Update 692 — Debt Limit Talks, on Hold
Lead Economic Developments This Week
Last night it was announced that President Biden would not be meeting with four Congressional leaders about the debt limit today as planned. Instead, the meeting will occur early next week to give aides time to work out a deal. The debt limit showdown remains the most immediate threat to economic stability. This week’s data pointed to a resilient economy — April’s CPI figures, released on Wednesday, showed inflation continuing to moderate, with unemployment at all-time lows.
Today’s update recaps yet another jam-packed legislative session for both chambers of Congress, with debt limit and the recent bank collapses at the top of mind. From proposals to reform the Fed to an unlikely joint hearing on crypto, we cover everything you might have missed, as well as what’s to come. See below.
Good weekends, all…
Debt Limit Talks Stalled, Progress Elusive
Late yesterday, a meeting between President Biden and congressional leaders previously scheduled for today was postponed to early next week, mainly because aides have not been able to make enough progress on negotiations to warrant another leadership-level meeting.
The initial meeting this Tuesday, including Speaker Kevin McCarthy, House Minority Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer, and Senate Minority Leader Mitch McConnell, was reportedly quite tense. The parties largely held to their prior positions. Biden and Schumer reiterated that they would be willing to negotiate on the budget in regular order, but not under threat of default. McCarthy insisted that Democrats tie the debt ceiling to budget cuts.
Senator McConnell largely deferred to McCarthy and said that Democrats had an obligation to compromise, dashing hopes by some that he would break with the speaker to help pass a clean debt limit increase in the Senate.
The president notably said he would take “a hard look” at rescinding unspent Covid funds and that “it’s on the table.” Biden also did not rule out invoking the Fourteenth Amendment to avoid a default. McCarthy told reporters that he “didn’t see any new movement” on Tuesday and expressed frustration that Biden and the Democrats wouldn’t offer up any areas of the federal budget in which to find cuts.
While the Tuesday meeting did not garner immediate results, staff have been meeting daily throughout the week. Aides have reportedly been discussing:
- Permitting reform
- Spending caps
- Rescinding Covid funds
- Work requirements, to a lesser extent
The parties will need to reach an agreement within the next few days in order to pass a bill by June 1, to avoid the risk of a default by the U.S. on its debts.
Hearings This Week:
House Financial Services Committee:
- Reforms Debated After Recent Bank Failures
On Wednesday, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing on the federal response to recent bank failures. The hearing considered six bills geared at increasing the transparency of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Financial Stability Oversight Council (FSOC).
Subcommittee Chair Andy Barr (R-KY) and several subcommittee Republicans continued to resist a shift in regulation, instead blaming the Fed’s monetary policy for inflation and characterizing internal reviews by the Fed and FDIC of their oversight as self-serving.
Witnesses raised many reforms to consider:
- An independent investigation into bank failures to supplement finding of existing reports
- Addressing resource challenges, training, and management of examiners
- Tailoring the current approach to deposit insurance coverage
- GAO Review of SVB, Signature Failures
On Thursday, the House Financial Services Subcommittee on Oversight and Investigations held a hearing on the Government Accountability Office’s (GAO) preliminary review of events leading up to the failures of Silicon Valley Bank (SVB) and Signature Bank.
The report — which HFSC Chair McHenry and Ranking Member Waters requested soon after the collapses of SVB and Signature Bank in March — showed that supervisors were aware of glaring issues with the banks, but failed to escalate supervisory actions in time to prevent the failures.
In his testimony, GAO Director of Financial Markets and Community Investment Michael Clements recommended that regulators establish internal triggers to escalate red flags that supervisors detect early on. Adjusting the process would take some discretion away from regulators who currently engage in a collaborative process as they seek to find a solution.
- Unlikely Pair of Committees Debate Crypto
This week, subcommittees of House Financial Services and House Agriculture teamed up for a first-ever joint hearing to explore the various regulatory gaps in the digital asset marketplace. This hearing marks the House GOP’s third hearing on digital assets in under four weeks – a move that indicates just how eager lawmakers are to clear a bill and put guardrails on the rapidly evolving industry. Despite the unprecedented hearing structure, the debate hardly offered any new information or signs of progress, proving elusive on this front.
Turf Wars: SEC vs. CFTC
Democrats reiterated their views that the SEC can and should be the primary regulator for digital assets. Members noted SEC Chair Gensler’s claim that the “vast majority of crypto tokens are securities” and should therefore be regulated as such under existing US securities laws.
Rep. Stephen Lynch (D-MA) expressed his concern that “erecting a new law [for digital assets] could be viewed as a light touch” and may “undermine well established laws and regulations” in our existing financial institutions. Not only would creating a new carveout be redundant and unnecessary, but it would vitiate the long-standing securities laws that have sustained innovation in our financial system for decades. To the GOP members arguing for a new, clear regulatory framework, Lynch eloquently rebutted, “the problem is not regulatory ambiguity… it is mass non-compliance with existing laws.”
Funding and Resources
Republicans frequently uplifted the CFTC’s history of expanding jurisdiction, noting that their purview widened in the swaps market in 2008 after the passage of Dodd-Frank. Democrats saw little to no value in comparing the two situations side-by-side, as Rep. Sean Casten (D-IL) argued the CFTC is still the “smallest and least well-resourced” financial regulator to date. It’s no wonder that industry is pushing for them to be their primary source of oversight.
- Senate Energy Drills Down on Permitting Reform
On Thursday, the Senate Committee on Energy and Natural Resources convened to examine opportunities for Congress to reform the permitting process. Republicans have made permitting reform a key component of their debt limit demands, but there is bipartisan support for some elements of permitting reform to speed the transition to renewable energy.
Sen. Joe Manchin (D-WV) highlighted a bill that he re-introduced last week entitled the Building American Energy Security Act of 2023. He encouraged his colleagues on both sides of the aisle to “put politics aside” and work together to craft a bipartisan permitting reform bill. Doing so would require compromise and prioritization but is ultimately necessary if the U.S. wants to maintain its status as the leader of the free world. The issue remains on the debt limit negotiating table as well.
Other Legislative Developments:
- Hope for a Hearing for Stock Trading Ban
Yesterday, Rep. Joe Neguse (D-CO) led a press conference during which he and a bipartisan group of 20 other members of Congress called on House Administration Committee Chair Bryan Steil (R-WI) to hold a legislative markup on bills to ban stock trading by members of Congress before the August district work period. In a letter to Steil and Ranking Member Joe Morelle (D-NY), the members stated, “It is imperative that we take action — together — to achieve consensus on legislation that would ban the trading of stocks by Members of Congress.”
The group includes many members who have introduced their own bills this Congress, like Rep. Abigail Spanberger (D-VA) — who reintroduced the TRUST in Congress Act with Rep. Chip Roy (R-TX) — and Rep. Angie Craig (D-MN), who reintroduced the HUMBLE Act in January. Other signatories include Rep. Andy Kim (D-NJ), who reintroduced the Restoring Trust in Public Servants Act, and Rep. Pramila Jayapal (D-WA), who reintroduced the Bipartisan Ban on Congressional Stock Ownership Act of 2023 in March.
A markup in the House Administration Committee is an important next step, particularly one focused on bills that:
- Ban owning or trading securities, commodities, or futures by members, their spouses and dependent minors
- Require divestment
- Include a strong enforcement mechanism
The two most recently introduced bills include these provisions. Leaders of both bills also signed on to the letter, including, Rep. Raja Krishnamoorthi (D-IL) who, last month, introduced the House companion bill to the ETHICS Act led by Sen. Jeff Merkley (D-OR), and Reps. Brian Fitzpatrick (R-PA) and Alexandria Ocasio-Cortez (D-NY), who introduced the Bipartisan Restoring Faith in Government Act alongside Rep. Matt Gaetz (R-FL) and Krishnamoorthi two weeks ago.