| | | | |  | | By Zachary Warmbrodt | | Presented by |  | | | 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.
| | FDIC Chair Martin Gruenberg is poised to hang on to his job, for now, even as he faces growing criticism from fellow Democrats over his agency’s misconduct scandal. Democrats rebuked Gruenberg one after another at a Wednesday House Financial Services hearing, and probably will again today at Senate Banking. But all stopped short of calling for his ouster, despite revelations of years of harassment and discrimination suffered by FDIC staff and Gruenberg’s own problematic treatment of employees. At least part of the calculation comes down to their broader policy agenda — in this case cracking down on big banks — and the peril it would face if Gruenberg left the FDIC. Industry representatives are not so quietly trying to hasten his exit, which would likely halt the biggest increase in big bank capital requirements since the years following the global financial crisis. One especially tense moment in the hearing summed up Democrats’ predicament. “It is shameful that through your inadequate leadership at the helm of this agency that you have fueled calls for your resignation from the political opportunists across this aisle and jeopardized critical regulations pending finalization at this agency,” Rep. Ayanna Pressley, a Massachusetts Democrat, told Gruenberg. She went on to say that she doesn’t have confidence that he can continue to lead the agency. House Financial Services Chair Patrick McHenry, one of several Republicans calling for Gruenberg’s resignation, said it was an “act of hubris” that he showed up to testify rather than stepping down. “President Biden once said, ‘I’m not joking when I say this: If you’re ever working with me and I hear you treat another colleague with disrespect, talk down to someone, I promise you I will fire you on the spot,’” McHenry said. “So, I ask my Democratic colleagues, and the president, if the behavior outlined in this report doesn’t rise to that level, what does?” Lawmakers left the hearing with the expectation that Gruenberg would stay in place. Rep. Maxine Waters, the top Democrat on Financial Services, told reporters Gruenberg was “believable” in terms of accepting responsibility and following through with a plan of action. In addition to proposing an independent office to address employee concerns, he agreed to personally seek help with anger management. So far just one Democratic lawmaker, Rep. Bill Foster of Illinois, has called for Gruenberg’s resignation. “If you had leadership of both parties calling on him to resign, then that would be overwhelming,” Rep. Ritchie Torres, a New York Democrat, told Eleanor Mueller. “I would bet that he survives.”
| | A message from the American Bankers Association: Americans appreciate free checking and other low-cost financial products that help bring more consumers into the regulated banking system. Today, the progress we’ve made in reducing the number of unbanked is at risk, because the Fed wants to change the rules around debit card transactions and limit the revenue banks use to offer free checking and other popular products. Tell the Fed to stand with consumers and withdraw Regulation II. Act now. | | | It’s not the outcome bank lobbyists would have loved but it wasn’t a total bust. After bipartisan prodding, Gruenberg and other top bank regulators appeared to leave the door open to reproposing their plan to force large banks to set up bigger capital buffers. Such a move could result in easier rules and, perhaps more importantly, a longer timeline for derailing them altogether. The industry argues that the current plan is a gratuitous expense after they complied with myriad layers of capital rules and other safeguards following Wall Street’s 2008 meltdown. Fed Vice Chair for Supervision Michael Barr said at the hearing that “we haven’t made any decision at all with respect to the process.” Sen. Thom Tillis, a North Carolina Republican who opposes the capital rules, told Eleanor it’s “despicable” that Democrats aren’t pushing out Gruenberg. “Is your political agenda so important that you can look past what would have happened, what an abject failure he is as a manager?” he said. “There’s not a Fortune 500 company in the world that would allow that sort of behavior.” It’s Thursday — Send tips to zwarmbrodt@politico.com.
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | The U.S. Census releases April housing starts at 8:30 a.m. … FDIC Chair Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr and Acting Comptroller Michael Hsu testify at Senate Banking at 10 a.m. … Fresh hope for a soft landing — Per the WSJ, a closely watched inflation gauge in April saw its lowest annual increase in three years, keeping hope alive for Fed interest rate cuts in the coming months All three major U.S. stock indexes hit record highs Wednesday. “This is a very comforting report,” said Erica Groshen, a senior economic adviser at the Cornell University School of Industrial and Labor Relations. “It is consistent with the view of a soft landing.” In related news, the Bureau of Labor Statistics said Wednesday that it “inadvertently” posted a “subset” of CPI and real earnings data 30 minutes before release. BLS said it “takes its data security seriously” and is conducting a full investigation. The bureau said it alerted OMB and the Labor Department’s inspector general.
| | | | JOIN 5/22 FOR A TALK ON THE FUTURE OF TAXATION: With Trump-era tax breaks set to expire in 2025, whoever wins control of Congress, and the White House will have the ability to revamp the tax code and with it reshape the landscape for business and social policy. Join POLITICO on May 22 for an exploration of what is at stake in the November elections with our panel dissecting the ways presidential candidates and congressional leaders are proposing to reshape our tax rates and incentives. REGISTER HERE. | | | | | | | | | Trump 2.0 and systemic risk — What if Trump tries to diminish Fed independence, curtail financial system backstops, impose “universal” tariffs and yank the U.S. from international institutions? In a new lecture, Karen Petrou of Federal Financial Analytics sees a host of potential risks to the foundations of global finance. “I know we made it through Mr. Trump’s first term without incident related to his policies,” she says. “But I’m not so sure that will be the case this time around.” Credit Suisse drama — The FT reports that UBS chief executive Sergio Ermotti is criticizing Swiss authorities for letting Credit Suisse fail. He’s speaking out as UBS faces an increase in capital requirements following its takeover of Credit Suisse last year. “To be honest, it’s quite surprising how quickly UBS went from being perceived as a saviour to a potential future problem for the country,” Ermotti said.
| | | Rollback time — The Senate is abuzz with bipartisanship when it comes to blocking financial safeguards imposed by Biden regulators. This morning, the Senate is expected to vote on undoing SEC guidance that critics say discourages banks from holding crypto. Sen. Kirsten Gillibrand on Wednesday said she’ll support the effort, upping the odds that it will result in the first crypto veto in history. She expects a “handful of Democrats” to help pass it. Separately, Sen. Joe Manchin joined Republicans in introducing a resolution to nullify the Labor Department’s fiduciary rule. In addition, the Senate Wednesday rejected an attempt to undo a Treasury rule that allows more flexibility in spending pandemic assistance. Senators voted 46-49 on the resolution by Sen. Eric Schmitt (R-Mo.). Republicans said they wanted to curb wasteful spending.
| | | | A message from the American Bankers Association:   | | | | | The House loves blockchain — Jasper Goodman reports that the House passed bills aimed at boosting the digital ledger technology behind crypto, including legislation that would require the Commerce Department to examine how to use it to monitor the supply chain. Ethereum arrests — Per Reuters, two brothers who studied at MIT were arrested on charges that they tried to exploit the Ethereum blockchain and steal $25 million worth of crypto.
| | People moves — Catherine Fuchs, who previously served as Senate Banking policy director for ranking member Tim Scott, is joining Blue Ridge Law & Policy as a principal.
| | A message from the American Bankers Association: The Federal Reserve’s Regulation II proposal to lower the cap on debit card interchange is a mistake we need to avoid. The proposal will pad the profits of mega-retailers at the expense of everyday Americans. All you need to do is look at history to know what’s coming. More than 10 years after the Durbin Amendment was enacted, Fed studies show consumers have yet to benefit from the lower prices that retailers promised. Instead, merchants pocketed the savings from the government-mandated price cap, while community banks lost a key revenue source that they used to cover the cost of debit rewards and other popular products. The new Fed price cap proposal threatens to do even more damage to consumers by slashing revenue banks use to pay for free checking and other services that promote financial inclusion. Tell the Fed to stand with consumers and withdraw Regulation II. Act now. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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