A big week for big banks

From: POLITICO's Morning Money - Tuesday Jun 20,2023 12:02 pm
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POLITICO Morning Money

By Zachary Warmbrodt

Presented by

Electronic Payments Coalition

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How will Washington revamp banking post-SVB? We’re going to get a good sense of that this week from the Biden administration, Congress and the Federal Reserve.

First up this morning is a major Brookings speech on bank mergers from DOJ’s Jonathan Kanter, who leads the department’s antitrust division.

Bankers will be watching the speech closely. They’re hopeful that the Biden administration will be more accommodating of bank consolidation to help shore up the industry — especially after Treasury Secretary Janet Yellen and Acting Comptroller of the Currency Michael Hsu sent signals that bank representatives saw as encouraging.

But industry watchdog groups, including the American Economic Liberties Project, Americans for Financial Reform and Public Citizen, warn Yellen and top banking regulators in a new letter today that it would be risky to let big banks get bigger (AELP today also has a report out on the issue). They want the agencies to be “full-throated and clear in their affirmation that robust regulation and competition, not consolidation, will lead to a healthier, safer, and more vibrant financial system.”

The other political battle to watch: Wednesday’s Senate Banking Committee vote on a bill that would claw back pay and ratchet up penalties for the executives of failed lenders. The proposal from Senate Banking Chair Sherrod Brown and Sen. Tim Scott has created some tensions with Sen. Elizabeth Warren, who has nearly half the committee signed on to a tougher clawback plan.

The big question is the extent to which Warren and her allies will support the Brown-Scott proposal as it’s drafted. (At least two, Sens. Mark Warner and Tina Smith, have said they will support the chairman’s bill.)

A list of proposed amendments obtained by MM shows that Warren is floating changes that would make Brown and Scott’s clawback plan look more like hers. A person familiar with the matter said Warren could propose amendments that would extend their clawback section’s lookback period to three years from two, expand its compensation definition to capture salary and increase the number of executives to be held accountable.

Sen. J.D. Vance, a Warren co-sponsor, also drafted several potential amendments. One would subject state-chartered banks with more than $100 billion in assets to oversight by the OCC – a provision that would capture Truist. Another would appear to discourage consolidation by making it harder for megabanks to get around the 10 percent nationwide deposit cap in acquisitions.

The amendments could just end up being talking points. Members may not have the appetite to blow up a deal between Brown, who’s facing a tough reelection, and Scott, who’s running for president. And as their bill stands now, bank trade groups may largely be able to stay neutral without putting up a big fight. The Independent Community Bankers of America, the only industry group willing to publicly weigh in so far, told MM it’s trying to “improve the bill so it doesn’t impact community banks.” (The bill already has exemptions for banks with less than $10 billion in assets.)

A Brown spokesperson said his goal has been to “pass the most robust bill possible out of committee with strong bipartisan support, to have the highest chance of success on the floor, and ultimately get to the president’s desk.”

Another important factor: House Financial Services Chair Patrick McHenry isn’t a “hell no” at this point.

He hasn’t been pushing for executive accountability legislation, but does he want to impede Scott? Could this be a trade for another priority?

McHenry spokesperson Laura Peavey said in a statement that House Financial Services “will take a look at any bill that is advanced by the Senate Banking Committee, including on executive compensation clawbacks.” She said McHenry’s committee has focused on accountability for regulators. It has approved a bill by subcommittee Chair Andy Barr to address those issues.

“It is important to note that the regulators already possess the necessary authorities to claw back executive compensation,” she said.

Last but not least, Fed Chair Jerome Powell and Biden’s latest Fed nominees will testify in Congress this week. Expect questions on all of the above, plus many inquiries on the Fed’s upcoming proposal to hike bank capital requirements – the top lobbying issue for the big banks this year.

It’s Tuesday – Let us know what you think of Kanter’s bank merger speech today: Zach Warmbrodt, Sam Sutton.

 

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Driving the Week

Tuesday … Kanter talks bank M&A policy at the Brookings Institution at 10 a.m. … Fed Vice Chair for Supervision Michael Barr speaks at the New York Fed’s Governance and Culture Reform Conference at 11:45 a.m. … Wednesday … Senate Banking votes on bank CEO accountability legislation and has a Fed nominees hearing, including Fed Gov. Philip Jefferson's vice chair nomination, at 9:30 a.m. … Powell testifies at House Financial Services at 10 a.m. … Former House Financial Services Chairman Jeb Hensarling and former FDIC Chairman Jelena McWilliams discuss bank regulation at Cato at 11:30 a.m. … Thursday … Senior SEC officials testify at House Financial Services hearings at 9 a.m. and 10:30 a.m. … Powell testifies at Senate Banking at 10 a.m.

Driving the day

A conservative economic platform that challenges Wall Street — American Compass – the three-year-old conservative policy group led by former Romney adviser Oren Cass — is rolling out a comprehensive plan for “rebuilding” capitalism just in time for the 2024 GOP presidential primary.

What sets American Compass apart from other right-leaning think tanks — and makes its agenda well-timed for this moment of rising Republican populism – is that it eschews the libertarian view that unfettered markets are what’s needed to fix the American economy. Its proposed remedies include a global tariff to help eliminate the trade deficit, a financial transaction task to address “unproductive speculation” and monthly per-child payments to families as a new form of “social insurance.”

“Our fundamental starting point is, capitalism isn’t just something that works automatically by magic,” Cass told MM. “It works when you have the right rules in place, when you have the right constraints, when you have the right institutions.”

It’s a plan that would require Republicans to lean further into their breakup with Wall Street — one that Cass admits would carry a cost thanks to dynamics in the GOP donor community. But the group has drawn interest from prominent Republican politicians, including Sens. Tom Cotton, Marco Rubio, Todd Young and Vance, who will speak at a Capitol Hill event American Compass is hosting Wednesday to roll out its agenda.

As for who in the 2024 presidential field might embrace the ideas? Cass said former Vice President Mike Pence is “interesting” in light of his Trump administration years, and that former President Donald Trump himself is “very much on this side of whatever divide you might want to describe but doesn’t tend to be especially philosophically nuanced in his approach.” Florida Gov. Ron DeSantis hasn’t fully laid out his vision, but Cass said “he’s started to generate various rumblings that indicate he is not and does not intend to position himself in the kind of conventional pre-Trump Republican mold.”

 

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Economy

The hopeful Fed Our Victoria Guida reports that the Fed is sounding more optimistic about U.S. economic growth and the prospect of what economist Diane Swonk calls “immaculate disinflation,” with the job market holding up better than expected under a series of interest rate hikes.

The new phase for inflation The WSJ has a look at how central bankers across affluent countries – not just the U.S. — are raising their inflation forecasts and plotting further interest rate hikes about a year into their global campaign to tame inflation. The Bank of England is expected to raise rates this week, after central banks in Australia and Canada surprised investors with increases.

 

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On the Hill

Tax policy is the big prize in 2024 — Our Burgess Everett and Sarah Ferris have a new piece looking at how the outcome of the next election will have a massive impact on a huge issue that may not get much focus on the campaign trail: How to handle the 2025 expiration of Trump-era tax cuts. Democrats and Republicans are already strategizing on the tax cliff.

Ukraine

BlackRock, JPMorgan help set up rebuilding fund — The FT reports that BlackRock and JPMorgan Chase are working with the Ukrainian government to establish a reconstruction bank that would raise funds for rebuilding projects – a need that is estimated to be more than $400 billion.

And ICYMI Friday, the FT reported that the European Central Bank warned the European Commission against diverting interest payments on frozen Russian assets to fund Ukraine.

 

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

 
 
Regulatory Corner

Fed discloses payments playersThe Fed on Friday released a database of financial firms that have deposit accounts at the central bank plus those that have requested one. The move, required by Congress in December, is a window into financial institutions that have access to the Fed’s payments rails. Among the firms with a pending application: the crypto exchange operator Kraken.

Japan checks banks' China risks Reuters: “Japan's financial regulator has sounded out top domestic banks about China risks and whether they have plans in place if Sino-Western tensions escalate, according to multiple sources with direct knowledge of the matter.”

 

A message from Electronic Payments Coalition:

CONGRESS: DON’T FALL FOR THE BIG-BOX BAIT-AND-SWITCH: Despite vigorous lobbying from mega-retailers and their special interest allies, credit routing mandates are deeply unpopular—among both Democrats and Republicans. Credit card routing mandates would allow big-box stores like Walmart and Target to process credit card transactions based solely on what is cheapest for them without regard to the value that consumers derive from rewards and many other benefits. Proposed legislation would pump billions of dollars into large companies already valued at hundreds of billions of dollars, while squeezing out local mom-and-pop shops and eliminating popular credit card rewards programs. Last year, Congress wisely rejected a similar Big-Box Bill, and they should do so again. Congress must protect consumers, preserve the integrity of the payment ecosystem, and reject this detrimental and unnecessary government intervention. www.stopthebigboxbaitandswitch.com

 
 

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