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Washington Wrap — Senate Banking Committee leaders update 2019 priorities

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Washington Wrap — Senate Banking Committee leaders update 2019 priorities

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

Senate Banking Committee leaders Mike Crapo, R-Idaho, and Sherrod Brown, D-Ohio, signaled that their priorities for the rest of 2019 would center around implementing fixes to Dodd-Frank and curbing stock buybacks.

Brown, the ranking member on the committee, rolled out a bill that would only allow companies to repurchase stocks if they issue a "worker dividend" at the same time.

Brown's bill would require publicly traded companies to issue $1 to every employee for every $1 million in shares it buys back. The bill would also limit the frequency and volume of buybacks companies undertake.

"We have to stop this never-ending cycle of corporate greed and make sure that workers are sharing in the profits they create," Brown said in a July 31 speech in Washington.

Crapo, chairman of the committee, sent a letter to the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. asking them to finalize outstanding rules directed by his 2018 bill, the Economic Growth, Regulatory Relief, and Consumer Protection Act, that changed major sections of the Dodd-Frank Act.

The recommendations from Crapo included lowering the proposed community banking leverage ratio to 8%, reducing regulatory reporting for small banks and simplifying stress testing for midsize banks.

Crapo's letter was signed by the other 12 Republican senators on the panel.

The letter also asked the regulators to reconcile margin swap rules with the Commodity Futures Trading Commission. Crapo wrote that the CFTC has exempted transactions between affiliated entities from its initial margin requirements, while the Fed, FDIC and OCC have imposed initial margin requirements for those transactions.

At the same time, Brown and House Financial Services Chair Maxine Waters, D-Calif., wrote their own letter to the regulators urging them to keep the margin rule intact.

"Any decision to reduce such requirements is a deliberate decision for less stability in the financial system," the lawmakers wrote.

Under Dodd-Frank, swap transactions require collateral in the form of capital or margin, protecting FDIC-backed banks in case trades go south.

"Expanding the inter-affiliate swap exemption to all transactions would drain even more resources from insured depository institutions and increase the risk of a future taxpayer bailout still further," the two lawmakers wrote.

At the Fed

The Federal Reserve lowered its benchmark interest rate July 31 for the first time since the financial crisis, and analysts say the Fed may opt for more rate cuts this year as risks continue clouding the U.S. outlook.

Fed Chairman Jerome Powell also expressed some openness at his news conference to creating a Fed-run, real-time payments system, a move that would likely spark criticism from large banks, whose own faster payments platform is already up and running.

The large banks' system, run by The Clearing House, is open for banks across the country to join. But the Independent Community Bankers of America has expressed skepticism about it and is among those asking the Fed to develop its own real-time payments system to compete alongside The Clearing House offering.

Asked about the issue at his news conference, Powell said many of the public comments the Fed received on whether it should build a real-time payments system were "overwhelmingly favorable."

The Fed's current payment systems already operate alongside private-sector operators, he added, so a Fed-run instant payments system "wouldn't be unusual or out of keeping with how we've done things in the past."

"We have not made a decision on this, but it's something we're looking at carefully and something I do expect we'll make a decision on soon," Powell said.

Powell wrote a letter to lawmakers saying the Fed is "seriously considering" launching its own platform, Politico also reported. More clues may come Aug. 5 when Fed Governor Lael Brainard delivers a speech on the country's payments system at the Kansas City Fed. Brainard is the chair of the Fed board's Committee on Payments, Clearing and Settlement.

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