Regulatory policy dominated the headlines this week. Federal Reserve Governor, Daniel Tarullo, announced his plan to resign in the spring, providing Trump with a clear path to accelerate his deregulatory agenda. Tarullo architected and defended tough capital and liquidity rules, stress tests and greatly increased Federal Reserve oversight.
Earlier this week House Financial Services Committee Chairman and Tarullo antagonist, Jeb Hensarling (R-TX), introduced plans to relieve banks from annual stress tests and remove key powers from the CFPB.
Further, U.S. Representatives Ed Royce (R-CA)., Kyrsten Sinema (D-AZ)., and Terri Sewell (D-Al). reintroduced the Credit Score Competition Act. The bill seeks to end the “government-backed monopoly in credit scoring” by enabling GSEs to use competitive scoring models to FICO when underwriting mortgage loans. Third party risk analytics firms such as VantageScore, TransUnion, and PeerIQ stand to benefit if the legislation is passed.
Self-regulatory trends continue. Another policy shop, The Online Lending Policy Institute, was introduced this week and includes Cross River Bank, Rocket Loans, and others as inaugural members. The Marketplace Lending Association (MLA) also continues to grow and has 15 members to date.
Since election day, the S&P 500 financials index is up close to 18%, and bank stocks are up by 25%, in part, due to the prospect of improved ROE from regulatory reform. In today’s newsletter, we analyze President Trump’s financial regulation executive order.
Potential Impact of Trump’s Executive Order on Financial Regulation
Trump’s Executive Order on Core Principles for Regulation the United States Financial System was issued on February 3rd.
The order does not repeal or even recommend the repeal of the Dodd-Frank Act, the cornerstone of the post-2008 regulatory architecture. The order will not immediately impact the laws and regulations for financial institutions. Rather, the order calls for a review of existing regulations and sets forth a set of seven principles to influence future regulatory reform.
We cite the core principles below and provide annotations to illustrate the potential implications to capital markets.
We highlight Principle (c) in the Executive Order–concerning market failures, systematic risk, and information asymmetries–whose concerns are consistent with the spirit of several Dodd-Frank regulations.
Although unquestionably there are stark differences in the Trump administration’s approach, we do find common values with the prior regime in improving international competitiveness, expanding consumer choice, and fostering innovation and entrepreneurship (see the Obama administration’s recently published “A Framework for Fintech” for instance). As we enter a period of regulatory uncertainty and sharply divided politics, FinTech firms and emerging self-regulatory associations may find greater legislative success by appealing to these shared values.
- SFIG Vegas on February 26-March 1 in Las Vegas. We look forward to seeing many familiar faces!
- CEO, Ram Ahluwalia will moderate a panel at 3:45PM on Monday, February 27 titled, “The Outlook for Securitization and Marketplace Lending?”.
- LendIt on March 6-7 in New York. Save 15% on your ticket by using PeerIQ’s VIP code: PEERIQ17USA.
- CEO, Ram Ahluwalia will deliver a keynote address, “Why Securitization and Online Lending are So Important for Each Other,” on March 6 at 10:20AM.
- PeerIQ will also serve as a judge at the LendIt Awards Ceremony for “Most Innovative Bank”, and “Top Consumer Lending Platform”. PeerIQ is nominated for the “Top Service Provider” Award.
PeerIQ in the News:
- 31 FinTech Companies Transforming Institutional Investments and Trading(LetsTalkPayments, 2/9/17)
- Dodd-Frank Risk Retention (RR) Rule Effective Now (PeerIQ), Rated: AAA (LendingTimes, 2/6/17)
- Unique Public and Private Partnership Forms Online Lending Policy Institute (BusinessWire, 2/9/17) FinTech is coming…to Washington.
- Daniel Tarullo, Federal Reserve Regulatory Point Man, to Resign (WSJ, 2/10/17) Architect of post-crisis financial regulation, Fed Governor, Daniel Tarullo, resigns.
- New GOP Memo Targets Stress Tests, CFPB in Dodd-Frank Changes (Bloomberg, 2/9/17) House Financial Services Committee Chairman, Jeb Hensarling’s latest proposal outlines his plan to offer banks relief from annual stress tests and remove key powers from the CFPB.
- House Reintroduces Bill to End “FICO Monopoly” at Fannie Mae and Freddie Mac(Housingwire, 2/8/17) U.S. Reps. reintroduced the Credit Score Competition Act, a bill that enables GSEs to consider alternative credit scoring models when approving mortgage loans.
- JPMorgan Smackdown Shows Tension for Regulators (Bloomberg, 2/10/17) Bloomberg expands on the OCC ruling against capital relief for balance-sheet securitizations.
- Podcast 89: Mike Cagney of SoFi (LendAcademy, 2/3/17) SoFi CEO, Mike Cagney discusses SoFi business lines, raising money, tech, securitization, SuperBowl ads and more.
- Kabbage Offering in the Pipeline (AB Alert, 2/10/17) Guggenheim is said to be running the books for Kabbage’s $500 Mn securitization, expected to be announced early next week with Kroll weighing in on ratings.
- CAN Finds Lifeline in Asset Sales (AB Alert, 2/10/17) CAN Capital is expected to close a $25 Mn sale on a pool of current loans in the next few weeks.
- Class Action Against Lending Club and WebBank Headed to Defeat (JDSupra.com, 2/1/17) Potentially big win for originators that rely on partner funding bank model.
- Four Advertisers Bet on Super Bowl Overtime and Won Big (WSJ, 2/6/17) SoFi option to air commercial only if Super Bowl went into overtime wins.