The big banks are forging a new lobbying force in Washington.
Or, more precisely, they’ve executed of a coup of sorts, seizing control of a trade association that represented a wider swath of financial services interests and kicking the others out. Now the banks are in the process of narrowing the focus of that group, the Financial Services Roundtable, to help advance their agenda while they have allies in power.
The shake-up, first reported Monday by Politico’s Victoria Guida, testifies to the industry’s sense of urgency. Leading banks have racked up some major wins — scuttling the Consumer Financial Protection Bureau’s arbitration rule and securing a deep cut to their effective tax rate, for example — but have plenty left on their Washington wish list. Most immediately, that includes easing the burden of some Dodd-Frank regulations through a House-passed package that could get Senate floor consideration soon.
Gary Cohn, President Trump’s chief economic adviser, talked up progress on the effort to roll back the post-crisis rules in a Bloomberg News interview on Friday in a sentence that would have sounded impossible just a few years ago, as CNN’s Phil Mattingly noted:
having covered the crisis, the reg. pendulum swing and the visceral hatred on the Hill for Goldman post-crisis, that their No. 2 is now a top gvt official saying this will never not be amazing to me: pic.twitter.com/k1BGNdOf62— Phil Mattingly (@Phil_Mattingly) January 5, 2018
And the opportunity to make the most of industry-friendly, all-Republican control may be closing. The retirement announcement of Rep. Ed Royce (R-Calif.) sent the latest signal to that effect Monday.
The 13-term incumbent, facing a term limit at the helm of the House Foreign Affairs Committee, was considered a leading contender to seize the gavel of the House Financial Services Committee from Rep. Jeb Hensarling (R-Tex.), who has is also headed for the exits. That Royce, facing a tough reelection fight in a district Hillary Clinton won by nine points, chose to leave adds fuel to the perception that a Democratic wave is building.
"This is a favorable environment," one industry executive says. "So it's the right time to put as much lead on the target as possible."
Bank of America chief executive Brian Moynihan, backed by big regional bank chiefs, spearheaded the move to narrow the Roundtable’s membership, a decision sealed by the group’s board late last month. Under the group’s new standard, only banks with $25 billion in assets can continue to belong — a threshold that will double to $50 billion for new members. Per Politico, that standard roughly halves the group’s membership to 43 firms, booting insurers, asset managers and other nonbank outfits.
In so doing, a group that traces its heritage back to 1911 reverts to something closer to its original mandate. It persisted, more or less, until the late 1990s, when the repeal of the Depression-era Glass Steagall Act paved the way for banking giants to expand into new lines of business — the so-called “financial supermarket” model pioneered by Citibank with its 1998 merger with Travelers Insurance.
The model failed to take off — Citi spun Travelers back off in 2001— though the Roundtable didn’t trim its membership to restore its old focus. The group’s reinvention now should distinguish it from an alphabet soup of trade associations representing financial services interests in different guises. From Politico:
"FSR is now yet another banking group — piled on top of the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, the Clearing House, the Mortgage Bankers Association and the recently reinvigorated Financial Services Forum. There’s also the Securities Industry and Financial Markets Association, which represents asset managers and other investment companies in addition to banks. But the change indicates that bigger banks still felt like a niche wasn’t being filled.
The ABA, with its hundreds of member banks of all sizes, lobbies on issues where the entire banking industry has an interest, making its voice powerful but diffuse. SIFMA’s membership is also broad, and it focuses largely on capital markets, which involve a lucrative but narrow set of issues for banks. The Clearing House represents many of the same banks as FSR, but the former operates more as a thought leadership outfit, producing detailed research designed to influence regulators rather than engaging in concerted lobbying."
Alison Hawkins, the Roundtable’s vice president of communications, says the group will nail down its new bylaws in the weeks ahead, then formalize an agenda.
Beyond the deregulation bill, it will include a push to overhaul the housing finance system and a focus on cybersecurity and financial technology issues. The Roundtable could also see a leadership change, since Tim Pawlenty, the former Minnesota governor and 2012 presidential candidate who heads it, is reportedly eyeing a return to his home state to run for Senate or possibly governor.
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— A year in a week for the S&P 500. Bloomberg's Luke Kawa: "The S&P 500 Index’s best week in 13 months propelled it within half a percent of surpassing roughly a quarter of strategists’ price targets for 2018. 'It’s only been four days but it feels like 40,' writes Christopher Harvey, head of equity strategy at Wells Fargo & Co. 'Overall, it suddenly feels like the consensus is in the reflation trade and almost daily there are more and more converts to the belief in a melt-up.' The index capped a fifth straight gain Monday, leaving it higher by 2.8 percent this year at a record 2,747.71. That’s just shy of the 2,750 mark where Morgan Stanley’s Mike Wilson, Scotiabank’s Vincent Delisle, and Stifel Nicolaus’s Barry Bannister saw it finishing the year. It outstrips the 2,650 price target of HSBC’s Ben Laidler before the year even began."
As investors abandon hedges. WSJ's Gunjan Banerji: "Big stock-market gains are leading a number of investors to abandon defensive positions taken to protect against a market downturn, the latest sign that many doubters are shedding caution as the long rally rolls on... But with the Dow Jones Industrial Average breaking through 25000 for the first time, the Nasdaq Composite crossing 7,000 and with market volatility falling to near all-time lows, many investors have decided that spending money to hedge against big declines is a waste of money. While the Dow Industrials slipped 0.05% Monday, the S&P 500 and Nasdaq Composite closed again at records. Stock pickers are already feeling squeezed by competition from lower-cost passive investments such as exchange-traded funds and worry that they can’t risk falling behind in a rally. Purchasing market protection through hedges eats into their returns."
Too hot? Bloomberg's Adam Haigh: "Euphoria on Wall Street that stocks can just keep on building on record highs is getting so stratospheric that it’s reaching levels that previously signaled a slump. Analysts are ratcheting up their forecasts for U.S. corporate profits at the fastest pace in more than 10 years, according to the research firm Bespoke Investment Group. And that’s happening, unusually, right in the run-up to an earnings-season kick-off. While the upgrades could be taken as a positive reflection on the economy’s outlook, in the past such bullish analyst sentiment has served as a precursor to a market decline."
— Budget deal dims. Politico's Rachael Bade, Seung Min Kim and John Bresnahan: "Congressional Republicans and White House officials are increasingly skeptical that they’ll reach a long-term budget agreement with Democrats in the next 11 days, accusing progressives of slow-walking a spending deal until they get what they want on immigration. Party leaders from both sides of the aisle have been quietly working to raise stiff spending caps to avert a government shutdown before Jan. 19, when federal agency funding runs dry.
But Republicans claim Democrats won’t back a long-term spending plan until Congress agrees to shield hundreds of thousands of young undocumented immigrants from deportation. The Obama-era Deferred Action for Childhood Arrivals program, which gave safe harbor to “Dreamers,” formally ends March 5, although some immigrants have already started losing their protections. Yet Democrats and Republicans are still far apart on border security and other immigration provisions that would be needed to clinch a deal on the matter. That means Republicans now face the possibility of having no budget accord anytime soon — unless they cave to Democrats."
— Berkshire pockets $37 billion. Bloomberg's Noah Buhayar: "Berkshire Hathaway Inc. is poised to report a huge increase in book value, the yardstick that Warren Buffett uses to measure progress at his conglomerate, thanks to the recent changes in U.S. tax law. The measure of assets minus liabilities probably rose by 12 percent or $37 billion in the final three months of the year, analysts from Barclays Plc wrote in a note to clients on Monday. The one-time increase will result from Berkshire lowering its tax liability on appreciated investments. Due to the tax cut, Berkshire’s operating earnings power -- the money it makes at its dozens of subsidiaries like Geico and BNSF Railway -- could rise by 12 percent on an ongoing basis, the Barclays analysts wrote. Last week, Morgan Stanley analysts put the increase at about 14 percent."
From CNBC's Kayla Tausche:
NEWS: @Visa to hike 401k match program in response to new tax law, per memo (below) obtained by @CNBC.— Kayla Tausche (@kaylatausche) January 8, 2018
Spokesperson says change will be permanent and company is exploring other “long-term, sustainable investments versus one-time actions.” pic.twitter.com/LEzV3wWEeH
— Dems eye IRS guidelines. Reuters: "Two U.S. Democratic politicians asked a government watchdog on Monday to scrutinize implementation of President Donald Trump’s tax law, warning that the administration could use new tax guidelines to create the appearance of a large middle-class tax cut ahead of the 2018 mid-term elections. In a letter to U.S. Comptroller General Gene Dodaro, Democratic Senator Ron Wyden and Representative Richard Neal said they were concerned that the U.S. Treasury could be pressured to adopt tax withholding tables that take too little federal tax out of employee paychecks to make good on White House predictions of a middle-class windfall. Such a move would inflate after-tax pay this year but leave workers to pay sizeable tax bills in 2019 when they file their 2018 federal tax returns, the lawmakers said."
From Committee for a Responsible Federal Budget's Marc Goldwein:
Nearly ALL of the benefit of restoring State & Local Tax (SALT) Deduction would go to the top fifth of earners & more than half goes to the top 1%, per @TaxPolicyCenter.— Marc Goldwein (@MarcGoldwein) January 8, 2018
Those defending/encouraging workarounds to the SALT Deduction cap should keep this in mind. pic.twitter.com/5g83s4bnga
— Critics cry offshoring. NYT's Natalie Kitroeff: "The bill... could actually make it attractive for companies to put more assembly lines on foreign soil. Under the new law, income made by American companies’ overseas subsidiaries will face United States taxes that are half the rate applied to their domestic income, 10.5 percent compared with the new top corporate rate of 21 percent... What could be more dangerous for American workers, economists said, is that the bill ends up creating a tax break for manufacturers with foreign operations. Under the new rules, beyond the lower rate, companies will not have to pay United States taxes on the money they earn from plants or equipment located abroad, if those earnings amount to 10 percent or less of the total investment."
— Trump overstates cut. NYT's Michael Shear and Jim Tankersley: "Trump delivered an economic victory lap during a speech to farmers on Monday in which he vastly overstated the size of the tax cuts passed by Congress late last year and played up a rollback of regulations on American businesses. Declaring that the 'American dream is roaring back to life,' Mr. Trump — who has made clear that he likes big numbers — claimed that the tax overhaul cut taxes by $5.5 trillion when, in fact, the legislation will reduce the overall tax burden on individuals and companies over the next decade by $1.5 trillion, or $4 trillion less than what he cited."
— Oprah buzz boosts Weight Watchers. FT's Mamta Badkar: "Oprah Winfrey has spoken and Weight Watchers has seen the gains, once again. Shares in Weight Watchers jumped more than 13 per cent to $53.18 after Ms Winfrey, the media mogul with a dedicated fan following who owns a 10 per cent stake in the company, delivered a rousing acceptance speech at the 2018 Golden Globe Awards on Sunday prompting speculation that she may consider a presidential run... Ms Winfrey has endured her own weight struggles, which were often documented on her talkshow that ran for 25 years. She first disclosed a stake in Weight Watchers in October 2015 and has since become the face of the company. Since Ms Winfrey came on board, Weight Watchers has seen its subscriber growth jump 22 per cent to 3.4m as of the end of September 2017."
— Cryptocurrency selloff. Bloomberg's Camila Russo: "Bitcoin slumped, dragging down smaller rivals such as ether and litecoin, as concerns that regulators will tighten their grip on the market weigh on the the world’s largest cryptocurrency. Regulators in China and South Korea are increasing oversight on cryptocurrency trading and mining, while the U.S. Securities and Exchange Commission late last year started cracking down on some digital token sales, known as ICOs. Coinmarketcap.com’s decision to exclude Korean pricing data for coins helped create the appearance of a large drop in prices, which some traders attributed as playing a part in the selloff."
SEC halts trading of Chinese blockchain. The Hill's Sylvan Lane: "The SEC froze the purchase and sale of shares of UBI Blockchain Internet, a Chinese company that advertises blockchain programs and services. Blockchain is the distributed ledger system that serves as the foundation for bitcoin and other cryptocurrencies. The SEC said it froze trading of UBI shares because of potentially inaccurate information the company filed in its disclosures to the agency and 'recent, unusual and unexplained market activity' around UBI stock since November."
Jamie Dimon regrets calling bitcoin a fraud. FT’s Adam Samson: “The JPMorgan Chase chief executive on Tuesday softened the comments he made at a banking conference in September, saying in an interview on FOX Business Network… that ‘I regret making them’. Mr Dimon said that he personally is ‘not interested in the subject at all’. However, he said that blockchain, the ledger system that powers bitcoin and is also being used by an increasing number of companies for record keeping, ‘is real’."
CNBC debuts its "Crypto Desk:"
— Fed vice chair pick soon. Bloomberg's Jennifer Jacobs: "President Donald Trump is very close to making a decision on his nominee to be vice chairman of the Federal Reserve, said a White House official, speaking on condition of anonymity. The official also said that Richard Clarida, a managing director at the Pacific Investment Management Co. seen as a contender for the pick, was not the president’s choice. The No. 2 position has been vacant since Stanley Fischer retired in October. The nomination will be part of a wider leadership shakeup at the U.S. central bank after Trump picked Fed Governor Jerome Powell to replace Janet Yellen when her term as chair ends early next month... Other names linked to the position at the time include former Fed Governor Lawrence Lindsey, head of an economic advisory firm, and Mohamed El-Erian, a columnist for Bloomberg View and chief economic adviser at Allianz SE, Pimco’s parent company. Neither could be immediately reached for comment on Monday."
— NAFTA uncertainty. Politico's Helena Bottemiller Evich and Megan Cassella: "Trump on Monday delivered a campaign-style speech to thousands of farmers that largely dodged one of the most pressing concerns in agriculture — whether Trump intends to blow up the North American Free Trade Agreement. Farm leaders have lobbied the administration and pleaded with the president to tread carefully in the ongoing renegotiation of the free-trade agreement with Canada and Mexico because the agricultural sector has arguably more to lose than any other segment of the economy if trade relations sour in North America. Trump, in a speech to the American Farm Bureau Federation’s annual convention in Nashville, Tenn., stopped short of making his oft-repeated threat to pull out of NAFTA if he does not get a reworked deal that is to his liking. But otherwise he offered little assurance to farmers and ranchers who fear the potential loss of important export markets."
— Economy doesn't lift Trump. NYT's Nate Cohn: "Setting aside the question of how much credit first-year presidents deserve for a strong economy — they have less influence than you might think — President Trump’s ratings should be much better. A 4.1 percent unemployment rate, the lowest in 17 years, is more typically associated with a 60-plus-percent approval rating for a first-term president. Lyndon Johnson is the only other first-term president in the era of modern polling with an approval rating under 50 percent while the jobless rate was below 5 percent. But this came after he’d already been president for about four years (having first finished out John F. Kennedy’s term) and as the Vietnam War began to drag down his presidency."
— Deja vu. From NRO's Ramesh Ponnuru:
Just saw Scaramucci at lunch a block from the White House. Hmmm.— Ramesh Ponnuru (@RameshPonnuru) January 8, 2018
Meanwhile, Andrew Puzder, the Trump administration's failed pick for Secretary of Labor, looks like he's back in the mix for a job. Politico's Nancy Cook and Marianne Levine: "It’s not clear what role Puzder might take in the administration, these people said, though it would have to be a non-Senate-confirmed slot given his withdrawal as labor secretary. Puzder, who denied the abuse allegations made by his ex-wife in a 1990 appearance on 'The Oprah Winfrey Show,' also acknowledged employing an undocumented immigrant as a housekeeper before dropping out."
— Mueller seeks Trump interview. The Post's Carol Leonnig: "Special counsel Robert S. Mueller III has told President Trump’s legal team that his office is likely to seek an interview with the president, triggering a discussion among his attorneys about how to avoid a sit-down encounter or set limits on such a session, according to two people familiar with the talks. Mueller raised the issue of interviewing Trump during a late-December meeting with the president’s lawyers John Dowd and Jay Sekulow. Mueller deputy James Quarles, who oversees the White House portion of the special counsel investigation, also attended.
The special counsel’s team could interview Trump soon on some limited portion of questions — possibly within the next several weeks, according to a person close to the president, who spoke on the condition of anonymity to describe internal conversations. 'This is moving faster than anyone really realizes,' the person said. Trump is comfortable participating in an interview and believes it would put to rest questions about whether his campaign coordinated with Russia in the 2016 election, the person added."
Read about the grim cynicism of President Trump's tweet about black unemployment, via The Post's Philip Bump:
- The Senate Banking, Housing and Urban Affairs Committee holds a hearing on on "Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA (Bank Secrecy Act) Enforcement.”
- The Senate Finance Committee holds a nomination hearing for Alex Azar to serve as the secretary of Health and Human Services.
- The Urban Institute holds a discussion on "Housing Finance Reform Debate: How Can the FHA (Federal Housing Administration) Meet the Future Needs of U.S. Housing?"
- The House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on "Legislative Proposals for a More Efficient Federal Financial Regulatory Regime: Part III.”
- The House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime: Part III.”
- The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on ““Evaluating CFIUS: Challenges Posed by a Changing Global Economy.”
- The Senate Banking, Housing an Urban Affairs holds a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement."
- Deloitte hosts a webcast on “US tax reform: A sea change for international taxation” on Wednesday.
- The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “A Further Examination of Federal Reserve Reform Proposals” on Wednesday.
- The Greater Washington Association for Financial Professionals holds its monthly webinar on Wednesday.
- The House Financial Services Subcommittee on Monetary Policy and Trade Subcommittee hearing on a “Further Examination of Federal Reserve Reform Proposals” on Wednesday.
- The U.S. Chamber of Commerce holds the 2018 State of American Business on Wednesday.
- The Peterson Institute for International Economics holds the D.C. release of this year’s Geneva Report on the World Economy, “And Yet It Moves: Inflation and the Great Recession” on Wednesday.
- The Peterson Institute for International Economics holds a discussionon the 2018 Geneva Report on the World Economy, "And Yet It Moves: Inflation and the Great Recession” on Wednesday.
- The Peterson Institute for International Economics and the China Finance 40 Forum host the Third Annual China Economic Forum on “The New Era of Chinese Economy and China’s Financial Opening-up” on Thursday.
- The Brookings Institution holds an event on “The Wall: the real costs of a barrier between the U.S. and Mexico” on Thursday.
- The Brookings Institute holds a discussion on "The Lost Einsteins," on the importance of exposure to innovation, especially for women, minorities and children from low-income families on Thursday.
- The Securities and Exchange Commission Fixed Income Market Structure Advisory Committee holds a public meeting on Thursday.
- The Economic Policy Institute holds a discussion on "Understanding the decline in manufacturing jobs” on Friday.
- The American Enterprise Institute holds an event on “New thinking about poverty and economic mobility” on Jan. 18.
From The Post's Tom Toles:
Here's how Trump’s stance on foreign trade goes back decades:
President Trump attended the NCAA Football National Championship game in Atlanta between the University of Georgia and the University of Alabama:
Dozens of same-sex couples exchanged wedding vows at midnight as a new law took effect in Australia:
Late-night comedians had a lot to say about the possibility of Oprah running for president: