| | | | |  | | By Zachary Warmbrodt | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers 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. The Federal Reserve enjoyed a rare period of political insulation the last several years. Former President Donald Trump’s aggressive attacks on his own central bank chair, Jerome Powell, motivated lawmakers to embrace Fed independence. Now the Fed is on the precipice of blowing its political capital as anti-Fed sentiment once again creeps into the discourse.
- “END THE FED,” Sen. Mike Lee wrote on his personal Twitter account (@BasedMikeLee) over the weekend. It got nearly 15,000 likes and 2,400 retweets.
- “The Federal Reserve set the conditions for this crisis,” the 45-member House Freedom Caucus said Monday.
- “On [Powell’s] watch, we have seen a series of bank failures, deregulatory measures, and reckless interest rate hikes that have all threatened to undermine our economic recovery and make our financial system less safe,” Rep. Ayanna Pressley told our Victoria Guida.
Powell’s moment Powell’s post-FOMC press conference at 2:30 p.m. will be an opportunity to right the ship, when he delivers his first direct public comments since the banking turmoil took off. Victoria has a new piece out this morning looking at the double-whammy Powell is getting as he faces questions about his competence in guiding the economy and maintaining financial stability. Senate Banking Chair Sherrod Brown and Sen. Mark Warner are among other lawmakers calling for the Fed stop raising rates today. We’ve been here before The 2008 financial crisis also diminished the Fed’s standing as an overseer of the economy. While the Fed emerged with more power over the financial system, the political fallout persisted for years.
- It helped stoke the “Audit the Fed” movement, which was a headache for the central bank and its allies as Congress drafted Dodd-Frank and beyond.
- Audit the Fed seemed to see its last gasp on Capitol Hill seven years ago, with a failed Senate vote on whether the central bank’s monetary policy actions should be subject to greater public scrutiny.
- Fed officials rarely weigh in on legislation, but the proposal triggered public opposition from then-Fed Chair Janet Yellen.
Why the Fed might prevail Powell proved adept at navigating Trump and Covid-19, winning over President Joe Biden and 80 votes at his confirmation for a second term. He made a priority of being accessible to lawmakers during his tenure, drawing kudos from both sides of the aisle. “Inflation was low during the Trump years and there were no bank bailouts,” said Mark Calabria, who supported Audit the Fed efforts and served as former Vice President Mike Pence’s chief economist. “So not surprising focus on [the] Fed declined.” Even amid the controversy, some critics of the Fed’s handling of the economy say it will still be hard for detractors to gin up support for big changes.
- “There’s definitely a little blood in the water right now, so momentum could grow to strip the Fed of its regulatory authority,” said Norbert Michel, vice president and director at the Cato Institute’s Center for Monetary and Financial Alternatives. “But I wouldn’t bet too much on it.”
- “Whether it’s ‘Audit the Fed’ or getting Fed out of bank regulation, I do expect to hear louder focus on the Fed,” Calabria said. “Doubtful it amounts to much legislatively, but will certainly raise the temperature. “
- “Powell is perfect (personality-wise) for weathering a storm,” Michel said. “Super charmer.”
It’s going to be a newsy Wednesday — Stay tuned and send tips to zwarmbrodt@politico.com.
| | A message from the American Bankers Association: Join us virtually at 8:30 am ET this morning at ABA’s Washington Summit. Hear from the top leaders of the Senate Banking and House Financial Services Committees who will discuss the health of the banking sector, and the outlook for bipartisan cooperation in the 118th Congress. Watch the Twitter livecast. | | | | | | Sherrod Brown, Maxine Waters, Tim Scott and Patrick McHenry speak at the American Bankers Association summit in Washington … Senate Budget holds a hearing on how climate change is affecting insurance markets at 10 a.m. … Powell gives his post-FOMC presser at 2:30 p.m. … Treasury Secretary Janet Yellen testifies at Senate Appropriations at 2:30 p.m. … Citi CEO Jane Fraser speaks at the Economic Club of Washington, D.C. at 5:45 p.m. … Sherrod Brown wants SVB execs to testify — The Senate Banking Chair told reporters late Tuesday that he wants Silicon Valley Bank executives to appear before his committee, and he didn’t rule out a subpoena to compel them to show up. The committee will have Treasury Under Secretary Nellie Liang, FDIC Chair Martin Gruenberg and Fed Vice Chair for Supervision Michael Barr testify at a March 28 hearing. They’re scheduled to appear at a House hearing the next day. Not so fast on a universal deposit guarantee — Washington’s financial policy community was rattled by a late-Monday Bloomberg report that said Treasury was looking at whether regulators could guarantee uninsured bank deposits across the country without seeking congressional approval. A source familiar with the administration’s thinking on the issue tried to tamp down the frenzy in a comment to MM: “The administration does not view the move as necessary — full stop.” Anything’s possible in a crisis, but MM continued to hear from banking law experts on Tuesday that there was not a clear path for Treasury and the regulators to act unilaterally — not to mention the political backlash such a move might trigger. It all indicates that mid-size banks might not succeed with their plea for a temporary backstop to stem fleeing deposits. MM’s canvassing of the industry continues to indicate that the mid-size lenders are alone in advocating for the idea.
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Where everyone else stands on raising deposit insurance limits — Key players continue to weigh in on whether the U.S. needs to do more than insure $250,000 per deposit account. It’s clear that proponents have a long way to go to build their case.
Senate Majority Leader Chuck Schumer doesn’t seem to be on board at this point. “They've done a really good job at stopping the contagion but there's more to do and we're going to look at a lot of different things,” he told reporters when asked about raising the FDIC cap. The American Bankers Association is likewise noncommittal. ABA President and CEO Rob Nichols did not press Treasury Secretary Janet Yellen on the issue when she appeared at the group’s conference Tuesday. Nichols acknowledged proposals to expand deposit insurance beyond $250,000 and to even make it unlimited but stopped short of endorsing. “These and other ideas merit serious discussion, but we need to be mindful of the wider implications,” he said. Rep. Jim Himes is a skeptic. The House Financial Services member and Goldman Sachs alumnus told MM that he hopes Treasury and the FDIC do not act unilaterally to overhaul the broader deposit insurance scheme, though he supports the targeted actions they took to shore up deposits at SVB and Signature. On a longer-term basis, Himes said he isn’t sure the deposit insurance cap needs to be raised. He said he wants to be careful about encouraging people to make irresponsible decisions. “How much should we respond to the fact that Circle had billions of dollars on deposit at Silicon Valley Bank? I don’t want the government making that sort of behavior easier.” First Republic rescue may get government help — Bloomberg reports that U.S. officials and Wall Street leaders are talking about the possibility of government backing to assist a deal to prop up the lender. Investor fears ease and bank stocks rally — The U.S. stock market was up again Tuesday ahead of this afternoon FOMC decision, with WSJ reporting that shares in small lenders surged.
| | | | A message from the American Bankers Association:   | | | | | | White House: Crypto investments have no value — The latest Economic Report of the President casts serious doubt on the utility of cryptocurrency, the latest example of Washington’s sudden turn against the digital asset industry. The report dismisses arguments in favor of crypto’s benefits and instead says the costs to consumers, the environment and the financial system are substantial. “Indeed, crypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more efficient; instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets’ prices — and many of them have no fundamental value.” Blockchain Association CEO Kristin Smith said the report is disappointing. “We urge the Biden administration to consider how it will be remembered: as a leader of profound innovation or a roadblock to a global tech revolution.” Supreme Court justices grill Coinbase – Reuters reports that Supreme Court Justices appeared divided Tuesday when they heard a case in which Coinbase sought to block customer lawsuits.
| | | | DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID. | | | | | | | | SEC delays private funds vote — Declan Harty reports that the SEC is punting on rules that would give the agency a better look inside private equity and hedge funds. A vote was slated for Wednesday but SEC commissioners elected “to take a little more time,” a spokesperson said Tuesday. Meanwhile, progressive groups are ramping up calls for the SEC to strengthen rules for how privately held companies report financial information to investors. Center for American Progress senior director Alexandra Thornton and Ty Gellasch, president and CEO of the Healthy Markets Association, have a new report out this morning. Banks and transparency advocates want Treasury to rethink corporate disclosure rule – The Bank Policy Institute and the FACT Coalition are urging FinCEN to reconsider a proposed form intended to collect ownership information from businesses and support efforts to police anonymous shell companies. The big problem: The form would allow businesses to say they are unable to obtain ownership information or that it’s unknown.
| | A message from the American Bankers Association: Join us virtually at 8:30 am ET this morning at ABA’s Washington Summit, as the leaders of the Senate Banking and House Financial Services Committees share their perspective on the health of the banking system, the key role banks play in the economy and the outlook for policy. Today’s speakers include:
· Senator Sherrod Brown (D-OH); Chairman, Senate Banking, Housing, and Urban Affairs Committee
· Senator Tim Scott (R-SC); Ranking Member, Senate Committee on Banking, Housing, and Urban Affairs
· Representative Patrick McHenry (R-NC); Chairman, House Financial Services Committee
· Representative Maxine Waters (D-CA); Ranking Member, House Financial Services Committee
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