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WEEK IN REVIEW


Washington, Jul 15 -

Financial CHOICE Act Protects Taxpayers From Bailouts, Promotes Economic Growth

The Financial Services Committee’s hearing on Tuesday focused on the new model offered by the Financial CHOICE Act in which banks operate at higher capital levels in exchange for relief from government micro-management.

“The Financial CHOICE Act will relieve financial institutions from growth-strangling regulations that create more economic burden than benefit in exchange for voluntarily meeting higher, yet simpler, capital requirements. Our reform stops investors from making risky bets with taxpayer money. It once and for all ends taxpayer bailouts. Period,” said Chairman Jeb Hensarling in his opening statement.  “It is quite simply a market-based, equity financed Dodd-Frank off-ramp.”

In its coverage of the hearing, the American Banker quoted hearing witness John Allison, former Chief Executive Officer of BB&T and former CEO of the Cato Institute, saying the Dodd-Frank Act and other post-crisis regulations aren’t working and are harming the economy.

“The banks today are focused on making regulators happy instead of going out and making loans,” he said.  “It is a big mistake to believe that regulators know the proper level of risk…They are tightening standards way too much and it is hurting the normal growth rate of the economy.”

Another witness at Tuesday’s hearing, Alex J. Pollock, a Distinguished Senior Fellow at the R Street Institute and a former President and CEO of the Federal Home Loan Bank of Chicago, said the Financial CHOICE Act “offers a very logical decision to make between two options” – have enough equity capital “so that the government cannot claim you are living on the taxpayers’ credit, and therefore cannot justify its inherent urge to micro-manage,” or “don’t get your equity capital up high enough and instead live with the luxuriant regulation of Dodd-Frank.”

For more information on the Financial CHOICE Act, click here.

HUD Accountability

Housing and Urban Development Secretary Julián Castro “faced tough questions Wednesday from congressional Republicans charging him of changing federal mortgage policy to placate left-wing groups,” the Washington Examiner reported in its coverage of the Committee’s hearing this week on HUD Accountability.

“After no notice, no public comment period, no public debate, and no transparency, HUD announced it will no longer maximize taxpayer recovery by selling these mortgages through an open and competitive bidding process.  Instead, it will offer lower priced ‘preferential bidding options’ to non-profits and local governments, or, many of us believe more accurately, to known political allies,” said Chairman Hensarling in his opening statement.

PoliticoPro reported that “Castro sounded uneasy for much of the questioning, during which Republicans said the program’s changes failed to improve it and were made out of political considerations rather than for policy reasons.”

The Dallas Morning News quoted Housing and Insurance Subcommittee Chairman Blaine Luetkemeyer’s (R-MO) concerns that Secretary Castro’s changes to the program “structure the rules so that you wind up with the noncompetitive bidding process…We’re rigging the system here.”

“We are left to wonder why these changes have been made and what policy analysis has shown that keeping people in homes they can't afford at the expense of other homeowners is a good idea,” said Chairman Luetkemeyer.

Report Documents Obama Administration’s ‘Too Big to Jail’ Policy

The Obama Justice Department overruled prosecutors’ recommendations to pursue criminal charges against HSBC and then-Attorney General Eric Holder “subsequently misled Congress about the Justice Department’s decision not to prosecute the U.K. bank,” the Wall Street Journal reported in its article about the Committee’s staff report released on Monday.

USA Today said the staff report “provides new details about the then-record $1.92 billion non-prosecution agreement HSBC reached with the DOJ and other federal and state authorities.”

The Committee initiated its investigation into the DOJ’s decision not to prosecute HSBC or any of its executives or employees for serious violations of U.S. anti-money laundering laws in March 2013.  Approximately three years after its initial inquiries – and after the Committee was forced to issue subpoenas because “the most transparent administration in history” failed yet again to comply with information requests – the Committee finally obtained copies of internal Treasury records showing that the DOJ was not forthright with Congress or the American people.

Committee Passes Bills to Prevent Sale of U.S. Aircraft to Iran

The Committee approved three bills on Wednesday designed to prevent the sale of commercial passenger aircraft to Iran, labeled by the U.S. State Department as “the world’s foremost state sponsor of terrorism.”

The bills – sponsored by Reps. Robert Pittenger (R-NC), Bill Huizenga (R-MI) and Peter Roskam (R-IL) and Brad Sherman (D-CA) – “are all part of a bipartisan effort to ensure that Iran does not have access to the U.S. financial system and that taxpayers and depositors are not forced to pick up the tab for these risky arrangements,” said Chairman Hensarling, reported by The Hill in its coverage of the Committee’s action.  “They are about taking every possible step to ensure that American made aircraft are never used in pursuit of ending the lives of Americans or our allies.”

The Washington Examiner reported that the Committee’s markup of the three bills “became tense” when Ranking Member Maxine Waters (D-CA) “said members of the panel backing the bills are being unpatriotic in undermining President Obama’s nuclear deal with Iran.”

House Passes Bill to Prevent Iranian Access to the U.S. Financial System

On Thursday, the House passed a bill to prevent Iran access to the U.S. financial system by a vote of 246-181.

The U.S. Financial System Protection Act, sponsored by Foreign Affairs Committee Chairman Rep. Ed Royce (R-CA), codifies existing regulations that prohibit the Obama Administration from allowing the U.S. dollar to be used to facilitate trade transactions with Iran and upholds Iran’s designation as a “primary money laundering concern.”

“Despite President Obama’s push to treat the Tehran regime as a moderate, responsible actor, the fact remains that Iran is the world’s leading sponsor of terrorism.  It has no business gaining access to the U.S. dollar.  Iran’s supreme leader can’t be allowed to seek ‘death to America’ with U.S. dollars in his pocket,” Chairman Royce explained.

Subcommittee Looks at FinTech Opportunities and Challenges

The Financial Institutions and Consumer Credit Subcommittee on Tuesday held a hearing to examine online marketplace lending as part of its review of the opportunities and challenges related to Financial Technology.

“Online marketplace lending, sometimes referred to as peer-to-peer lending, has developed rapidly over the last decade.  Leveraging technology, new lending platforms and underwriting algorithms, marketplace lenders have provided expanded avenues of credit for consumers and small businesses alike,” said Subcommittee Chairman Randy Neugebauer (R-TX) in his opening statement.

As Morning Consult reported in its coverage of the hearing, “Fintech is another area where financial industry leaders, regulators and anti-regulation lawmakers are at odds over the line between nonbanks and banks, which some stakeholders say has grown blurrier under Dodd-Frank rules and regulations.”

“We believe marketplace lending brings significant value to both borrowers and investors, and that it will play an increasingly important part in the financial industry in the years to come,” testified Sachin Adarkar, General Counsel and Chief Compliance Officer Prosper Marketplace.

Member Spotlights

Rep. Scott Garrett (R-NJ) | Many fear changes to U.S. SEC's in-house trials are not enough

"While I appreciate the SEC acknowledging the serious due process concerns that have been raised because of their unfair use of in-house judges, the changes adopted today effectively put a Band-Aid on a wound that requires stitches.”

Rep. Scott Tipton (R-CO) | Financial CHOICE Act is Needed to Protect Our Families and Grow Our Economy

“The House Financial Services Committee has developed a plan for reforming the financial regulatory system. The Financial CHOICE Act – creating hope and opportunity for investors, consumers, and entrepreneurs – is what we need to protect our families and grow our economy.”

Weekend Must Reads

Wall Street Journal | Fixing American Finance

Don’t believe the shrieks that the Financial CHOICE Act is about “rolling back” financial reform to let the banks run wild. Capital at the largest banks today often runs below 7% of assets. The Wall Street giants would have to raise a lot more equity—and therefore pose less danger to the public—to get regulatory relief. They thus may not like the Hensarling plan, which is fine. Smaller competitors willing to operate without a taxpayer safety net deserve the advantage of lower regulatory costs.

Orange County Register| On payday lending, government is the predator

There are some occupations and businesses that people just love to hate: purveyors of “sins” like tobacco, alcohol and gambling (and soda, if you live in Berkeley), used car salesmen, lawyers, politicians. Payday lending is one of the more recent entrants into this notorious group. But while the industry is vilified by government regulators and so-called “consumer advocates” alike, its success is testament to the fact that it offers a valuable service and fills a need not being met by other alternatives.

Wall Street Journal |GOP Platform Calls for Housing Finance Revamp, Scaling Back Dodd-Frank

A Republican victory in November could restart a long-standing debate over the future of mortgage-finance companies Fannie Mae and Freddie Mac, according to a draft of the party platform, a sharp contrast to the Democratic Party platform, which didn’t address housing finance.

Forbes | Banning Arbitration, A Boon For Class Action Lawyers, Not Consumers

The CFPB is typically portrayed as a federal agency that protects the little guy from powerful big banks. But reality looks much different. For example, in May the agency proposed new rules to prohibit the use of arbitration—the legal process in which individual consumers and financial institutions avoid costly litigation by working to solve disputes with the help of third parties.

Americans for Tax Reform | Financial CHOICE Act Reins in Dodd-Frank, Increases Consumer Protections

The Financial CHOICE Act looks to rein in a myriad of onerous and costly regulations to give Americans new ability to achieve financial independence and raise their standards of living, while also promoting economic growth for the economy as a whole.

In the News

Morning Consult | Republican Dodd-Frank Replacement Plan Gets a Workout

American Banker |Fight Over Reform Bill Turns into Fight Over Capital Worldviews

Washington Post |Wall St. Record Highs Mask Uncomfortable Truth

Daily Caller | Congress Should Fight Harmful Mandatory Swipe Card Fees

Texas Tribune | Amid VP Chatter, Castro Defends HUD Program Changes

American Banker | GOP Grills Castro on Changes to Nonperforming Loan Sales

Reuters | Top U.S. officials rejected push to prosecute HSBC: lawmakers' report

Bloomberg | Holder’s DoJ Overruled Advice to Prosecute HSBC, Report Says

Wall Street Journal | U.K. Officials Warned U.S. About Pursuing Criminal Charges Against HSBC

The Daily Caller | Report: Holder Blocked HSBC Trial On Drug Cartel Money Laundering Scandal

CNBC | Top US officials rejected push to prosecute HSBC: Lawmakers' report

Market Watch| HSBC wasn’t prosecuted because it was ‘too big to fail’: House committee

Morning Consult| Report: DOJ Leadership Overruled Internal Recommendation to Prosecute HSBC

AP | US Report Accuses UK Officials of Hampering HSBC Probe

New York Post | Dueling Prosecutors Tipped Off HSBC to Settlement Terms

Wall Street Journal | Truth Catches the Iran Deal