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Washington Wrap — Regulators confident in banks' health if economy falters

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Washington Wrap — Regulators confident in banks' health if economy falters

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

At the regulators

Federal regulators are expressing confidence in the U.S. banking system amid the recent volatility in the stock markets.

Equities saw a sharp drop for much of the week, continuing the volatility from before the new year as investors worried about the economic outlook. But Jelena McWilliams, the Federal Deposit Insurance Corp. chair, told Reuters that "nothing that happened in December gave us concern" and that banks are "superbly well capitalized." A day earlier, the Office of the Comptroller of the Currency told Reuters that banks were equipped to remain healthy through a slowdown.

Stocks are recouping some of their losses today, following a U.S. jobs report that beat consensus estimates and after comments from Fed Chairman Jerome Powell at a conference that the central bank "will be patient" on its interest rate increases.

Powell attributed the recent selloff to investors pricing in the downside risks facing the economy, though he noted that overall, U.S. data show the economy "on track to sustain good momentum into the new year."

Asked about the financial system's resiliency, Powell said he feels "good about where the banks are," highlighting regulators' requirements that banks hold higher capital and liquidity buffers and that they plan for a hypothetical bankruptcy. But he also noted some areas outside the banking system that need more work, such as ensuring that international central clearing protections are adequate.

On Capitol Hill

In the first votes of the 116th Congress, House members are pursuing a series of internal rules for the lower chamber that include barring any member or staff from serving on corporate boards of publicly traded companies. The measure would take effect in 2020.

Voting for the entire package is expected to conclude Jan. 8.

Rep. Maxine Waters, D-Calif., was officially elected chairwoman of the House Financial Services Committee. Under the new rules package, the number of House Financial Services subcommittees increased to seven from six, to include a subcommittee on diversity.

In the Senate, Majority Leader Mitch McConnell, R-Ky., named Sens. Martha McSally, R-Ariz., and Kevin Cramer, R-N.D., to the Senate Banking Committee.

Other news

Wall Street's securities and derivatives regulators are operating with skeleton staffs as a result of the U.S. federal government's two-week-long shutdown.

Since Dec. 27, a "very limited number" of SEC staffers have been available to respond to emergency situations, including law enforcement, according to the agency's website. The SEC's operational plan under a federal government shutdown allows for the continued operation of certain processes and systems, though, including its corporate filings database known as EDGAR.

The SEC usually operates with around 4,400 employees. But under its plan, the agency only uses about 6.5% of its employees during a shutdown. Around 110 employees have been working on law enforcement matters since the shutdown began, while approximately 175 other employees have remained for security protocols.

Meanwhile, the Commodity Futures Trading Commission, which oversees derivatives trading, has relied on a "small team" of employees during the shutdown, the agency's chairman, Christopher Giancarlo, said in a Dec. 21, 2018, statement.

Those employees have been tasked with monitoring futures and swaps markets, pursuing essential enforcement activities and evaluating trading for any impacts on clearing systems. In his statement, Giancarlo did not identify how many employees would be retained during the shutdown.

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