Update 712 — Pre-Recess Policy Round-Up: See You in Sept: Budget, Farm Bill, Bank Rules

Update 712 — Pre-Recess Policy Round-Up
See You in Sept: Budget, Farm Bill, Bank Rules

Congress stands adjourned until Labor Day following a very eventful last legislative week that saw quite a flurry of activity. But the agenda immediately following the recess is daunting. Front and center will be two “must-pass” bills, a Farm Bill reauthorization and the FY 24 budget, with murmurings over a potential shutdown increasing.

This week also saw what might generously be called progress on the budget, but the “progress” made by the two chambers might merely have been progress toward a train wreck. The stakes aren’t of debt-limit proportions, but the dollar and macroeconomic costs and the price of resolving the ongoing culture wars will make this a headline struggle in September. 

Good weekends, all…

Dana

Headline News

Senate Passes NDAA, House Moves Ag to September

As Congress departs for August recess, Fiscal Year 2024 Appropriations remain a major point of contention both between Democrats and Republicans and within the Republican party itself. Last night, the Senate passed its version of the NDAA on a bipartisan basis, 86-11, in stark contrast to the highly partisan process in the House. 

On Wednesday, the House Rules Committee began to consider a rule to bring House Republicans’ Agriculture bill to the floor. Disagreements between Freedom Caucus members and the more moderate members of the party, however, pushed consideration of the bill to September, after lawmakers return from recess. The House did pass the Military Construction, Veterans’ Affairs, and Related Agencies bill on Thursday, but the majority will struggle to pass additional bills until it can resolve internal clashes over additional funding cuts and harmful policy riders on issues like abortion.

The Senate on Thursday approved the last of its twelve appropriations bills on a bipartisan basis. Unlike the House, the Senate has been following the spending caps laid out in the bipartisan agreement on the debt limit. Senators Murray (D-WA) and Collins (R-ME), have also reached an agreement on an additional $14 billion in emergency funding, primarily for defense, that has sparked anger from House appropriators. 

The disparities between the House and Senate bills, paired with troubles within the House majority, mean that the House is unlikely to reach a deal before the September 30 deadline. With right-wing Republicans pushing back against the idea of a clean continuing resolution, a government shutdown appears likely.

Comments to FSOC On the Designation of Nonbank Financial Firms for Federal Reserve Supervision

Yesterday, comments were due to the Financial Stability Oversight Council (FSOC) on their Proposed Analytic Framework for Financial Stability Risks and Proposed Guidance on Nonbank Financial Company Determinations. In 2019, the Trump administration was able to gut the version of guidance written in the wake of Dodd-Frank, making it almost impossible to designate a nonbank financial firm for Federal Reserve supervision. This new rule would restore the authority of FSOC to make these designations, giving regulators vital power to understand the nature of the increasingly important nonbank financial sector and to step in to prevent similar crises in the future. We submitted a comment letter to express our strong support. You can read it here.

Protecting Our Democracy Act Reintroduction 

On Thursday, Representatives Schiff, Pelosi, DeLauro, Himes, and Goldman held a press conference to announce the third reintroduction of the Protecting Our Democracy Act which has passed the House twice before, and highlights the unique challenges to our democracy we saw during the Trump administration. 

The reforms that they plan to build on center three main ideas: stopping the abuse of the president’s pardon powers, restoring our system of checks and balances, accountability, and transparency, and finally, protecting our elections from foreign interference.

“Several key provisions of the Protecting Our Democracy Act have made it into law including provisions ensuring efficient presidential transitions, additional transparency regarding how and when federal dollars are spent and numerous inspector general protections,” said Schiff ,who has led this effort, celebrating the progress that has been made. He and the other members of Congress acknowledged the work that still needs to be done. 

Bank Regulators Propose Increased Capital Standards

Yesterday, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) released their highly anticipated proposal to implement stricter capital requirements on banks with $100 billion in assets or more. The Fed also released its proposal to implement the final components of the Basel III or Basel endgame agreement to bring the United States in line with international standards.

The sweeping proposal would require banks with $100 billion or more in assets to:

• Include unrealized gains and losses from certain securities in their capital ratios
• Comply with the supplementary leverage ratio requirement
• Comply with the countercyclical capital buffer, if activated

If implemented, the proposal would lead to an estimated 16 percent increase in common equity tier 1 capital requirements for affected bank holding companies, with the largest and most complex banks being most affected. The new rules would be fully phased in by July 1, 2028 under the current proposal. 

The proposal received significant pushback from Trump-appointed Federal Reserve Governors Michelle Bowman and Christopher Waller at the Fed Board of Governors’ open meeting yesterday afternoon. FDIC Vice Chair Travis Hill and member of the FDIC Board of Directors Jonathan McKernan announced that they will not be supporting the proposed increase in capital requirements in separate statements yesterday afternoon. Public comments on the proposal are open until November 30, 2023.

Hearings

Senate Banking Junk Fees 

On Wednesday, the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer protection held a hearing focused on the impact of junk fees on Americans’ wallets. Democrats, led by subcommittee chair Warnock (D-GA) highlighted the need for equal access to financial services and discussed exploitative fee practices in bank accounts, rental housing, and small-dollar lending. He emphasized the bipartisan agreement to prevent harassment of service members and the negative impact of fees on families and small businesses. Republicans, led by ranking member Tillis (R-NC), criticized the term “junk fees” as political posturing and accused the Biden administration of using it to distract from inflation. 

Michelle Henry, the Pennsylvania Attorney General, supported the focus on junk fees and highlighted cases of companies charging fees for add-on products without consumers’ knowledge. Lindsay Siegel from the Atlanta Legal Aid Society discussed predatory fees in the rental market and their impact on low-income families. Brian Johnson, Managing Director of Patomak Global Partners, criticized the CFPB for attacking legal financial service fees and not upholding the rule of law. 

Democrats asked the panelists about the need for federal and state collaboration to address the issue, with the federal government playing a role in getting commitments from companies and creating best practices. Henry and Siegel were resolute in emphasizing the importance of federal leadership in helping the states to address the powerful actors engaged in setting these fees to target consumers. While Republican members admitted that consumers should know what prices they will be paying before being charged, they seemed more interested in launching partisan broadsides at the CFPB than addressing the practices of large corporations in misleading the American people over the prices they are being charged.

Stablecoins Markup

Republicans secured something of a bipartisan win on Wednesday with their stablecoin legislation, securing six Democratic votes out of committee. They secured these votes in part by adding a provision to ensure a role for the Fed in regulating stablecoins, but during the markup yesterday, Republicans stripped down the bill to put state regulators firmly in the front seat. With Democrats restricted from offering input, they had no choice but to walk out. As Rep Lynch (D-MA) said:

“We weren’t told this was the final version, we were told this bill was being negotiated for the last month, so we held off. We have had no meaningful opportunity to amend this bill, and now we’re being asked to do it on the fly.”

Senators took a different approach to crypto, agreeing in a shockingly wide coalition to impose stricter anti-money laundering laws on crypto companies. All in all, prospects in the Senate don’t look good. As Senator Warren said, “I don’t see how a bill like that makes it through”

Other Developments This Week

The Fed Hikes Interest as Inflation Cools

Inflation continued to cool in June. The Personal consumption expenditures (PCE) price index data released by the Bureau of Economic Analysis this morning shows that inflation rose by 3.0 percent year-on-year, down from a 3.8 percent year-on-year increase in May. Prices rose by 0.2 percent on a monthly basis in June, remaining low following month-on-month increases og 0.1 – 0.3 percent in each of the last four months. 

Core PCE, which has been more stubborn than headline inflation, has finally begun to fall. Core PCE rose 0.2 percent in June. Over the past year, core PCE increased by 4.1 percent. This represents the lowest annualized increase since September 2021. This is a positive sign given that year-on-year increases in core PCE have remained steady at 4.6 – 4.7 percent over the past five months. 

Today’s inflation follows the Federal Reserve’s decision to raise interest rates by a quarter of a percentage point earlier this week, bringing it to a 22-year high of 5.25 – 5.50 percent.

FedNow Launch 

Yesterday, the Federal Reserve launched its first major innovation in the field of payments systems since the launch of the Automated Clearing House network (ACH), which was finalized in 1978. FedNow will accelerate the timeframe for bank transfers from days to seconds, finally bringing the American experience up to the standards of much of the rest of the world. The success of this service will, however, depend on the development of robust anti-fraud infrastructure that private solutions have so far failed to implement.

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Look Ahead

The August recess begins next week, with members of the House and Senate will head back to their home districts and states.

Over the next few weeks, we’ll be looking out for the releases of the July and August jobs reports and consumer price index (CPI) data for July, which the Fed will be closely watching ahead of its September interest rate decision. 

Friday, August 4th

• The July jobs report will be released by the Bureau of Labor Statistics on Friday. It is expected to show continued modest job growth and slightly increased unemployment over the month.