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.”
President Donald Trump could fire Consumer Financial Protection Bureau Director Richard Cordray by getting legal justification from the Justice Department, according to a GOP lawmaker who’s critical of the CFPB’s structure, MorningConsult.com reported yesterday. Rep. Ann Wagner of Missouri, the chairwoman of the House Financial Services Subcommittee on Oversight and Investigations, said yesterday that the Office of Legal Counsel could provide an avenue to dismiss Cordray. She noted that the OLC gave the Clinton administration justification to avoid enforcing laws that it considered unconstitutional. That approach was supported by Ted Olson, a partner at the law firm Gibson, Dunn & Crutcher who is representing the mortgage servicer PHH in its effort to overturn the CFPB’s single-director structure. He said Dodd-Frank’s language, which only allows the president to fire the director on a “for cause” basis, would likely fall under the category of unconstitutional language that the president can choose not to enforce with OLC’s justification.
House Republicans are considering legislation that would restructure the Consumer Financial Protection Bureau in a way that allows the president to fire the agency’s director at will. Banking groups, however, are mostly in favor of taking a different approach: forming a bipartisan commission to lead the CFPB, MorningConsult.com reported today. GOP lawmakers who are angling to roll back key aspects of Dodd-Frank have shifted their stance on the consumer agency, a longtime target of GOP efforts to overhaul the 2010 law. Legislation introduced in September by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) would have changed the CFPB’s leadership from a single director to a bipartisan commission. But a revamped version of that bill, known as the Financial CHOICE Act, is expected to propose having a single director who the president can fire at will. “In the CHOICE Act, we want to have the director serve at the will of the president,” Rep. Blaine Luetkemeyer (R-Mo.), chairman of the Subcommittee on Financial Institutions and Consumer Credit, said earlier this month. However, several banking industry leaders are holding fast to the bipartisan commission plan. “We continue to believe that a commission style of governance for the CFPB would result in better regulation,” Francis Creighton, executive vice president of government affairs at Financial Services Roundtable, said last week.
Filing for bankruptcy would likely cost more under President Donald Trump's budget proposal, the Birmingham (Ala.) News reported on Saturday. Trump's "America First: A Budget Blueprint to Make America Great Again," includes a provision that would raise an additional $150 million in 2017 through higher filing fees. Currently, the fees generate about $138 million; Trump's budget aims to see that grow to $289 million by 2018. The change, according to the outline would "ensure that those that use the bankruptcy court system pay for its oversight." The increased fees would go to the Department of Justice's U.S. Trustee Program, which oversees the administration of bankruptcy filings. The budget outline doesn't specify which filing fees will increase.
The California state legislature is considering a bill to eliminate a tax deduction for owners of second homes and spending the newly collected revenue on affordable housing, the Palm Beach Desert Sun reported. The bill, A.B. 71, proposes the elimination of the state mortgage interest tax deduction — a policy that allows Californians to deduct any interest they pay on their mortgages from their taxes — for second homes. Assemblymember David Chiu (D-San Francisco), the bill’s sponsor, said that about 31,000 Californians claimed the tax deduction last year, and if collected, those taxes could have totaled $360 million for the state. A.B. 71 would require the state to collect those funds and deposit them into the Low-Income Housing Tax Credit program, a popular mechanism for funding the construction of affordable housing. The structure of the tax program allows developers to leverage federal and private funds, so the $300 million in state funds could allow total investment of more than $1 billion.
The U.S. Federal Reserve yesterday made it easier for bigger lenders to merge, by quadrupling its threshold of combined size that would require an extensive regulatory review of a proposed deal, Reuters reported. A merger that creates a bank with total assets of less than $100 billion is not a threat to the financial system, the central bank said in a statement on Thursday. Since 2012, that threshold had been $25 billion. Mergers that create banks "with less than $100 billion in total assets, are generally not likely to create institutions that pose systemic risks," the Federal Reserve said. Bank regulatory lawyers and financial dealmakers have argued that overly tight regulation since the 2008 financial crisis was hindering industry mergers and acquisitions. Under the Dodd-Frank financial reforms adopted to prevent another crisis, the Fed must consider the extent to which a bank merger would result in risks to the financial system.
U.S. Senators Chris Coons (D-Del.), Debbie Stabenow (D-Mich.), Marco Rubio (R-Fla.), and Bill Nelson (D-Fla.) yesterday introduced “The Bankruptcy Judgeship Act of 2017,” according to a press release. This legislation would ensure that individuals and corporations have access to well-functioning bankruptcy courts even when temporary judgeships expire. “At a time when both individuals and corporations need to access the resources of bankruptcy courts, Congress must act to extend bankruptcy judgeships in judicial districts where they are most needed,” said Senator Coons. Rubio added that the legislation was a necessity. “Federal bankruptcy laws make it possible for individuals and businesses to reorganize their debts, but a significant impediment to a well-functioning system has been Congress’ failure to appropriately authorize judgeships as recommended by the nonpartisan Judicial Conference of the United States," said Senator Rubio.
Federal Reserve officials still expect to raise short-term interest rates two more times this year after lifting them Wednesday — and they see no major changes in their economic outlook, the Wall Street Journal reported today. In economic projections released yesterday following a two-day policy meeting, officials also penciled in three more quarter-percentage-point moves in 2018. They also see interest rates settling at their long-run average of 3 percent by the end of 2019, slightly sooner than they foresaw in their December projections. Officials took the first step yesterday by raising their benchmark federal-funds rate as expected by a quarter-percentage-point to a range between 0.75 and 1 percent. Minneapolis Fed President Neel Kashkari cast the only dissenting vote, saying he preferred to stand pat. Nine of the 17 Fed officials who submitted projections indicated three rate increases would be appropriate in 2017, up from six officials in December. Only three officials saw the need for fewer than three moves this year versus six in December.