
President Donald Trump reappointed Bowman to a full term at the Fed despite his criticisms of the central bank's interest rate decisions, which Bowman has voted for during her time there.
Trump has two vacancies to fill at the Fed board. He has said he wants to appoint St. Louis Fed Research Director Christopher Waller and conservative economist Judy Shelton to the two vacancies.
At the SEC
Eight attorneys general from across the U.S. are suing the SEC over concerns that a rule package designed to curb conflicts of interest in the brokerage industry does not go far enough.
Led by New York Attorney General Letitia James, the group filed the lawsuit in the Southern District of New York on Sept. 10. At the heart of the case are fears that the SEC's Regulation Best Interest, which passed in June by a 3-1 vote, puts brokers' interests above those of retail investors.
Regulation Best Interest marked the cumulative result of the SEC's yearslong exploration of standards of care in the financial advice arena. The reforms, which came through a series of separate rules, were designed to force broker/dealers to act in the "best interest" of their clients when advising them on where to invest their money. The SEC says the standard is an improvement from the current standard that brokers have to comply with, wherein they are required to recommend investments that are at least suitable to their clients.
But the eight attorneys general, who join an expanding group of Regulation Best Interest critics that already includes consumer advocates and many Democratic lawmakers, say the SEC did not fulfill its obligations under the Dodd-Frank Act to establish a standardized duty of care for both brokers and investment advisers.

