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Washington Wrap: Puerto Rico defaults on debt payment while CFPB introduces arbitration clause rules

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Washington Wrap: Puerto Rico defaults on debt payment while CFPB introduces arbitration clause rules

The Washington Wrap isa weekly look at regulation, news and chatter from the Capitol. Send tips andideas to moriah.costa@spglobal.com.

News:

Days after Puerto Rico's Government Development Bank defaultedon a debt payment, it reached an agreement with bondholders to restructureabout $900 million of its outstanding notes.

In a May 1 speech, Puerto Rico Gov. Alejandro Garcia Padillasaidthe GDB would not make the payment in order to ensure funds remained for healthand public-safety services. He implored Congress to approve a restructuringprocess for the commonwealth, which currently cannot declare bankruptcy. A billon the matter, H.R.4900, has seen little action in Congress since it was introduced inmid-April. The reaction in the bond markets was muted because it was alreadypriced in, Morning Consult reported.The news outlet also wastold by a committee aide that a new bill aiming to help Puerto Ricorestructure its debt is set to be introduced May 11.


In election news, Donald Trump secured the GOP presidentialnominee after Ted Cruzand JohnKasich dropped out of the campaign. House Speaker Paul Ryan saidMay 5 he is not ready to support Trump, to which Trump replied, "I am notready to support Speaker Ryan's agenda."

Trump's campaign announced May 5 that Steven Mnuchin,chairman and CEO of Dune Capital Management, will join the fundraising campaignas national finance chairman, Bloomberg News reported.

On the Democratic front, Bernie Sanders is close to 1,000delegates short of securing the nomination, while Hilary Clinton needs just 178delegates to get the 2,383 total needed to win, Politico reportedMay 6.

Chatter:

Bill Gross of Janus Capital told investors that they shouldbe prepared "for renewed QE from the Fed."

Gross wrote in an investor outlook that central banks willreluctantly embrace their dependent role in fiscal policy – including the U.S.in "a year or so" – and print money to allow governments to spend oninfrastructure and public services. The result will be a less-independent rolefor the FOMC and "a more permanent mingling of fiscal and monetary policythat stealthily has been in effect for over 6 years now."


Congress will need to reform the corporate tax code in orderto drive up capital formation and increase GDP, two professors said on a pressroundtable May 4.

Dale Jorgenson, a professor at Harvard University, saidchanging the tax code would spur investment in the U.S. by freeing up $2trillion of income generated elsewhere that companies have refused torepatriate.

"It's precisely those funds that would be a net additionto the amount available to invest that would drive an investment boom in thiscountry if we had a major tax reform," Jorgenson said.

Legislation/Regulation:

The Federal Reserve approved a proposed net stable funding ratio rule on May3, which would require the biggest banks to have more liquidity. The FDIC andOCC approved the rule April 26. Under the proposed rule, banks with more than$250 billion in assets or with $10 billion or more in foreign exposures willhave to hold enough cash to continue operating for up to a year in the event ofa financial crisis. A modified version of the NSFR will apply to banks between$50 billion and $250 billion in assets. The rule is the other half of theLiquidity Coverage Ratio, which was passed by agencies in September 2014 andrequires banks to hold highly liquid assets to cover a firm's operations over30 days.

The Fed also voted for a proposal that would requirequalified financial contracts between globally systemically important banks andother entities to include an amendment that would prevent the immediatecancellation of the contract if the bank fails.


The FDIC's Division of Depositor and Consumer Protection isasking for commentson proposed efforts to evaluate the economic inclusion potential of mobilefinancial services. The FDIC has identified six strategies that banks employingmobile financial services could consider, including increasing consumer controlover finances by improving access to timely account information, expeditingaccess to money and making banking more affordable through better accountmanagement.


The Consumer Financial Protection Bureau is comments on proposedrules that would prohibit financial institutions from including mandatoryarbitration clauses in contracts unless they include a provision that wouldallow consumers to file class action lawsuits. In addition, the agency isseeking comment on provisions that would require companies with arbitrationclauses to submit to bureau any claims, awards, or related materials that arefiled in arbitration cases.

Industry advocates said at a field hearing on May 5 that companies would doaway with arbitration clauses if the class-action waiver was implanted, whileconsumer groups said the rules will help low-income customers.

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