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Washington Wrap — Trump picks new FHFA head; SEC to review earnings frequency

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

At the FHFA

A Mark Calabria-led Federal Housing Finance Agency is expected to push for reforms at Fannie Mae and Freddie Mac, but dissolving the two entities is likely not in the cards despite the economist's past support of doing so, analysts say.

President Donald Trump this week picked Calabria, currently Vice President Mike Pence's chief economist, to lead the FHFA and replace the current director, Mel Watt.

Calabria, a housing policy expert and Senate staffer who worked at the libertarian think tank Cato Institute, has previously supported putting Fannie and Freddie into receivership. But analysts say it is unlikely Calabria would favor that approach as FHFA head, partly because he would be part of a broader team of Trump administration officials working on GSE reform.

Congressional approval of GSE reform remains a "long shot," given continued gridlock in Congress and the vast number of issues on lawmakers' plates next year, Gennadiy Goldberg, senior U.S. rates strategist at TD Securities, wrote in a research note.

That would turn the focus to the Treasury Department and FHFA, which can take several modest steps to reduce the footprint of Fannie and Freddie, including requiring them to shrink their portfolios further and transfer more credit risk to the private market, Goldberg wrote.

If confirmed, Calabria "will implement the administration's agenda rather than his own personal one," Keefe Bruyette & Woods analyst Brian Gardner wrote in a report. Although that will include talks with Congress, it is also possible that the administration will look to release the GSEs from conservatorship and recapitalize them without waiting for action from lawmakers, Gardner wrote.

The administration can technically release Fannie and Freddie from conservatorship, but dissolving them "would likely invoke the wrath of Congress," and privatizing them would require large amounts of capital and may be tough to do, Goldberg wrote. A more moderate step that the administration could take is letting the two GSEs gradually build up their capital, which would "slowly get them on the road toward eventual reform and privatization," he said.

At the SEC

Wall Street's chief regulator may soon ask for corporate America's thoughts on the quarterly earnings reporting process, months after Trump pushed the agency to study the impacts of reporting earnings every three months.

On Dec. 19, the SEC's five-person commission will consider whether to issue a request for comment related to companies' quarterly earnings releases and reports, according to a meeting agenda. Whether the SEC will change the quarterly reporting regime that has guided U.S. public companies for decades remains to be seen.

In October, SEC Chairman Jay Clayton said he does not believe the quarterly reporting requirement "is going to change for our top names any time soon." At the time, Clayton, a Trump appointee, expressed interest in possibly pursuing reforms to the quarterly reporting framework for smaller companies.

The criticism around quarterly reporting ultimately stems from many executives' fears that the public markets are becoming too focused on short-term returns, which they say inhibits their ability to guide their companies with a long-term focus.

On Capitol Hill

While the SEC's Regulation Best Interest does not specifically define "best interest," the agency's chairman told lawmakers that the proposal clearly outlines what is expected of brokers when advising their clients.

In April, the SEC proposed a set of guidelines for investment advice professionals to abide by when working with their clients.

"The fundamental duty is going to be that the broker cannot put his or her interests ahead of the client's," SEC Chairman Jay Clayton said Dec. 11 during a Senate Banking Committee hearing. "Is there a specific definition saying this is what it means? No, but there's no specific definition that says this is what the investment adviser standard means."

But certain lawmakers and investor advocates have become skeptical of the proposal, with many saying it will only lead to more confusion in the sector.

"We need a clear uniform fiduciary standard for advisers and brokers," said Sen. Elizabeth Warren, D-Mass., during the hearing. "If it's the same [for brokers and investment advisers], let me suggest something, Mr. Chairman: Just use the same words."


Rep. Kyrsten Sinema, a moderate Democrat who narrowly won an open U.S. Senate seat in Arizona, will join the Senate Banking Committee next year, Senate Minority Leader Chuck Schumer said Dec. 13.

Sinema has aligned with the financial services industry on several issues, including eliminating the single-director structure of the Consumer Financial Protection Bureau and replacing its leadership with a five-member commission. She also broke with much of her party by voting for the Dodd-Frank Act revision package that President Donald Trump signed into law.

The other Democrat joining the committee, Minnesota Sen. Tina Smith, voted against the bill.

Sen. Sherrod Brown, D-Ohio, will remain the ranking member of the committee.

At the CFPB

The new CFPB director, Kathy Kraninger, said this week that she would seek enforcement actions only in cases where Congress has given the agency explicit authority.

"Where there are bad actors, we absolutely will take the enforcement actions to the full extent of the law [and make] sure we are protecting consumers," Kraninger told reporters Dec. 11, indicating that the CFPB would continue to have more modest enforcement goals than it did under its Obama-era leader Richard Cordray.

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