The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.
Trump Transition
Donald Trump officially took office as the 45th President of the United States of America in an inauguration ceremony Jan. 20, kicking off a new administration that he touted as prioritizing "America first." In his inauguration speech, Trump promised the country he would re-shift the government's focus to America, embracing protectionism on various fronts.
"Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families," Trump said from the steps of the U.S. Capitol.
As outgoing President Barack Obama left Washington, D.C., Trump began his first orders of business by signing documents making his cabinet nominations official. No cabinet nominees have been cleared by the full Senate yet, and a number of nominees have yet to face a committee hearing.
In the financial regulatory world, two key cabinet picks faced Senate committees this week to make a case for their confirmations. On Jan. 18, Commerce Secretary-designate Wilbur Ross pitched his four-plank plan to push U.S. annual economic growth above 3%. Ross told the Senate Commerce, Science and Transportation Committee that the plan involves stimulating exports, implementing broad regulatory reform, revising the nation's energy policy and supporting a "sensible" infrastructure package.
Ahead of the hearing, Ross filed paperwork with the Office of Government Ethics detailing his intention to divest from 40 entities, including holdings in the Bank of Cyprus and Invesco Ltd. He did, however, explain in the hearing that he plans on keeping his position in Diamond S Shipping, a New York-based global refined oil shipping company.
Treasury Secretary-designate Steven Mnuchin, meanwhile, faced the Senate Finance Committee on Jan. 19 in an arguably more heated hearing. Democratic senators grilled the former Goldman Sachs Group Inc. executive over a revision he made to his financial disclosures less than 24 hours before his hearing. When asked about why he originally omitted almost $100 million in real estate assets, Mnuchin claimed his lawyer told him he didn't have to include it, further blaming the miss on the complexity of the ethics reports. Mnuchin also reassured the committee that his former company, OneWest Bank Group LLC, was not a "foreclosure machine" but a "loan modification machine" that tried to prevent foreclosure.
Mnuchin did answer some substantial questioning about what kinds of reform he would support as the next Treasury secretary, telling the committee that he would support driving failing banks to bankruptcy instead of bailouts. He also spoke of wanting to reform the Volcker rule because of its reportedly negative effect on liquidity in addition to rethinking how to deal with Fannie Mae and Freddie Mac.
On Jan. 24, Rep. Tom Price, R-Ga., will face the Senate Finance Committee for a hearing on his nomination for Secretary of Health and Human Services.
Congress Battles CFPB, SEC
Days after rumors surfaced of Trump possibly floating former U.S. Congressman Randy Neugebauer as the next director of the Consumer Financial Protection Bureau, Senate Democrats, House Republicans and the CFPB itself fought over the fate of its director, Richard Cordray.
On Jan. 17, Senate Minority Leader Chuck Schumer, D-N.Y., and Sen. Elizabeth Warren, D-Mass., warned President-elect Donald Trump not to touch the CFPB, arguing that making Neugebauer director would dismantle the agency from the inside. Democrats on the Senate Banking Committee sent a letter to Richard Cordray on the same day, thanking Cordray for leading the CFPB "against companies that take advantage of hardworking Americans."
The next day, the Republican-controlled House Financial Services Committee attacked CFPB Director Richard Cordray, alleging he may have broken agency rulemaking laws by failing to release proper disclosures and allow for public comment on data underlying its auto lending market regulations.
"Once again we see the CFPB is a dangerously out-of-control, unconstitutional and unaccountable bureaucracy," Chairman Jeb Hensarling, R-Texas, said.
In turn, the CFPB launched lawsuits against Navient Corp. and TCF National Bank in the days leading up to Donald Trump's inauguration.
The first, against former Sallie Mae entity Navient, alleges that the student loan company failed to properly service students loans at every stage of repayment. In a joint call Jan. 18, the attorney general's offices of both Illinois and Washington announced that they, too, were suing Navient for failure to service student loans, although those states were also filing suits against Sallie Mae for subprime student lending leading up to the crisis. Navient called the move a "midnight action filed on the eve of a new administration."
The second lawsuit was against Sioux Falls, S.D.-based TCF National Bank, which the CFPB alleges rewarded managers for selling overdraft protection in a sales culture similar to the one that landed Wells Fargo & Co. in a widely publicized scandal. The CFPB claims TCF misled its customers into signing up for overdraft protection, a strategy so aggressively advanced within the company's sales goals that the bank's CEO had a boat named the "Overdraft."
With the Senate wrapped up in cabinet hearings, the House Financial Services Committee had time to also take a shot at the Securities and Exchange Commission, which saw its Chair Mary Jo White leave office with Donald Trump's inauguration.
The committee was provoked by comments White made in her last public speech as chair, at The Economic Club of New York on Jan. 17. She claimed that the House's efforts to try to subject the agency to cost-benefit analyses and put large rulemaking in the hands of Congress threatened to "undermine agency rulemaking as well as cripple our enforcement capabilities."
House Financial Services Chair Hensarling called White's comments disappointing.
"If she's suggesting Congress should be subservient to the SEC, I'd advise her to re-read the Constitution," Hensarling said. "Congress created the SEC, not the other way around."
A number of Federal Reserve officials made comments this week. On Jan. 17, Fed Board Governor Lael Brainard alluded to Trump's presidency without mentioning him by name, by claiming that the central bank is considering the effects of a "significant fiscal policy shift." Brainard added that any large fiscal policies from the coming administration could affect the trajectory of the Fed's monetary path.
The same day, New York Fed President William Dudley shrugged off inflation concerns, claiming inflation trends remained "very subdued" and were unlikely to drive the central bank to dramatically tighten monetary policy anytime soon.
On Jan. 18, Fed Chair Janet Yellen said she believed the U.S. economy is close to achieving both full employment and stable prices, in line with the newly released Beige Book's conclusion that the labor market is "tight" with the overall economy expanding at a "modest pace." Two days later she added a caveat to that conclusion, saying that allowing the economy to run too "hot" on a strong labor market is "risky and unwise."
The Minneapolis Fed introduced a new research division designed to look at economic opportunity and inclusive growth. The initiative, announced Jan. 18, will use a board of advisors, mostly professors and economists, to make recommendations on how to reach maximum employment with respect to different communities of people.
