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Presented by Goldman Sachs: Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | |  | | By Victoria Guida and Zachary Warmbrodt | Presented by Goldman Sachs | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s 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.
| | As dozens of lobbyists take aim at a proposal to raise capital requirements for big banks, one issue has been a particular area of intrigue: the internal dynamics of the Federal Reserve board. When the Fed put out the proposal for comment this summer, the accompanying board meeting raised eyebrows, from the people who care only peripherally about bank regulation to its most avid watchers. Pretty much everyone expressed some level of skepticism about the draft, with Chair Jerome Powell raising potentially serious reservations. It passed in a close 4-2 vote, an extremely rare occurrence for the consensus-driven organization. Board member Michelle Bowman has publicly criticized both the policy and the process driven by Vice Chair of Supervision Michael Barr, while privately she has expressed frustration about the extent to which she’s looped in on supervisory and regulatory matters, sources tell MM. It’s a potential line of criticism that opponents of the proposal are watching in their bid to fight it. Sens. Mike Rounds (R-S.D.) and Katie Britt (R-Ala.) at a hearing Tuesday pressed Barr about how much time he’d given his fellow board members to review the capital proposal, known as the Basel III endgame. “It was an extensive period of time for review before its issuance,” the Fed vice chair responded, saying it was “many, many weeks.”
| | | | JOIN US ON 11/15 FOR A TALK ON OUR SUSTAINABLE FUTURE: As the sustainability movement heats up, so have calls for a national standard for clean fuel. Join POLITICO on Nov. 15 in Washington D.C. as we convene leading officials from the administration, key congressional committees, states and other stakeholders to explore the role of EVs, biofuels, hydrogen and other options in the clean fuel sector and how evolving consumer behaviors are influencing sustainable energy practices. REGISTER HERE. | | | | | The question is whether all of this will matter in the ultimate substance of the Basel proposal. Barr gave a hint about the likely outcome: he said would seek “broad” consensus, contrasting that with “full” consensus, on the board, which means he’s expecting at least some dissent on the final version. His approach is relevant from a governance perspective; the vice chair of supervision position was created by the 2010 Dodd-Frank law, and Barr is only the second person to formally hold the job, after Randal Quarles. “This role looks an awful lot like the way we could think about the secretary of state or attorney general in the Washington administration,” said Peter Conti-Brown, a Fed expert at the Wharton School of the University of Pennsylvania. “They’re creating precedents left and right.” “The procedure is not written; it’s left to the people given positions of power to define,” he added. Barr, like Quarles, has accountability for the regulations that are enacted because of the powers bestowed on the role, but the political situation isn’t the same. “For most of [Quarles’] term, he had an extremely comfortable Republican majority, and Michael Barr does not have this,” Conti-Brown added. “There are three Republicans on the seven person board. That leaves for him the sense that, yeah, he’s gotta be an aggressive leader here.” Happy Wednesday — Are this week’s bank regulator hearings moving the needle on the Basel proposal? Write in: zwarmbrodt@politico.com.
| | | | A message from Goldman Sachs: The 10,000 Small Businesses Voices community is asking the Fed to reconsider implementing Basel III — a new bank capital requirement which will reduce the amount of capital available and make it pricier for small business owners to access capital. Entrepreneurial risk-taking is something we should value and protect. We are asking the Fed to allow us to remain competitive and forward-leaning. Tell the Fed: Stop the Squeeze on Small Businesses. | | | | | | Fed, FDIC, OCC and NCUA officials testify at House Financial Services at 9:30 a.m. … Top regulators, key lawmakers and Victoria appear at the Georgetown Psaros Center’s Financial Markets Quality Conference … House Financial Services holds a hearing on “Crypto Crime in Context” at 2 p.m. … The Joint Economic Committee holds a hearing on “Demographic Drivers of Our Deficit” at 2:30 p.m. Rate hikes likely over — The WSJ reports that future Fed rate increases are probably off the table after new data showed inflation continued to slow through October. Ken Griffin may back Nikki Haley — The Citadel founder and GOP megadonor told Bloomberg “that’s a decision we’re actively contemplating.” Basel politics — As MM previewed, bank regulators testifying on Capitol Hill this week are being hit with bipartisan resistance against their plans to hike capital requirements for large lenders. At Tuesday’s Senate Banking hearing, most Democrats and Republicans who weighed in on the issue raised concerns about its economic impact, including Sens. Bob Menendez, Mark Warner, Jon Tester and Chris Van Hollen. Sen. Elizabeth Warren came to regulators’ defense, warning that “if we don’t get tougher capital requirements, the next time there’s a problem it’s taxpayers who will be forced to pick up the slack.” Regulators including Barr, the Fed’s vice chair for supervision, signaled a willingness to reconsider aspects of the rule but stood behind the general thrust of what they’re trying to do. The Fed, FDIC and OCC are likely to face an even tougher reception at the Republican-led House Financial Services Committee this morning. Ahead of their testimony, Reps. Scott Fitzgerald and Andy Barr led a letter signed by 15 other Republicans demanding the agencies provide data to justify higher capital requirements for residential mortgages. ‘What the hell is going on at the FDIC?’ — Senators at Tuesday’s Banking hearing also had tough questions for FDIC Chair Martin Gruenberg regarding this week’s WSJ bombshell about long-running sexual misconduct and other toxic behavior by employees at the agency. Gruenberg told lawmakers that he was “personally disturbed and deeply troubled” by the story and had hired an outside law firm to look into it, Victoria reports. It will likely be a big target when Gruenberg appears in the House this morning. House Financial Services Chair Patrick McHenry is asking for the FDIC IG to brief the committee on the matter. More on CBDCs — In response to our lead item Tuesday, a number of MM readers pushed back on the notion that central bank digital currencies should be viewed with skepticism because of their potential abuses by authoritarian governments. Josh Lipsky with the Atlantic Council, which publishes an international CBDC tracker, said countries have a range of motivations for pursuing their own digital currencies. Among them: better functioning of their financial systems, delivering stimulus and facilitating cross-border payments. “It’s an extraordinarily complex decision and breaking it down into authoritarian versus non-authoritarian misses so much of what is happening around the world,” he said. “Yes, China is pursuing a CBDC. But so is the European Central Bank, the Reserve Bank of India, the Bank of England, the Swiss National Bank, the Reserve Bank of Australia, and in fact nearly every G20 country and beyond — as we document in our work at the Atlantic Council. “Tracking CBDCs is a worthy goal — and that’s why we’ve done it since 2020 – but work like this should encompass the full scope of these projects and understand the range of reasons that make central banks interested in this kind of evolution of money.”
| | | | A message from Goldman Sachs:   | | | | | BIL turns 2 — On the anniversary of the bipartisan infrastructure law’s signing, the Biden administration is touting new Treasury analysis that shows state and local capital investment has grown as a share of GDP by the largest amount since 1979.
| | House hearing prep — House Financial Services will hold a hearing this afternoon looking at crypto’s use in criminal enterprises, a top congressional oversight target in light of the Hamas attacks in Israel. Rep. French Hill, who will chair the hearing, told our Eleanor Mueller that he wants members to learn how to best work with Treasury on stopping terrorist financing. Hill said committee members have already met with Deputy Treasury Secretary Wally Adeyemo and had a classified briefing. “Now, we want to do this public, open-source here, so that people can find what are the best ways and means to interject and block terror financing when they move from cash or a wallet to a blockchain,” Hill said. What’s next for House crypto legislation — The Arkansas Republican is also helping lead efforts to pass a pair of landmark crypto bills that would divvy up oversight between the SEC and the CFTC and set rules for stablecoins. Hill said he’s hoping for floor votes by the end of this year but added, “I’m not making that promise.” “I haven't seen the final stablecoin bill, but I've seen pretty much what's close to the final market structure bill,” he said. “We're making progress. But that's something we don't fully control. We're certainly here to do it as soon as possible."
| | | | GET A BACKSTAGE PASS TO COP28 WITH GLOBAL PLAYBOOK: Get insider access to the conference that sets the tone of the global climate agenda with POLITICO's Global Playbook newsletter. Authored by Suzanne Lynch, Global Playbook delivers exclusive, daily insights and comprehensive coverage that will keep you informed about the most crucial climate summit of the year. Dive deep into the critical discussions and developments at COP28 from Nov. 30 to Dec. 12. SUBSCRIBE NOW. | | | | | | | | Iran crackdown isn’t a slam dunk — Bills intended to target Iran and Hamas drove a rift between members of House Financial Services during a vote Tuesday, Eleanor reports. Ranking member Maxine Waters opposed five of the panel’s 11 bills, warning about proposals that she said would “defy our values, reverse decades of bipartisan foreign policy, and … even harm American, small-business exporters.” But rank-and-file Democrats broke with her to help Republicans advance the legislation. McHenry shut down an attempt by Rep. Sean Casten to move an amendment targeting crypto financing of Hamas, warning that it would alter the underlying legislation “in a way we don’t fully understand.”
| | | | A message from Goldman Sachs: The capital crunch is already costing the economy. 52% of small business owners who applied for a new business loan or line of credit in the last year would use it to expand their business, pursue new opportunities or acquire business assets, but 65% of those applicants found it difficult to access affordable capital.
Small business owners never stop working to create jobs and strengthen our local economies. The 10,000 Small Businesses Voices community is calling on the Fed to Stop the Squeeze on Small Businesses.
Source: Survey of 1,240 Goldman Sachs 10,000 Small Businesses participants conducted by Babson College and David Binder Research from October 9-12, 2023. The survey included small business owners from 48 U.S. states, Washington, D.C., and Puerto Rico. | | | | | SEC enforcement uptick — Wall Street’s top regulator brought 784 cases and ordered nearly $5 billion in penalties and disgorgement during the year ending Sept. 30 — a 3 percent increase in the volume of cases, Declan Harty reports. It was the second-highest level of financial penalties after last year’s $6.4 billion.
| | FHA annual report coming; delinquencies down — The Federal Housing Administration will release its annual report to Congress on the financial status of its Mutual Mortgage Insurance Fund at 10 a.m. today. Per Katy O’Donnell, FHA Commissioner Julia Gordon said Tuesday that the serious delinquency rate for loans in the FHA portfolio has returned to pre-pandemic levels of just under 4 percent, down from its March 2021 peak of 12 percent. Serious delinquency refers to loans that are more than 90 days past due.
| | People moves — Jarryd Anderson has joined the law firm Paul Weiss, where he will be co-chair of its financial services group and a partner in its corporate department. … JPMorgan Chase has two additions to its Washington office. Eben Peck is joining the bank’s federal government relations team in support of Chase Travel. Monique Bellamy is now part of the policy and advocacy communications team. | | | | Follow us on Twitter | | | | Follow us | | | | |  |
