President Donald Trump today plans to sign an executive action that establishes a framework for scaling back the 2010 Dodd-Frank financial-overhaul law, part of a sweeping plan to dismantle much of the regulatory system put in place after the financial crisis, the Wall Street Journal reported today. Trump also plans another executive action aimed at rolling back a controversial regulation scheduled to take effect in April that critics have said would upend the retirement-account advisory business. Trump will use a memorandum to ask the labor secretary to consider rescinding a rule set to go into effect in April that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients, Cohn said. Trump also will sign an executive order that directs the Treasury secretary and financial regulators to come up with a plan to revise rules the Dodd-Frank law put in place.
A U.S. appeals court yesterday rejected separate bids by 16 states and two Democratic lawmakers to defend the U.S. Consumer Financial Protection Bureau in a legal battle that could defang the agency created under former President Barack Obama, Reuters reported. In a brief order, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied a request to intervene filed by the states, including New York and Connecticut. The court also rejected similar motions filed by nonprofit consumer groups and two lawmakers, U.S. Senator Sherrod Brown of Ohio and congresswoman Maxine Waters of California, also seeking to defend the board. The court ruled last October that the structure of the agency, charged with guarding consumer finances, was unconstitutional. The agency immediately asked the court to reconsider its decision but the Trump administration could drop the appeal.
A powerful housing trade group is wasting no time in pushing the Trump administration and Republican-led Congress to address one of the last unresolved issues from the financial crisis, outlining a proposal yesterday to overhaul mortgage-finance giants Fannie Mae and Freddie Mac, Bloomberg News reported. The Mortgage Bankers Association plan would make Fannie and Freddie privately-owned utilities and cap their returns on capital. It would also turn the government’s implicit backstop of the companies into an explicit guarantee of the mortgage-backed securities they sell to investors.
Just what banking regulation will be like under President Donald Trump remains unclear. But recent comments by Treasury Secretary nominee Steven Mnuchin suggest he might be looking across the Atlantic to the U.K. for inspiration, the Wall Street Journal reported today. In his Senate testimony last week and in written responses to senators this week, Mnuchin repeatedly raised the specter of some kind of “21st Century Glass-Steagall,” without giving any details. Mnuchin clearly doesn’t favor a simple return to the Great Depression-era law. In his written comments, Mnuchin said that “a bright line between commercial and investment banking…may inhibit the necessary lending and capital markets activities to support a robust economy.” Under this system, U.K. banks like Barclays and HSBC must establish separate subsidiaries that contain their local U.K. operations serving individuals and small businesses, funded by government-guaranteed deposits. Their global investment-banking businesses stand outside this ringfence with their own capital, allowing them in theory to be wound down if they run into trouble without endangering the retail bank or necessitating a government bailout.
Soon after Donald Trump was sworn in as president, his administration undid one of Barack Obama’s last-minute economic-policy actions: a mortgage-fee cut under a government program that’s popular with first-time home buyers and low-income borrowers, Bloomberg News reported. The new administration on Friday said that it’s canceling a reduction in the Federal Housing Administration’s annual fee for most borrowers. The cut would have reduced the annual premium for someone borrowing $200,000 by $500 in the first year. Last week, Obama’s Housing and Urban Development secretary, Julian Castro, said that the FHA would cut its fees. The administration didn’t consult Trump’s team before the announcement. Republicans have argued in the past that reductions put taxpayers at risk by lowering the funds the FHA has to deal with mortgage defaults.
Steven Mnuchin, President-elect Donald Trump’s pick for treasury secretary, said yesterday that he supports the Volcker Rule, but suggested that he wants to make some changes to the Dodd-Frank regulatory framework, MorningConsult.com reported. During his confirmation hearing before the Senate Finance Committee, Mnuchin said in response to a question from Sen. Mike Crapo (R-Idaho) that while he supports the Volcker Rule — a product of the 2010 Dodd-Frank law that restricts banks from placing risky bets with their own capital — he wants to examine its effects on market liquidity. “I think the concept of proprietary trading does not belong in banks with FDIC insurance,” Mnuchin said, referring to the Federal Deposit Insurance Corp. He added that the Volcker Rule’s impact on liquidity is “something I would absolutely want to look at,” and he cited a recent Federal Reserve report examining the issue.
Democrats are rolling out a new strategy to defend a controversial Obama administration rule shaking up the retirement savings industry, asking big financial firms to publicly embrace the policy, the Wall Street Journal reported today. Sen. Elizabeth Warren (D-Mass.) yesterday sent letters to the dozens of major financial institutions that have already started taking steps to comply with the new rule before its implementation starts in April. In the letters addressed to JPMorgan Chase & Co., Wells Fargo & Co. and Fidelity Investments, among others, Ms. Warren praised them for announcing steps in recent months to comply with the rule.
Key congressional Democrats are pushing back at GOP lawmakers who are calling for Consumer Financial Protection Bureau Director Richard Cordray to be fired, MorningConsult.com reported today. Rep. Maxine Waters (Calif.), the top Democrat on the House Financial Services Committee, and 20 Democratic panel members sent a letter yesterday to President-elect Donald Trump a day after Sens. Ben Sasse (R-Neb.) and Mike Lee (R-Utah) called on the incoming administration to dismiss Cordray. Separately, Senate Banking Committee ranking member Sherrod Brown (D-Ohio) issued a statement yesterday defending Cordray’s leadership at the CFPB, which was established by the 2010 Dodd-Frank financial law. Conservative organizations such as the Heritage Foundation have called for the CFPB to be abolished, an idea that’s supported by lawmakers like Sen. Ted Cruz (R-Texas). Brown said that during Cordray’s tenure the agency has returned $12 billion to Americans who have been “ripped off by shady debt collectors, for-profit schools, payday lenders, and huge banks like Wells Fargo.”
After one of the longest, most telegraphed windups in monetary policy history, the Federal Reserve on Wednesday delivered a small brushback pitch to the American economy, raising its key lending rate by a quarter of a percentage point for the first time since 2006. The move ends an extraordinary run in which the central bank held its borrowing rate at essentially zero for seven years in an effort to pump life into the American economy after the onset of the global financial meltdown and the Great Recession from December 2007 to June 2009. In addition to potentially raising the rates for consumers and businesses on trillions of dollars of car, home, student and commercial loans, the Fed move could play a major role in elections next year through its impact on the economic growth rate.
Default rates on various types of consumer loans improved in November, according to Standard & Poor's and Experian. The composite default rate for multiple loan types improved three basis points to 0.97% in November compared to the previous year, according to the S&P/Experian Consumer Credit Default Indices. First-mortgage default rates lifted one basis point to 0.82% from the month before, while second-mortgage default rates improved 11 basis points to 0.67%. Consumer spending and other factors do not suggest cause for concern over consumer defaults, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said in a Tuesday news release. "Inflation remains low and expectations of future inflation are low and stable, the labor market continues to improve, and wages — long dormant — may be turning upward," he said.