Wall Street’s new GOP antagonist

From: POLITICO's Morning Money - Thursday Jul 06,2023 12:01 pm

Jul 06, 2023

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Sen. J.D. Vance — the Trump-backing former venture capitalist — is using his first term on the Banking Committee to challenge its most powerful industry constituency: The big banks.

It’s a fight that’s making the Ohio Republican one of the committee’s most important members to watch — not only from a policy lens but also from the perspective of the GOP’s growing rift with Wall Street.

Vance’s record over the last several weeks speaks for itself:

— Post-SVB, he teamed up with Sen. Elizabeth Warren to ratchet up penalties for the CEOs of failed lenders, helping her draft a proposal that drew support from nearly half the committee. He pushed to carve out the smallest, “community” banks, which he sees as operating at a financial disadvantage to bigger players. Warren said Vance was “terrific to work with.”

— The Warren bill didn’t get a vote, but it helped nudge Senate Banking Chair Sherrod Brown and Sen. Tim Scott to write their own executive accountability bill, which the committee approved 21-2.

— He succeeded in attaching megabank M&A restrictions to the Brown-Scott bill. Brown, a fellow populist Ohioan, told MM he supported efforts like Vance’s to keep banks like JPMorgan Chase, Wells Fargo and Bank of America from getting bigger. “They have too much influence in the world,” he said.

— Off committee, Vance is co-sponsoring Sen. Dick Durbin’s plan to lower credit card fees — a proposal that is triggering overwhelming opposition from bankers.

As our Eleanor Mueller points out in a new story on Vance, his moves are the latest example of an emerging GOP shift as a new crop of Republican politicians challenges the party’s pro-business, free-market ideology.

Vance in his Senate campaign pledged to prioritize rural America over titans of industry. On the Banking Committee, he’s framed his approach to banking regulation around a view that more can be done to support smaller industry players. It’s winning him kudos from progressives like Matt Stoller, who serves as director of research at the antitrust-focused American Economic Liberties Project.

“We have to figure out what is the actual policy of our government, and how do we need to change it to fit with a healthy small and medium regional bank ecosystem,” Vance told POLITICO. “I don't think that's true right now.”

Read more — including where Vance is seeing some friction with smaller banks — in Eleanor’s piece.

Happy Thursday — What financial policy action are you expecting when Congress returns next week? Let us know what you’re watching: Zach Warmbrodt, Sam Sutton. Zach's also giving Threads a try: @zacharyw.

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Driving the day

Treasury Secretary Janet Yellen arrives in China … U.S. trade deficit data for May is out at 10:30 a.m.

Yellen’s China trip ‘long overdue’ — Our Doug Palmer has a curtain raiser on the Treasury secretary’s China trip, which begins today. It’s a rare chance for top officials from the two biggest economies to talk, after communication largely went dormant under the last two presidents.

“The contrast cannot be lost on either side between today’s limited dialogue and the George W. Bush and Barack Obama eras when daily engagement with Beijing occurred at all Treasury levels,” said former Treasury official Mark Sobel.

Why you should expect more rate hikes — Victoria Guida reports on June’s newly released FOMC minutes, which showed that Federal Reserve officials believed inflation was easing more slowly than they expected.

While the Fed’s decision to hold off on raising rates was unanimous, some officials wanted to hike by a quarter of a percentage point, according to the minutes.

A crypto warning for cities — Brookings Metro has a new report out today on the levels and locations of crypto-related jobs in the U.S., and it indicates there will be few long-term economic benefits after the digital asset industry’s boom and bust.

“Despite some state and local governments’ efforts to attract crypto activity, few of the associated startups and jobs have been stable or sustainable,” write Mark Muro and Tonantzin Carmona. “While the big, established markets … saw job activity largely recover after crypto market crashes, the most recent accountings suggest that in most cases, crypto-related business booms left behind few long-term job or startup gains. Instead, in many cases, what they did create were troubling pollution and energy costs, failed business projects, major consumer and investor losses, and an outbreak of fraud that local law enforcement struggled to curb.”

And for key context: Crypto job postings represented less than 0.15 percent of all postings at their peak, with the current level around less than 0.08 percent.

Regulatory Corner

Companies warn about bank capital hike — The Coalition for Derivatives End-Users — a group that represents firms that primarily use derivatives to hedge their financial risk — urged the Fed, FDIC and OCC in a letter today to proceed with caution on raising bank capital requirements.

Citing potential impacts on a range of businesses — “from manufacturing to healthcare to agriculture to energy to technology” — the coalition asked the agencies to ensure that upcoming Basel III capital rules do not diminish large banks’ roles as financial intermediaries or impede the ability of derivatives users to manage their commercial risks.

California lawmaker relaxes climate disclosure proposal — Our Jordan Wolman reports that California legislation that would force large companies doing business in the state to disclose their greenhouse gas emissions has been watered down to shore up support from business groups. The bill's author, Sen. Scott Wiener (D-San Francisco), amended the bill to let companies delay reporting scope 3 emissions — the environmental impact of their value chains — until 2027.

Economy

Germany plans big cuts amid recession — The German government has adopted plans to cut its budget for next year by more than $33 billion, following a decade of spending increases. German Finance Minister Christian Lindner said drastic cuts were unavoidable because of public debt incurred from the pandemic and the energy crisis triggered by Russia’s war in Ukraine.

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