| | | | |  | | By Zachary Warmbrodt | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
| | President Joe Biden today will issue a sweeping executive order on artificial intelligence that will press a host of agencies to address rising risks from the rapidly evolving technology. It has major implications for finance, and will trigger fresh debates about AI-related systemic risks and consumer protections. Here’s what you need to know. What’s in the EO The order will cover the gamut of federal agencies but is expected to have a number of specific asks for key financial policymakers, including:
- The Treasury Department will be tasked with producing a report on AI-specific cybersecurity risks in banking.
- Regulators will be encouraged to protect against potential financial stability risks.
- The CFPB and FHFA will be asked to police for lending bias. HUD, in collaboration with CFPB, will have to issue guidance on discrimination in tenant screening systems.
Why it matters It’s a green light for financial regulators to prioritize work that’s already been percolating on AI.
- SEC Chair Gary Gensler has been one of Washington’s most forward-leaning officials warning about dangers from AI. He argues it’s the likely trigger of a future financial crisis, as financial firms glom to similar models and datasets that will be a new source of risk across the market. His agency was first out of the gate with a major AI rule, which takes aim at how investment advisers and brokers use predictive technologies. Gensler has a broader roadmap, too: He published a paper in 2020 outlining financial system risks tied to AI and how policymakers can respond, including heightened oversight of tech companies.
- CFPB Director Rohit Chopra has been one of the most active of the financial regulators when it comes to AI. He’s been ramping up warnings about the use of predictive tools in credit decision-making and their reliance on massive amounts of consumer data that’s swept up by surveillance firms. The bureau is developing new rules.
- Bank regulators began to outline their potential concerns in a 2021 request for industry feedback. Among their priorities is ensuring that AI decisions are explainable – a key issue that you’ll begin to hear about more and more in this space. Federal Reserve Vice Chair for Supervision Michael Barr, the central bank’s lead on bank regulation, has warned this year about AI violating fair lending laws and perpetuating disparities.
Big banks and their biggest critics are also talking more about AI. JPMorgan Chase and Citigroup are beginning to deploy thousands of employees on AI-related efforts. Citi even used generative AI to extract takeaways from the 1,000-page capital rule that regulators issued in July. Better Markets CEO Dennis Kelleher, who advocates for stricter bank oversight, told MM that the new EO is important because AI is an all-of-government challenge that requires prioritization and coordination that only the White House can provide. “Regulators have to stop talking about AI and start regulating it before a crash,” he said. “Not trying to clean up after one.” The big takeaway: AI is emerging as a top concern in financial regulation. It will likely become an even larger and more contentious part of the Wall Street-Washington dialogue in the years to come. “Over time, guidance will turn to rulemaking,” Federal Financial Analytics managing partner Karen Petrou told MM. “But that will still take a lot of time.” Happy Monday — Are you focused on the intersection of finance and AI? What angles should MM be covering? Let us know: zwarmbrodt@politico.com.
| | | | A message from Electronic Payments Coalition: Don’t Buy What Mega-Retailers Are Selling About Durbin 2.0: Superstores like Walmart, Target, and Home Depot are pushing for legislation that's essentially corporate welfare at the expense of consumers. They're seeking new government mandates on credit card routing, which may appear harmless but would jeopardize YOUR data security and fraud protection, rewards for everyday purchases, and the convenience of using credit cards. Congress: reject the Durbin credit card interchange bill. Click HERE to get the facts. | | | | | Monday … White House releases AI executive order … Treasury gives a new estimate of its borrowing needs … Tuesday … The FOMC begins its two-day meeting … Wednesday … ADP October employment data is out at 8:15 a.m. … September job openings data is out at 10 a.m. … FOMC releases its monetary policy decisions at 2 p.m., followed by Fed Chair Jerome Powell’s press conference at 2:30 p.m. … House Financial Services holds hearings on the SEC and rising insurance costs … Friday … BLS releases October employment data at 8:30 a.m. … Fed Vice Chair for Supervision Michael Barr discusses the Community Reinvestment Act at 8 a.m. and 3:30 p.m.
| | | | The World Strategic Forum (WSF) is taking place on November 6-7th in Miami, Florida at the Biltmore Hotel Coral Gables. WSF 2023 will discuss ‘Mastering the New Economy’, examining the ways in which business and society can thrive despite current economic and environmental challenges. The conference will gather 100+ speakers from companies including Volkswagen, Siemens and C3.ai, as well as U.S. Senator for Tennessee Bill Hagerty; Florida’s Chief Financial Officer Jimmy Patronis; Former President of Colombia Iván Duque Márquez and Former President of Ecuador Jamil Mahuad. Learn more and register now at www.worldstrategicforum.com. | | | | | | | | | A moment of pause — The Fed is expected to keep rates steady Wednesday. Taking a breath may be justified by the October jobs report, which will be released this Friday. It's expected to show a slowdown in growth compared to the last few months. Data released last Friday also suggests “core” inflation will end the year below the Fed’s projections, per the WSJ. On a related note — The big calendar item for financial markets this week is Treasury’s quarterly update on its borrowing needs, a process that will begin today. It comes after long-term Treasury yields surged in recent weeks. Another landmark AI move — The G7 will agree to a code of conduct for developing AI, Reuters reports. “The code urges companies to take appropriate measures to identify, evaluate and mitigate risks across the AI lifecycle, as well as tackle incidents and patterns of misuse after AI products have been placed on the market.” UAW action — The United Auto Workers expanded its strike against GM, after it reached preliminary deals to resolve walkouts at Stellantis and Ford.
| | | | A message from Electronic Payments Coalition:   | | | | | SBF talks Washington playbook — FTX founder Sam Bankman-Fried took the stand at his fraud trial Friday and is expected to face questioning today from prosecutors. Declan Harty reports that the one-time crypto mogul testified about what drove FTX’s Washington lobbying blitz before the firm's collapse. He said “whether or not we wanted it” FTX knew regulators and lawmakers were going to intervene in the crypto market and “we didn’t want to be on the wrong end of that.” Jury deliberations could start as soon as Thursday. WSJ revisits Hamas crypto connection — The Wall Street Journal on Friday issued a key update to a controversial story about Hamas’s use of cryptocurrency, Jasper Goodman reports. But, despite industry complaints, the paper didn’t change the total sum that it said the militant group and its allies may have raised in digital currency. The Journal’s Oct. 10 story said Hamas and other militant groups had received as much as $134 million in crypto since 2021, citing data from a pair of crypto research firms. But key players in the crypto industry have disputed the newspaper’s report, saying the numbers it cited were inflated. On Wednesday, one of the crypto research firms the WSJ cited, Elliptic, rebuked the story. It said in a statement that there “is no evidence to suggest that crypto fundraising has raised anything close to” the sum the newspaper reported. It said its data “has been misinterpreted” by the Journal as well as in a subsequent letter by Sen. Elizabeth Warren (D-Mass.). The Journal wrote in its Friday update that Elliptic has “said it isn’t clear if all of the transactions it identified directly involved” one of the militant groups in question, Palestinian Islamic Jihad, “because some of the wallets belonged to crypto brokers that may have also served non-PIJ clients.” “Upon further review, we determined that the original article required additional context about Elliptic’s research and the firm’s analysis of digital-currency wallets,” a WSJ spokesperson said in a statement.
| | What’s next for House Financial Services — Eleanor Mueller reports that House Financial Services Republicans are figuring out how to cram in work on Iran sanctions, regulator oversight and flood insurance as the panel ramps back up after Chair Patrick McHenry’s three-week stint as acting speaker. “We had to move a lot of things,” Rep. Warren Davidson said. “So it's going to be hard to find enough committee hearing slots to fill up what we missed." Fed Chair Jerome Powell, CFPB Director Rohit Chopra and FinCEN Director Andrea Gacki are expected to testify, Rep. Blaine Luetkemeyer said. On reauthorizing the National Flood Insurance Program, which expires with government funding on Nov. 17, Davidson said the goal is to “get something that pushes it out till at least May or so and kind of breaks it out of the CR-omnibus cycle." A new Iran bill — Sens. Joni Ernst and Richard Blumenthal will introduce legislation this week that would bolster the ability of DHS’s Homeland Security Investigations unit to enforce oil sanctions, Eleanor reports. The bill would provide $150 million for a new Iran sanctions enforcement fund that would be repaid by oil seizures. "Instead of allowing Iran’s illegal actions to continue, I’m working to cut the red tape and equip HSI, and its proven record of enforcing sanctions, with the support and resources it needs to go after and stop Tehran,” Ernst said in a statement.
| | | | PLAYBOOK IS GOING GLOBAL! We’re excited to introduce Global Playbook, POLITICO’s premier newsletter that brings you inside the most important conversations at the most influential events in the world. From the buzzy echoes emanating from the snowy peaks at the WEF in Davos to the discussions and personalities at Milken Global in Beverly Hills, to the heart of diplomacy at UNGA in New York City – author Suzanne Lynch brings it all to your fingertips. Experience the elite. Witness the influential. And never miss a global beat. BE PART OF THE CONVERSATION. SUBSCRIBE NOW. | | | | | | | | Higher rates hit homebuilders — A rally in homebuilder stocks has started to reverse, with firms warning that elevated rates are pricing buyers out of the market, the FT reports. Investors had been optimistic that higher rates would encourage existing owners to stay put and increase demand for new construction.
| | | | A message from Electronic Payments Coalition: Don’t Buy What Mega-Retailers Are Selling About Durbin 2.0:
FACT: Credit Card Interchange Rates Have Not Changed for 7 Years
The rate of interchange has remained flat for the past seven years, while merchant sales have grown substantially. The average interchange rate for credit cards is about 1.8% and hasn’t moved since 2016, when the NFIB said the payments market was “competitive” and the cost of accepting cards was “relatively inexpensive, considering what it delivers.” Businesses that accept credit cards benefit from increased sales, guaranteed payments, access to online channels, and lower costs than handling cash or alternatives like buy-now-pay-later.
Congress: reject the Durbin credit card interchange bill. Click HERE to get the facts. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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