| | | | |  | | By Michael Stratford, Eleanor Mueller and Zachary Warmbrodt | | Presented by |  | | | 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.
| | Martin Gruenberg, the embattled FDIC chair who is scrambling to shore up Democratic support, failed to win the outright backing of a number of House Democrats on the eve of his two Capitol Hill hearing appearances that start today. Several Democrats left a closed-door briefing with Gruenberg on Tuesday night undecided on whether they would call for his resignation in the wake of an external review that found pervasive harassment and mistreatment of employees at the bank regulator. The report did not find that Gruenberg engaged in sexual harassment but said that he lost his temper and berated staff in a “demeaning and inappropriate manner.” Democrats’ comments Tuesday evening could be a troubling sign as Gruenberg fights for his job, with Republicans poised to hammer him at the hearings and demand his resignation. One Democrat, Rep. Bill Foster of Illinois, has already called for his ouster, but it’s not clear if more will follow suit. Some Democrats, meanwhile, are fighting to keep Gruenberg alive to protect a regulatory crackdown on big banks that would be imperiled if he were to be removed from the FDIC board. Key Democrats — including Rep. Maxine Waters, Sen. Sherrod Brown, and Sen. Elizabeth Warren — are standing by him. Wednesday’s House Financial Services hearing — followed by Senate Banking on Thursday — will be a major test of Gruenberg’s support among other Democratic lawmakers. And it’s not yet clear how that will go. The Democratic playbook: Waters, the top Democrat on House Financial Services, has circulated a memo with suggested questions and talking points. The document argues that past Republican and Democratic leaders of the FDIC share in the blame for the agency’s toxic work culture. It also echoes Waters’ public statement last week that the external review unfairly focused on Gruenberg’s leadership without scrutinizing Jelena McWilliams, his Republican predecessor. The memo, obtained by POLITICO, also lays clear for rank-and-file Democrats “what a resignation from Chair Gruenberg would mean practically speaking for the work of the FDIC,” citing analyst reports that his departure would stall major rulemaking efforts across banking regulators, such as tougher capital requirements.
| | A message from the American Bankers Association: Americans appreciate free checking and other low-cost financial products that help bring more consumers into the regulated banking system. Today, the progress we’ve made in reducing the number of unbanked is at risk, because the Fed wants to change the rules around debit card transactions and limit the revenue banks use to offer free checking and other popular products. Tell the Fed to stand with consumers and withdraw Regulation II. Act now. | | | Gruenberg’s last-minute charm offensive: The FDIC chair huddled privately with at least seven Democrats on House Financial Services in person on Tuesday evening while others tuned in virtually. “What everybody just wanted to hear was that he was committed — absolutely committed — to change if he was going to stay,” Waters said in an interview. Asked if she thought Gruenberg’s presentation was effective, Waters said she didn’t know. "I put on my judge's hat," Rep. Sylvia Garcia (D-Texas), a former judge, said. "He is accepting responsibility, and he is willing to make the reforms that are necessary." But "I'm going to wait to see what else happens tomorrow." "I'm not asking him to step down at this point," Rep. Joyce Beatty (D-Ohio) said. But she added: "If people have to be terminated, they have to be terminated — and I'm not opposed to that with some of this stuff that I've heard.” “The report is very troubling, but I’ll hear him out,” said Rep. Gregory Meeks (D-N.Y.), who didn’t attend the closed-door meeting with Gruenberg. “I plan on asking some hard questions and depending upon what happens, I’ll make a determination.” Gruenberg’s play: The FDIC chair plans to apologize again and tell lawmakers that he’s working on overhauling the agency’s culture and process for addressing workplace misconduct. He plans to announce a proposal to create a new independent Office of Professional Conduct. And he said the FDIC would begin “as early as this week” the process of hiring an outside monitor and third-party expert to help guide the agency’s reforms. But already those announcements are falling flat with Republicans. “That's all news to me. None of that's independent if the Chair selects the monitor or expert,” Jonathan McKernan, a Republican appointee on the FDIC board, said in a post Tuesday. “The FDIC deserves a different approach to leadership.” It’s Wednesday — Send tips to zwarmbrodt@politico.com.
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | The Consumer Price Index for April is out at 8:30 a.m. … Gruenberg, Fed Vice Chair for Supervision Michael Barr and Acting Comptroller Michael Hsu testify at House Financial Services at 10 a.m. … FTC Chair Lina Khan testifies at House Appropriations at 10 a.m. … SBA associate administrator Katie Frost testifies at House Small Business at 10 a.m. … Financial Services Chair Patrick McHenry, Fed Governor Michelle Bowman and Sen. Ted Cruz are among the speakers at the DC Blockchain Summit What’s next for the Cap One-Discover deal — The Federal Reserve and the Office of the Comptroller of the Currency will hold a virtual public meeting on July 19 to collect feedback on Capital One’s merger with Discover. The deal is facing bipartisan resistance. An update from Powell — Per the NYT, Fed Chair Jerome Powell said Tuesday there’s a “very small probability” that the central bank would have to consider raising rates again, but he doesn’t think it’s the most likely outcome. Powell expects inflation will begin to slow again even as he sees continued economic growth and a strong labor market ahead. The Labor Department is expected to report this morning that inflation eased in April from a month earlier. Wall Street waits for Trump — Per Bloomberg, Citadel CEO and Republican megadonor Ken Griffin says he wants to see whom Donald Trump picks as his running mate before backing his candidacy. But he still expects Trump would “exude a level of strength that will help stabilize the world in these trying times.”
| | First in MM: A Dem’s warning for Gensler — Rep. Wiley Nickel, a crypto-friendly North Carolina Democrat, tells SEC Chair Gary Gensler in a letter today that the agency's "open hostility toward the digital assets industry isn’t serving President Biden’s best interests.” Nickel is leading bipartisan efforts to nullify SEC guidance that critics say discourages banks from holding digital assets. The White House has threatened to veto the rollback, which the House passed last week and the Senate is expected to take up this week. “The SEC is turning cryptocurrency regulation into a political football and forcing President Biden to choose sides on an issue that matters to many Americans,” Nickel says. Time to crown BlackRock? — The FT reports that BlackRock is close to being able to claim that it runs the world’s largest bitcoin fund. Its spot bitcoin ETF has grown to $16.7 billion in assets since it launched four months ago.
| | | | A message from the American Bankers Association:   | | | | | First in MM No. 1: House GOP to press SBA — Lawmakers on House Small Business are set to grill a top SBA official this morning over a recent revamp of its lending standards. While the SBA says it’s seeing an uptick in small-dollar lending after loosening requirements, Small Business Chair Roger Williams will warn that there’s concern about what it means for default rates. “Since the taxpayers are on the hook if enough of these loans go bad, it is very important that there are guardrails in place so businesses that get these loans have a realistic chance to pay them back,” he’ll say in an opening statement at the hearing. First in MM No. 2: Dems call out regulators on executive pay rules — Sen. Chris Van Hollen and Rep. Nydia Velázquez are warning the Fed, SEC and National Credit Union Administration that they must follow the lead of other financial regulators and implement executive compensation restrictions from the 2010 Dodd-Frank law. “Finalizing a rule for [Dodd-Frank] Section 956 is not discretionary,” they say in a letter to the three agencies.
| | | A chat with Kevin Hassett — On the sidelines of last week’s Milken conference, MM sat down with former Trump White House CEA chair Kevin Hassett, who’s now managing director at the Milken Institute. Hassett, an economist who has also been floated as a potential Trump 2.0 Federal Reserve chair, shared his views on inflation, the potential for a rate hike and the possible market reaction to a conviction in Trump’s hush-money case. What follows are excerpts from the chat edited for length and clarity. The economic outlook Inflation is not under control. My favorite model is saying that inflation over the next six months is going to be like four and a half. That’s far from target. What happens is wages are sticky. Prices go up and workers get really upset, as they should, because their real wage declines. And then they go on strike if they can and negotiate higher wages. Last year, you remember all of the organized labor unrest that led to new contracts. The new contracts had significant wage gains to try to help them catch up with what they lost to inflation. There’s big wage increases that are now going to be passed through to prices. Will the Fed raise rates instead of cut? They've been very data-dependent. If the data come through the way I see it, then there's a chance they would have to hike this year. But there's so many things that could happen that could change things. If you take AI and you bring it into a firm, and you look at how firms are using their people, then one of the things that we're seeing in the data is that the lower-skilled folks are seeing the biggest productivity gains, which could be really good news for their wages. So the upside scenario is that productivity goes up so much that it puts downward pressure on inflation, and we keep having pretty strong GDP growth and low unemployment, and the Fed doesn't really have to do anything. Because if productivity goes up enough, then inflation will go down. The downside scenario is related to geopolitics. There is so much strife around the world Almost every recession in post-war U.S. history was preceded by a disruption of oil supply, an oil shock. So you can imagine something like that, or you can imagine that this lawfare thing turns into sending a major candidate to prison in shackles. Just think about the raw emotions that that might arouse and also the financial market responses. So something like that I could really see moving things around a lot.
| | | | JOIN 5/22 FOR A TALK ON THE FUTURE OF TAXATION: With Trump-era tax breaks set to expire in 2025, whoever wins control of Congress, and the White House will have the ability to revamp the tax code and with it reshape the landscape for business and social policy. Join POLITICO on May 22 for an exploration of what is at stake in the November elections with our panel dissecting the ways presidential candidates and congressional leaders are proposing to reshape our tax rates and incentives. REGISTER HERE. | | | | | | | | | A PE win against the FTC — Josh Sisco reports that a federal judge in Texas threw out an FTC lawsuit against the private equity firm Welsh, Carson, Anderson & Stowe, which was accused of conspiring to corner the market for anesthesia through acquisitions. Diversity on trial — Judges on the conservative-leaning Fifth Circuit Court of Appeals are sounding skeptical about Nasdaq’s board diversity rules, our Declan Harty reports. Conservative groups are suing to halt the rules, which are intended to shed light on representation in corporate leadership. “What does a person’s sexual orientation have to do with the prevention of speculation or manipulation of securities markets?” asked Judge Kurt Engelhardt, a Trump nominee, during the hearing.
| | | Tour de finance — This week, the Georgetown Psaros Center for Financial Markets and Policy is taking 14 undergraduate students around Washington and New York to talk with policymakers and market participants. The agenda includes meetings with Speaker Mike Johnson, SEC Chair Gary Gensler, senior White House and Treasury staff and senior leadership from JPMorgan Chase, BlackRock and Goldman Sachs.
| | A message from the American Bankers Association: The Federal Reserve’s Regulation II proposal to lower the cap on debit card interchange is a mistake we need to avoid. The proposal will pad the profits of mega-retailers at the expense of everyday Americans. All you need to do is look at history to know what’s coming. More than 10 years after the Durbin Amendment was enacted, Fed studies show consumers have yet to benefit from the lower prices that retailers promised. Instead, merchants pocketed the savings from the government-mandated price cap, while community banks lost a key revenue source that they used to cover the cost of debit rewards and other popular products. The new Fed price cap proposal threatens to do even more damage to consumers by slashing revenue banks use to pay for free checking and other services that promote financial inclusion. Tell the Fed to stand with consumers and withdraw Regulation II. Act now. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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