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Washington Wrap — Treasury recommends not killing orderly liquidation authority

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Washington Wrap — Treasury recommends not killing orderly liquidation authority

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

At the Treasury

Treasury Secretary Steven Mnuchin publicly released the department's report to the White House on the orderly liquidation authority, or OLA, a Dodd-Frank postcrisis provision designed to give the Federal Deposit Insurance Corp. the power to tap into a fund to resolve a financial institution under failure.

The report recommended keeping the OLA but instituting more stringent rules on its use, to the disappointment of many Republicans who have previously proposed eliminating it entirely, arguing that the orderly liquidation fund would burden taxpayers with the financial bailout of a large firm.

The Treasury report prioritized a new "Chapter 14" bankruptcy code that would allow a large failing financial firm to transfer assets and certain liabilities to a new bridge company, so that counterparties could continue to transfer derivatives and other financial contracts. The OLA would serve as an "option of last resort," which did not sit well with House Financial Services Committee Chair Jeb Hensarling, R-Texas.

Hensarling said the recommendation to maintain the OLA conflicts with President Donald Trump's promise to prevent taxpayer-funded bailouts.

Other News

Lobbyists are ramping up the public campaign against the Senate Banking Committee's list of changes to Dodd-Frank. Progressive groups took to Twitter to rally Americans to urge their Senators to vote against a bill that proposes changing the thresholds for enhanced regulatory supervision and providing a regulatory off-ramp for low-leveraged community banks.

But the bill appears poised to meet the 60-vote threshold needed to pass the Senate; on Feb. 15, Democratic Senator Doug Jones of Alabama joined as a co-sponsor, meaning that 12 Democrats and one Independent now support the legislation. Republicans currently have a 51-seat majority in the Senate.


The Consumer Financial Protection Bureau, with Acting Director Mick Mulvaney at the helm, called for feedback on its external engagements. The request for public comment is the fifth request for information on how the CFPB functions.

Mulvaney, meanwhile, turned up the heat on a public spat between him and Sen. Elizabeth Warren, D-Mass., stemming from a letter from Warren alleging that Mulvaney sought to freeze the agency's rules on payday lending to benefit companies that contributed to his political campaigns. In a letter dated Feb. 15, Mulvaney wrote back and denied the allegations, instead questioning Warren on why she opposed Congressional efforts to kill the CFPB's rule on forced arbitration clauses. Mulvaney claimed Warren had received campaign donations from trial lawyers who would have benefited from a rule blocking class-action lawsuits.

"[S]hall we agree that such accusations are baseless and discuss policy matters as responsible officers holding a public trust?" Mulvaney wrote.

The CFPB also released calendars showing that Mulvaney, who is also Director of the Office of Budget and Management, worked on CFPB matters for only 10 days during the month of January. Mulvaney is noted as having met with the Conference of State Bank Supervisors and U.S. Treasury Counselor Craig Phillips. On Jan. 18, Mulvaney had a lunch with "Republican chief of staff."


CNBC reported Feb. 23 that members of the Business Roundtable, including JPMorgan Chase & Co. Chairman and CEO Jamie Dimon, had a private dinner with Trump at the White House on Feb. 22. The high-profile executives reportedly discussed concerns over the administration's rhetoric on the North American Free Trade Agreement.

At the Fed

The Federal Reserve's Board of Governors still has four of its seven spots unfilled, and at least one Fed official is publicly sharing his concerns over the vacancies.

Atlanta Fed President Raphael Bostic said Feb. 22 the vacancies make it "much more difficult" for the U.S. central bank to complete its wide array of tasks. The board has not dropped down to three members since its current structure began in 1936.

Bostic also commented on the state of the Consumer Financial Protection Bureau, given the changes and tone that Mick Mulvaney has brought as acting director. Bostic acknowledged some critics' concerns over the CFPB's aggressiveness under its former leader, but said the agency's creation was valuable and sparked a more public debate about consumer interest issues.

Also this week, Randal Quarles, the Fed's vice chairman for supervision, downplayed the volatility in the stock market and highlighted the "growing sense of economic optimism" in the U.S. The recently passed tax overhaul, he added, may also boost the economy by furthering demand and investments.

Fed officials agree that the tax cuts will help, though they are not sure how much yet. The minutes from the Federal Open Market Committee meeting last month show several participants "expressed considerable uncertainty" about the tax changes' effects, though they say their business contacts list the tax law as a major reason behind their growing optimism.

Meanwhile, President Donald Trump's administration highlighted the recent wave of wage increases and bonuses in the Council of Economic Advisers' annual report.

The report says the major benefits to workers were expected to come in the long term as business capital investments raised productivity and then wages. The shorter-term announcements, the report added, are "also rational in a tightening labor market" as companies look to retain their workers with a compensation increase.

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