The calls are coming from inside the house: Dems rap Biden bank cops

From: POLITICO's Morning Money - Thursday Sep 14,2023 12:18 pm

Sep 14, 2023

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QUICK FIX

A plan by Biden regulators to shore up banks against potential economic storms is set to face its first round of congressional scrutiny today — and some of it may come from the administration’s Democratic allies.

The banking industry, with support from GOP allies on Capitol Hill, is vigorously pushing regulators to pare back a plan rolled out in July to raise bank capital requirements by up to 19 percent in order to stave off future bailouts. Now, some Democrats are voicing skepticism about the proposal, which was spearheaded by the Federal Reserve’s Biden-appointed bank cop, Michael Barr.

Sen. Mark Warner (D-Va.) told MM he worries that tougher capital standards, high interest rates and a shock to the commercial real estate market could combine to create “the perfect storm.”

“Any one of those, on their own, could be dealt with. But the combination of the three could be that perfect storm,” he said.

Democratic concerns about the capital requirement hikes are a dynamic to watch going into the House Financial Services Committee hearing on the proposal.

Some Democrats are likely to raise concerns about the plan’s potential to dampen renewable energy investing. The proposal would quadruple capital requirements for banks’ tax equity investments — which provide tax benefits to funders of renewable energy projects — by assigning a 400 percent risk weighting to all non-publicly traded equity.

“The immediate concern that I’ve got is what it might do to tax equity markets,” Rep. Sean Casten (D-Ill.) told MM. “We depend so much on those structures. … I want to make sure that there’s no inadvertent impacts on it there.”

Banking industry representatives are set to tell lawmakers that the proposal is unjustified and would impose big costs on the American economy — concerns likely to be echoed by Republicans on the committee.

In a letter sent Wednesday to Barr, FDIC Chair Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu that was obtained by MM, all 29 House Financial Services Republicans called on the regulators to withdraw their proposal.

Fed spokesperson Eric Kollig said the Fed has received the letter and plans to respond. The FDIC declined comment. The OCC did not respond to a request for comment.

Expect GOP lawmakers to take aim at the Barr-led review that led to the proposed capital requirement hike.

“I have major process concerns,” Rep. Andy Barr (R-Ky.) told MM.

Many Democrats — including Senate Banking Chair Sherrod Brown of Ohio and progressives like Sen. Elizabeth Warren of Massachusetts — back the proposal to hike capital requirements. But any opposition from moderates could increase pressure on the Federal Reserve, the FDIC and the OCC to pare back the proposed rules.

“I appreciate what Michael Barr has done — I think he’s put in good work,” Warner said. “But I want to make sure that when we think about the safety and soundness of the system, we think about the interaction between interest rate rise, capital standards and other factors, particularly in an area like commercial real estate.”

IT’S THURSDAY — Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.

A message from BPI:

The Fed’s extreme Basel proposal will have real consequences for everyday Americans. These costly new capital rules will create a drag on our economy for years to come and will hurt working families and small businesses. Congress must take action to stop the Basel endgame before it’s too late.

Driving the Day

Producer price index and retail sales out at 8:30 a.m. … Treasury Secretary Janet Yellen will speak at a CFIUS conference at 9 a.m. … House Financial Services holds hearings on Basel III implementation at 10 a.m. and central bank digital currency policy at 2 p.m. … House Oversight holds a hearing on the Inflation Reduction Act at 2 p.m. … The SEC holds a closed meeting at 2 p.m. … President Joe Biden will deliver remarks on his economic policy agenda at 2:45 p.m.

Bidenomics vs. MAGANOMICS — Anita Dunn, a senior adviser to the president, sent a memo to congressional Democrats and allies in advance of the president’s remarks hammering the House GOP’s appropriations bills — which she dubs “MAGAnomics” — as “reckless, partisan bills that would gut programs millions of hardworking families count on.”

Shutdown watch — Our Sarah Ferris, Jordain Carney and Olivia Beavers: “A day after Speaker Kevin McCarthy dramatically escalated his party’s impeachment drive, he is still struggling to contain a conservative revolt that could soon plunge Washington into a shutdown.”

(Partial) Strike watch — United Auto Workers President Shawn Fain said his union and the Big Three auto manufacturers are still far apart. If progress isn’t made after the 11:59 p.m. Thursday deadline, Fain is “threatening to strike select plants at each company, and possibly adding others” reports Bloomberg’s David Welch and Keith Naughton.

House Small Biz wants to boost antitrust scrutiny, SBA fraud protections — Zach reports that House Small Business this morning will vote on a bill by Reps. Hillary Scholten (D-Mich.) and Blaine Luetkemeyer (R-Mo.) that would add antitrust and market competition considerations to the SBA’s charter, as well as require the DOJ and FTC to report on how they’re addressing anticompetitive behavior that harms small employers. The panel will also take up a bill from Chair Roger Williams (R-Texas) and Rep. Kweisi Mfume (D-Md.) that would prohibit individuals convicted of defrauding the government during Covid-19 from receiving an SBA loan.

GO INSIDE THE WORLD’S BIGGEST DIPLOMATIC PLATFORM WITH UNGA PLAYBOOK: The 78th Session of the United Nations General Assembly will jam some of the world's most influential leaders into four city blocks in Manhattan. POLITICO's special edition UNGA Playbook will take you inside this important gathering starting Sept. 17 — revealing newsy nuggets throughout the week and insights into the most pressing issues facing global decision-makers today. Sign up for UNGA Playbook.

First in MM: New caucus — The top Democrat on the House Financial Services Digital Assets Subcommittee, Rep. Stephen Lynch, is launching a new bipartisan caucus that aims to educate members on a U.S. digital dollar.

The Massachusetts Democrat has made the case that U.S. government-issued digital assets could protect consumers more effectively than private sector options. Crypto firms are wary of the idea. Also today, Lynch will reintroduce his legislation that would task Treasury with developing a U.S. digital dollar.

Expect to hear a lot about it this afternoon, when the digital assets panel holds a hearing on Central Bank Digital Currency at 2 p.m. The majority has noticed three bills, including one that would explicitly block pilot programs like Lynch's.

As expected, headline CPI was a little hot — Will this change things for the Fed? “Most likely not,” writes Victoria Guida. “Central bank policymakers are still leaving the prospect of more rate hikes on the table, but they’re expected to skip at least September because they want more data to see whether inflation continues to slow.”

— Still, the effects of higher rates seem to be flowing into how U.S. CEOs are strategizing for the next six months. Nearly a third of U.S. executives expect employment at their companies to fall, according to the third-quarter survey from the Business Roundtable.

— The WSJ’s Alison Sider and Mark Maurer: “Costlier Fuel and Labor Cut Into Corporate Profit”

Check it out — Victoria and the Playbook team will play host on Tuesday, Sept. 19 at POLITICO’s Building the New American Economy (RSVP with the link). Speakers include Jared Bernstein, Chair, White House Council of Economic Advisers, as well as, Rep. David Schweikert (R-Ariz.) and Rep. Drew Ferguson (R-Ga.) from the U.S. Joint Economic Committee.

A message from BPI:

On the Hill

The Sound and the Fury and the Swipes — Sen. Roger Marshall (R-Kan.) on Tuesday told Eleanor Mueller that there weren’t “really conversations” happening around a controversial credit card swipe fee bill that he’d introduced with Sen. Richard Durbin (D-Ill.) earlier this year. Wednesday sure felt chatty.

Durbin took to the Senate floor to identify the bill as a priority for “this year” now that the largest payment networks — Visa and Mastercard — are “going to raise the interchange fee again” in October. The lawmakers also led a letter urging Visa and Mastercard to reverse course, citing an Aug. 30 Wall Street Journal story that reported the planned fee hikes for online purchases could result in merchants paying an additional $502 million a year.

Payment sector and banking industry lobbyists have been on the warpath over the Journal story for two weeks.

— The Electronic Payments Coalition, which represents banks, credit unions and card companies, has been pushing back on the $502 million estimate. The group’s new executive director — former Consumer Bankers Association president and CEO Richard Hunt — told Sam that Durbin and Marshall’s bill would “increase the likelihood for mergers and consolidation in the banking industry.”

— The retail industry has also leaned into the news of fee increases to dial up their advocacy efforts, as have progressive and anti-monopoly groups like American Economic Liberties Project, which claims in a new policy memo shared with MM that the bill would encourage competition and drive down costs.

— So are interchange fees rising? Mastercard spokesman Seth Eisen in a statement said the firm had no plans to raise the fees and that the changes referenced by lawmakers refer to a “new service for financial institutions that protects consumers.” Visa spokesperson Constantine Panagiotatos, meanwhile, sent a statement from the company saying Visa’s overall interchange fees have “remained flat for more than a decade” but that it’s changing prices on certain fraud prevention services.

Not so much — House Financial Services Chair Patrick McHenry (R-N.C.) pushed back on the need for Biden’s outbound investment order, telling Treasury's Paul Rosen in a hearing that the Office of Foreign Assets Control “has years of experience related to outbound investment.” Eleanor Mueller reports that McHenry raised concerns that Biden’s proposed regime could prove “could be tricky and cumbersome.”

A message from BPI:

Instead of playing politics, the banking agencies should engage in a robust and thorough economic analysis of the proposal's effect. Federal agencies need to go back to the drawing board and ensure that future policy allows working families and small businesses to thrive.

To learn more, visit StopBaselEndgame.com.

Wall Street

Fraser leaves her mark — The WSJ’s David Benoit: Citi on Wednesday announced “it will get rid of its longstanding split into two divisions and eliminate the international layer overseeing global regions. In its place: The heads of the five businesses [CEO Jane] Fraser has made the bank’s focus will all report directly to her.

IPO window — Reuters: “SoftBank's Arm valued at $54.5 bln in year's biggest IPO”

Howard Schultz — Bloomberg’s Daniela Sirtori-Cortina: “Starbucks Founder Howard Schultz Steps Down From Board”

JOIN 9/19 FOR A TALK ON BUILDING THE NEW AMERICAN ECONOMY: The United States is undergoing a generational economic transformation, with a renewed bipartisan emphasis on manufacturing. Join POLITICO on Sept. 19th for high-level conversations that examine the progress and chart the next steps in preserving America’s economic preeminence, driving innovation and protecting jobs. REGISTER HERE.