News : The unstoppable bank CEO bill?

Friday, August 11, 2023

The unstoppable bank CEO bill?

Aug 11, 2023

Presented by Structured Finance Association

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QUICK FIX

Washington’s first legislative response to this spring’s bank failures appears to be on a glide path when Congress returns from recess — at least in the Senate.

Supporters of the Senate Banking Committee’s bipartisan executive accountability bill have high hopes the legislation will make it to the floor after Labor Day. The legislation, written by Sens. Sherrod Brown (D-Ohio) and Tim Scott (R-S.C.), would allow regulators to claw back compensation from the executives of failed lenders and take other steps to rein in bank leadership.

Senators have been discussing a path to the floor, and both sides are incentivized to make it happen. Brown is facing a tough reelection campaign and Scott is running for president. The Banking Committee approved it in a 21-2 vote.

“It has such broad support and I think there’s a lot of folks who want to see it get a floor vote,” Sen.J.D. Vance (R-Ohio) told MM. “I would be surprised if we don’t see a vote in the fall.”

The legislation may still run into some resistance. One under-the-radar section that would expand regulators’ authority to remove senior bank executives is generating concern from the industry, banking lawyers and conservative advocates.

“It empowers the federal regulators to go in and remove bank executives, basically without any restrictions,” said Bryan Bashur, director of financial policy at Americans for Tax Reform, which opposes the legislation. “It’s really just a net increase in what regulators can do.”

The broadness of the provision, which has also been cited by lawyers at Davis Polk, could be a concern for skeptical Republicans. Late last month, Sen. Tommy Tuberville of Alabama became the third GOP senator to speak out against the bill, arguing that it would go too far to expand the powers of federal regulators.

Sheila Bair, a former chair of the FDIC, told MM that regulators should be required to show gross negligence by an executive in order to force their removal. But overall, she supports the bill and said putting executives' pay and jobs on the line "is a good, market-oriented way to encourage better risk management.”

“The first line of defense and responsibility is with bank management,” she said.

A message from Structured Finance Association:

Did you know? Your mortgage, credit card, or small-business or car loan probably has a lower interest rate because of securitization, the bundling of your loan with other loans for added safety by members of the Structured Finance Association. Learn more at www.structuredfinance.org.

Critics of the bill acknowledge it is still unlikely to be filibustered if it reaches the Senate floor, meaning the best chance of narrowing its scope or blocking it may be in the House.

Sen. Thom Tillis (R-N.C.) — one of two senators who voted against the bill in committee — told MM its language is “still not tailored to a subset of the banking industry that could end up going down the path” that Silicon Valley Bank did.

“I’m going to be a ‘no’ coming out of the Senate unless I can get assurances that they know that there’s a lot of work to do,” Tillis said. “Otherwise, I’m going to go over to the House and work with them.”

House Financial Services Chair Patrick McHenry (R-N.C.) hasn’t publicly said no to the bill — yet. He has been more focused on advancing cryptocurrency legislation. Asked about the executive accountability bill last month, he told reporters: “We’re looking at options.”

Happy Friday — Everyone’s talking about a looming government shutdown. What’s at stake for the economy this time? Let us know: Zach Warmbrodt, Sam Sutton.

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Driving the day

The producer price index for July is out at 8:30 a.m.

The Fed reacts to signs of cooling inflation — Chicago Fed President Austan Goolsbee told our Victoria Guida that Thursday’s consumer price report for July “felt good, but it’s definitely not a final grade.” It showed that so-called core inflation — which leaves out volatile food and energy prices — matched a two-year low last month.

The data might give the Fed another reason to pause its rate-hike campaign in September. So far, central bank officials aren’t declaring victory.

“It’s like the second test of the semester,” Goolsbee told Victoria. “We got a good grade. I mean, you gotta keep putting those up.” Read more of the Q&A on POLITICO Pro.

San Francisco Fed President Mary Daly likewise told Yahoo Finance that inflation is still high, leaving the central bank with “more work to do.”

Republicans urge FDIC to rethink post-SVB fee — Thirteen House Republicans today pressed FDIC Chair Martin Gruenberg to reconsider a proposed banking industry fee designed to replenish the deposit insurance fund after March's bank failures. They want to reduce the impact it will have on regional and mid-size lenders.

The FDIC intends to impose a special assessment based on banks' uninsured deposit levels at the end of 2022. The GOP lawmakers in a letter led by Rep. Andy Barr of Kentucky said the agency should move that date to no earlier than March 31 of this year, which would be closer to the time when SVB and Signature failed.

The Republicans said it would better reflect the outflow of deposits from regional banks to other institutions in the wake of SVB’s collapse.

“The FDIC’s proposed special assessment date will disproportionately impact mid-sized and regional banks,” they said.

A message from Structured Finance Association:

Markets

Stunning ‘Bidenomics’ data point — Jim Cramer’s stock picks — as measured by the “Long Jim” ETF — may be “kicking ass,” according to the FT. The more popular Inverse Cramer ETF is underperforming.

Regulatory Corner

Private equity flexes — Sam reports that the private equity lobby is laying groundwork for possible legal challenges to SEC proposals affecting everything from buyout funds and ESG to investment custody standards.

An Aug. 8 letter from the American Investment Council claims the SEC will violate the Administrative Procedure Act if it fails to reopen comment periods on “interconnected” rule changes — some of which were proposed more than a year ago — and produce research on their cumulative effects on markets and investors.

Wells Fargo faces labor charges — Prosecutors at the National Labor Relations Board plan to accuse Wells Fargo of labor law violations at an Oregon call center unless the bank agrees to a settlement, according to Bloomberg.

Crypto exchange cuts deal with the SEC — Our Declan Harty reports that Bittrex has agreed to pay $24 million to settle SEC charges alleging that the crypto exchange skirted securities laws.

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China

Biden wants more ammo to counter China’s global influence — The White House is asking Congress for funding to help give developing countries an alternative to Chinese government loans.

The proposal is tucked into a $20 billion request for Ukraine aid and other international support that the Biden administration sent to lawmakers Thursday.

The ask includes $3.3 billion to expand financing via the World Bank and other bilateral tools, as well as authorization to lend to two IMF trust funds.

“Russia’s war continues to have devastating impacts on other countries, stymying growth, exacerbating food insecurity, and increasing poverty,” Treasury Secretary Janet Yellen said in a statement. “To address these widespread impacts, we are requesting vital support for developing countries through the [international financial institutions].”

CFIUS pressed to block Forbes sale — Our NatSec Daily colleagues report that former National Intelligence Council Chair Gregory Treverton is urging the Treasury-led Committee on Foreign Investment in the United States to block the sale of Forbes to an American billionaire over his links to the Russian and Chinese governments.

CFIUS is reviewing and investigating the sale, according to a person familiar with the process.

A message from Structured Finance Association:

When loans are bundled together – a process called securitization – the result is less risk and lower interest rates for American families and small businesses. Securitization provides $15.6 trillion in financing and last year funded over half of U.S. household debt. Members of the Structured Finance Association give individuals and businesses access to essential credit at a lower price through securitization. Learn more at www.structuredfinance.org.