On Capitol Hill
The Senate Banking Committee's top Democrat, Sherrod Brown of Ohio, is not happy with reports that the Federal Reserve made a deal with Goldman Sachs Group Inc. and Morgan Stanley on their stress tests.
On July 2, The Wall Street Journal reported that the Fed told both companies they would avoid a failing grade on the Comprehensive Capital Analysis and Review if they agreed to lock in their capital distributions at recent levels. Both Goldman Sachs and Morgan Stanley received "conditional nonobjections," with the Fed flagging capital ratios that fell below required levels as a result of a one-time capital reduction from tax law changes.
Brown issued a statement July 3 criticizing the "cozy conversation" between the Fed and the two large financial firms. "In the past, bank stress tests were real tests," Brown said.
Brown also reportedly joined California Democrat Dianne Feinstein in a letter to the U.S. Justice Department, expressing concern over the handling of a deferred prosecution agreement with U.K.-based HSBC Holdings PLC. The Senate Democrats asked for an explanation as to why a five-year, $1.9 billion agreement was allowed to expire while another deferred prosecution agreement was being set up, Bloomberg News reported July 2. Brown and Feinstein are asking for briefings from HSBC's monitor and Justice Department attorneys.
At the White House
With Justice Anthony Kennedy announcing his retirement from the U.S. Supreme Court, President Donald Trump has promised to make a pick for Kennedy's replacement July 9.
One of the frontrunners for the nomination is reportedly Judge Brett Kavanaugh, who currently serves on the U.S. Court of Appeals for the District of Columbia Circuit.
In the financial regulatory space, Kavanaugh is known for his dissent in the January 2018 en banc decision in which the court ruled that the Consumer Financial Protection Bureau's single-director structure is constitutional. In his dissent, Kavanaugh worried that the CFPB has "power that is massive in scope, concentrated in a single person, and unaccountable to the President."
Kavanaugh suggested remedying the issue by subjecting the CFPB director to presidential oversight and allowing the president to remove the director at-will.
At the Fed
The Trump administration pushed back against worries that the White House is breaking from the norm by pressuring the Federal Reserve to slow down on rate hikes.
Those concerns popped up when Larry Kudlow, the National Economic Council director, said in a June 29 Fox Business interview he hoped the Fed would "move very slowly." Kudlow said the administration's policies are expanding capital investment from companies, a development that "cannot be inflationary."
Kevin Hassett, who chairs the Council of Economic Advisers, said in a July 6 Bloomberg News interview that administration officials "100% respect the independence of the Fed." He said Kudlow's comments were reasonable speculation based on a reporter's question and that the story was "miscovered."
"We would never ever try to pressure them to do anything other than what they think is right," Hassett said.
The Fed, meanwhile, showed increased concerns over U.S. trade policy in the minutes of last month's Federal Open Market Committee meeting. The minutes showed most Fed officials think "uncertainty and risks associated with trade policy had intensified," but their plan to gradually hike interest rates is still on track.