In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, Bloomberg News reported yesterday. Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said that he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans. The remarks surprised some senators and congressional aides who attended yesterday’s meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business. Yet Cohn’s comments echo what Trump and Republican lawmakers have previously said about wanting to bring back the Glass-Steagall Act, the Depression-era law that kept bricks-and-mortar lending separate from investment banking for more than six decades.
A major provision of the new banking rules created after the 2008 financial crisis is too complicated and should be revised, the Federal Reserve's outgoing point man on financial regulation said yesterday, the Washington Examiner reported today. "Several years of experience have convinced me that there is merit in the contention of many firms that, as it has been drafted and implemented, the Volcker rule is too complicated," Fed governor Daniel Tarullo said in an exit interview at Princeton University. The rule, which is meant to prevent banks from speculating with deposits insured by the government, may be having a "deleterious" effect on market liquidity, Tarullo suggested, floating the idea that small banks might be exempted from it altogether.
The House won’t vote until this summer at the earliest on changes to the 2010 Dodd-Frank financial-overhaul law, a senior Republican said yesterday, demonstrating how the path for regulatory relief remains in flux as lawmakers grapple with health care policy, a tax overhaul and other issues, the Wall Street Journal reported today. Rep. Patrick McHenry (R-N.C.) said financial regulatory policy could make it to the House floor “when it is warm out…perhaps June, July would be my hope.” When Republicans do move toward voting on a financial regulatory bill, there is “no question” the House can “pass a major change to financial services law,” McHenry said. “What the Senate can do from there is an open question,” he added, nodding to the fact major Dodd-Frank changes might face opposition from Senate Democrats.
The Consumer Financial Protection Bureau on Friday pushed back against the Justice Department’s contention that its independent structure is unconstitutional, but said that it could still do its job even if a court orders structural changes, the Wall Street Journal reported. The consumer watchdog created under the Obama administration is stepping up its defense ahead of a federal appeals court hearing in May that could significantly transform its operations. Responding to the court’s request for a possible remedy if the agency’s structure is ruled unconstitutional, the CFPB said that if its structure is altered and the president gains the power to fire its director at will, it will still be able to function in the manner consistent with its original mission.
The number of home foreclosures is down sharply from the depths of the financial crisis, even as many of the mortgage firms involved remain the same, including Fannie Mae, Wells Fargo, Bank of America and JPMorgan Chase. But the latest foreclosure rankings also include a number of firms that barely registered or did not exist when the crisis began a decade ago, the New York Times reported today. These new entrants include firms affiliated with the private equity giant Lone Star Funds, the mortgage lender PennyMac Loan Services, the investment bank Goldman Sachs and the mortgage firm Carrington Mortgage Services. This changing of the guard in the foreclosure rankings, based on data compiled by RealtyTrac, reflects the new reality that most foreclosures today are not coming from mortgages written during the post-crisis period, but from soured loans written before the crisis that are in the final stages of liquidation.
Legislation to create a special section of the bankruptcy code for banks advanced in the House Wednesday, a step toward preparing a new system to prevent chaotic bank failures that have prompted taxpayer bailouts, the Washington Examiner reported today. The House Judiciary Committee advanced the legislation Wednesday on a voice vote, but future action on bank bankruptcy could turn contentious. In a joint statement, committee Chairman Bob Goodlatte (R-Va.) and bill author Rep. Tom Marino (R-Pa.) said that "the costs associated with a failing financial institution should be borne by those who have a stake in the company, and hard-working Americans should not have to worry that their tax dollars will be used to bail out another Wall Street bank." Speaking at Wednesday's vote, the top Democrat on the committee, Rep. John Conyers of Michigan, agreed that the collapse of investment bank Lehman Bros. in the 2008 financial crisis "clearly revealed that current bankruptcy law is ill-equipped to deal with complex financial institutions in economic distress." The bankruptcy bill, he said, would be an "excellent complement" to the government-led process for resolving banks created by the 2010 Dodd-Frank financial reform law signed by former President Barack Obama.
The Supreme Court ruled yesterday that the First Amendment applies to a New York law concerning credit card fees, the New York Times reported. The decision was a victory for five businesses that had sought to tell their customers that they imposed a surcharge for using credit cards. But the Supreme Court decided only that the law regulated their speech rather than their conduct, and it left it to an appeals court to determine whether the law violated the First Amendment. “The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer,” Chief Justice John G. Roberts Jr. wrote for the majority in Expressions Hair Design v. Schneiderman, No. 15-1391. “Sellers are free to charge $10 for cash and $9.70, $10, $10.30 or any other amount for credit. What the law does regulate is how sellers may communicate their prices.”
Congressional Republicans yesterday made their case for Treasury Secretary Steven Mnuchin to end the practice of bringing nonbank financial institutions such as insurers under greater supervision if they’re deemed too-big-to-fail by the Financial Stability Oversight Council (FSOC), MorningConsult.com reported. In a letter, 10 of the 12 GOP members of the Senate Banking Committee told Mnuchin, who heads FSOC, that the council’s process for designating nonbanks systemically important financial institutions “lacks transparency and accountability, insufficiently tracks data, and does not have a consistent methodology for determinations.” The senators, including Committee Chairman Mike Crapo of Idaho, said they hope Munchin “will review the policies and procedures” for labeling nonbank SIFIs. The correspondence did not mention whether the Trump administration should drop its legal defense of FSOC in a federal court challenge of MetLife Inc.’s SIFI label. On the other side of the Capitol, Rep. Ann Wagner (R-Mo.), who heads the House Financial Services Subcommittee on Oversight and Investigations, told reporters Tuesday that ending nonbank designations “should be, at the very least, where we start” the process of changing FSOC practices.
The decline in homeownership rates to near 50-year lows is partly to blame for the U.S. economy’s sluggish recovery from the last recession, new data suggest, the Wall Street Journal reported today. If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8 percent boost to gross domestic product, according to a study expected to be released today by the Rosen Consulting Group, a real estate consultant. In 2016, total spending on housing declined to 15.6 percent of GDP, a broad measure of goods and services produced across the U.S., compared with a 60-year average of nearly 19 percent. The share of spending specifically linked to new-home construction and remodeling likewise declined to 3.6 percent of GDP, just over half its pre-recession peak in 2005.
Reversing the Third Circuit in Czyzewski v. Jevic Holding Corp., the Supreme Court ruled 6-2 yesterday in an opinion by Justice Stephen G. Breyer that the bankruptcy court, without consent from affected parties, cannot approve so-called structured dismissals that “deviate from the basic priority rules,” not even in rare cases, according to a special analysis from ABI Editor-at-Large Bill Rochelle. Justice Breyer was careful to narrow the Court’s holding so the opinion would not be interpreted to preclude first-day wage or critical vendor orders. Joined by Justice Samuel A. Alito, Jr., Justice Clarence Thomas dissented, saying that the writ of certiorari should have been dismissed as improvidently granted.
Additionally, Cliff White, Director of the Executive Office for U.S. Trustees, issued a statement praising the decision and appreciating the efforts of the U.S. Trustee Program in the litigation. “The Supreme Court ruled in favor of truck drivers whose employer fired them, went bankrupt the next day, and then denied them their right to priority payment under bankruptcy law,” White said. “The Supreme Court’s ruling is a victory for the faithful application of the Bankruptcy Code as Congress has written it. When the rules are clear and consistently applied by the courts, then the system works more fairly. In the long run, that benefits all stakeholders — debtors, creditors, and the American public.”