The Fed’s ticking clock

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Feb 12, 2024 View in browser   By Jasper Goodman and 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. QUICK FIX It’s a big week for bank regulation. Top Federal Reserve officials are poised to make news on what happens next in their fight to hike big bank capital requirements. But MM wants you to think ahead this morning. What happens to the plan if the GOP wins big in November? Republicans are beginning to game it out, and we have some early insights to share. Some GOP lawmakers are floating the possibility of using the Congressional Review Act to block the proposed capital requirements. Under a Trump administration 2.0, “we [would] immediately try to draw it down,” Sen. Thom Tillis said in an interview. “If you know how the Congressional Review Act works, hopefully we can find ways to have it withdrawn — or work with the administration to have it withdrawn — as quickly as possible,” the Banking Committee member said. It all hinges on political dynamics eight months from now, but it’s a real pressure point today for the Federal Reserve, FDIC and OCC. If it takes them until this summer or later to finalize the regulation, it will likely be exposed to a potential reversal by the next Congress under the Congressional Review Act. The CRA allows rules to be blocked by a simple majority in both chambers. A Republican-controlled Senate is a strong possibility. But even one that’s evenly divided and doesn’t flip could be a threat, given the bipartisan resistance to the rule. (Critics would probably also need Republicans to hold their House majority, which is no sure thing.) It’s a scenario worth exploring because it’s unclear whether the agencies will finish the rule in time to escape the treacherous CRA window. They have to sort through wide-ranging complaints from the banking industry and beyond. Revising the regulation will take time, and it’s possible they may have to re-propose it depending on the extent of the changes. Fed vice chair for supervision Michael Barr, who is giving speeches Wednesday and Friday, hasn’t offered a timeline for finalizing it. Don’t forget: The largest U.S. banks are already threatening to sue the Fed if the rule isn’t scaled back. Something to keep in mind is that undoing the rule under the Congressional Review Act could have long-term impacts for how regulators adjust bank capital requirements. The CRA says regulators can’t offer new rules that are “substantially the same” as ones that are blocked, unless there’s congressional sign-off. “This is where Barr’s playing with fire,” Tillis said. Republicans will have to weigh whether to use the double-edged sword, and they may decide it’s not worth it. Even GOP lawmakers acknowledge that the increase in bank capital requirements since the 2008 crisis has made the financial system safer. “The idea that Congress would use a blunt tool like the Congressional Review Act may seem appealing in this stage of the negotiation process between the Hill and the Fed, but I don’t think they’ve fully thought through what the day after looks like,” said Aaron Klein, a Brookings Institution senior fellow who served at Senate Banking and Treasury. Democrats who support the agencies’ efforts don’t want them to take any chances, either. “I’ve talked to Barr,” Senate Banking Chair Sherrod Brown said in an interview. “I want to see this moving as quickly as possible.” It’s Monday – What are the agencies going to do with the Basel rule? Send tips to zwarmbrodt@politico.com.   CONGRESS OVERDRIVE: Since day one, POLITICO has been laser-focused on Capitol Hill, serving up the juiciest Congress coverage. Now, we’re upping our game to ensure you’re up to speed and in the know on every tasty morsel and newsy nugget from inside the Capitol Dome, around the clock. Wake up, read Playbook AM, get up to speed at midday with our Playbook PM halftime report, and fuel your nightly conversations with Inside Congress in the evening. Plus, never miss a beat with buzzy, real-time updates throughout the day via our Inside Congress Live feature. Learn more and subscribe here.     Driving the Week Monday … Fed Governor Michelle Bowman gives a speech on “defining a bank” at the ABA conference in San Antonio at 9:20 a.m. … Tuesday … January CPI is out at 8:30 a.m. … The House select committee on China holds a hearing on the bioeconomy and national security in Boston at 8:30 a.m. … The CFTC’s Energy and Environmental Markets Advisory Committee discusses rare earth minerals issues at the Colorado School of Mines at 11 a.m. … SEC Chair Gary Gensler gives a speech and Q&A on regulating AI at Yale Law School at 12:10 p.m. … Gensler gives a fireside chat at the Yale School of Management at 4 p.m. Wednesday … Treasury Undersecretary Brian Nelson and FinCEN Director Andrea Gacki testify at House Financial Services at 10 a.m. … CBO Director Phillip Swagel testifies at House Budget at 10 a.m. … Fed Vice Chair for Supervision Michael Barr talks monetary policy and bank regulation at the NABE conference at 4 p.m. Thursday … House Financial Services has a subcommittee hearing on the Fed discount window and emergency lending at 10 a.m. … The CFTC votes on SEF and DCM conflict of interest rules at 12:30 p.m. … Fed Governor Christopher Waller discusses the dollar’s international role at the Global Interdependence Center and University of the Bahamas conference in Nassau at 1:15 p.m. … House Financial Services has a subcommittee hearing on ways to address crypto AML concerns at 2 p.m. Friday … PPI for January is out at 8:30 a.m. … Barr gives a speech on bank supervision at the Columbia Law School banking conference at 9:10 a.m. Driving the day Biden’s thankless economic record — A new FT-University of Michigan survey finds that 42 percent of Americans feel former President Donald Trump would be the best steward of the U.S. economy, compared to 31 percent for President Joe Biden. Around one in five say they trust neither. Biden may not be getting the credit, but 46 percent of voters say they could “live comfortably” or “meet expenses with a little left over,” up three points from November. College graduates are almost twice as likely to have a positive view of the economy than those without degrees. Some good news for Biden — Economists are more bullish on the U.S. economy according to a new survey from the National Association of Business Economics, with only a quarter believing a recession will happen this year. One warning sign and conundrum for the Fed: The share of NABE members who think monetary policy is too restrictive is 21 percent, up from 14 percent in March and August, while 57 percent see fiscal policy as too stimulative. About two-thirds believe it’s likely or very likely that the CPI inflation rate will be above 2.5 percent through the end of this year. First in MM: CBC to meet with Navy Federal — Daniel Lippman reports that members of the Congressional Black Caucus will meet with Navy Federal Credit Union’s CEO on Thursday regarding allegations about its treatment of Black customers. CNN reported in December that Navy Federal rejected more than half of Black borrowers applying for a conventional mortgage, a significantly higher rejection rate than white borrowers experienced. “I look forward to hearing from Navy Federal on how they are working to make homeownership a reality for their members of all backgrounds and advancing the issues of economic prosperity and advancement that we expect from all responsible corporate partners,” Rep. Steven Horsford (D-Nev.), the CBC's chair, said in a statement. Navy Federal told MM that it’s committed to engaging with policymakers on the issue and has started an external review of its mortgage lending program. BANKS More trouble for NYCB? — The WSJ has a dive into how New York Community Bancorp. became banking’s latest worry after riding high following last March’s industry tumult. Its customers are “watching anxiously.” One WhatsApp group for people involved in commercial real estate is said to be “split between those who plan to stay with NYCB and those who plan to leave.” A New York property owner who kept tens of millions of dollars at Signature Bank and now banks at NYCB said “my finger’s on the trigger.” Nigerian bank CEO killed in California — Per NPR, Herbert Wigwe, the CEO of one of Nigeria's largest banks, was killed Friday with his wife and son when their helicopter crashed in the Mojave Desert.   YOUR GUIDE TO EMPIRE STATE POLITICS: From the newsroom that doesn’t sleep, POLITICO's New York Playbook is the ultimate guide for power players navigating the intricate landscape of Empire State politics. Stay ahead of the curve with the latest and most important stories from Albany, New York City and around the state, with in-depth, original reporting to stay ahead of policy trends and political developments. Subscribe now to keep up with the daily hustle and bustle of NY politics.      China Top hawk will take off — Rep. Mike Gallagher, the Wisconsin Republican who leads the House select committee on China, says he will not seek reelection. The 39-year-old lawmaker is the latest high-profile Republican to decide against returning to the House, following retirement announcements from Financial Services Chair Patrick McHenry and Energy and Commerce Chair Cathy McMorris Rodgers. In the Courts 'Gag rule' under fire — Declan Harty has a look at the court challenge brewing between conservative activists and the SEC over enforcement policy that dates back to the Nixon administration. At issue is an SEC practice of barring defendants from openly protesting their cases after settling with the agency – a policy that’s prompted pushback over the years from Mark Cuban, Elon Musk and even some judges. The New Civil Liberties Alliance is arguing that it’s unconstitutional, while the SEC says that letting people criticize their own settlements would undermine trust in the agency. “We give up something in a settlement when we don’t go into court, and, of course, a defendant gives up something as well,” SEC Chair Gary Gensler said in an interview. Musk has to testify — Bloomberg reports that a federal court in California is enforcing a subpoena for the billionaire to testify before the SEC about potential securities law violations tied to his purchase of Twitter. Regulatory Corner SEC escalates texting crackdown — Sixteen financial firms agreed to pay more than $81 million to resolve SEC charges tied to "widespread and longstanding failures" around employee communications, Declan reports. The settlement, which included U.S. Bank and KeyBank, means that more than two dozen companies have been ensnared by recent SEC probes into unmonitored texting involving traders and bankers. Crypto First in MM: Coinbase launches new ad campaign — Per Jasper, the largest U.S. crypto exchange is launching a new seven-figure marketing campaign today pegged to National Lost Penny Day. The TV, print and digital ads are aimed at policymakers and consumers. They make the case that digital assets can create a more efficient and modern financial system, without physical money that can get lost. “There are more pennies on the ground than in pocketbooks these days," Coinbase head of U.S. policy Kara Calvert said in a statement. "Crypto will make every penny count, especially for the people who need it most by making it easier to save and easier to move at the speed of the internet.”   Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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