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House Financial Services Committee Chairman Jeb Hensarling said he’s willing to tweak his plan to overhaul the Dodd-Frank Act before reintroducing it to Congress early next year, Bloomberg News reported yesterday. The committee is “interested in working on a 2.0 version,” Hensarling said. “Advice and counsel is welcome.” The Texas Republican’s comments come amid speculation that his Choice Act could serve as a blueprint for how Donald Trump overhauls financial reforms enacted after the 2008 economic crisis. During the event, Hensarling said that the committee has been in “fairly constant dialogue” with Trump’s transition team about his legislation, but it hasn’t been explicitly endorsed by the president-elect. Last week Trump’s transition team reiterated the campaign promise to scrap Dodd-Frank. A financial policy team is working on crafting measures that would dismantle the 2010 law and replace it with new policies that encourage economic growth and job creation, according to a statement on the transition team’s website. Read more. 

In related news, key Democrats on the Senate Banking Committee said this week they are willing to work with the incoming Trump administration and the Republican Congress on potential changes to the 2010 Dodd-Frank Act, but only to a small extent, MorningConsult.com reported today. Ohio Sen. Sherrod Brown, the panel’s ranking member, and Sen. Jon Tester of Montana said they would be OK with discussing scaled-back regulations on community banks, for example. “If he’s talking about giving some reg relief to those community banks, I’ll work with him,” Tester said. “If he’s talking about giving reg relief to Wall Street, then we’ve got a problem because, frankly, that’s where the risk of a financial meltdown comes from.” Read more. 

Federal Reserve Bank of Minneapolis President Neel Kashkari today recommended a hefty increase in capital requirements for the country’s biggest financial institutions, a de facto call for breaking up the big banks, the Wall Street Journal reported. The recommendations are part of a 50-page report that comes after a nearly yearlong effort by Kashkari to explore ways to end the problem of “too big to fail” banks, which could leave taxpayers on the hook if the financial system were to come under threat again. Kashkari said that if his “Minneapolis Plan” is implemented, “We will have fewer mega banks, and there will be far less concentration in the banking system….If there are any [too big to fail] banks left, they will be so well-capitalized that their risk of failure will truly have been minimized.” The consequences of the report, which is being sent to policymakers and to Congress, are unclear. President-elect Donald Trump stirred up anti-Wall Street sentiment but has also called for dismantling the 2010 Dodd-Frank regulatory-overhaul law that imposed tougher rules for the financial system. Kashkari’s plan calls for banks with more than $250 billion in assets to hold common equity equivalent to 23.5 percent of risk-weighted assets. The equivalent leverage ratio would be 15 percent.

Regulations on payday lending will be on the ballot in South Dakota next week, providing an opportunity for critics of the industry to advance their agenda even as the federal government readies new nationwide rules, the <em>Washington Examiner</em> reported today. South Dakota voters will be asked if they want to cap interest rates on short-term loans at 36 percent, a rule that advocates believe would eliminate payday loans that trap borrowers in a cycle of debt. Annual percentage rates on such loans in the state currently can go over 500 percent. That provision would go beyond the regulations that the federal Consumer Financial Protection Bureau is set to impose. The bureau is not allowed to directly cap interest rates. The industry, however, is fighting back in South Dakota with another ballot measure that would amend the state constitution to impose an 18 percent cap on short-term loans but would not apply to loans set in writing, meaning that all existing payday loans would be exempted.

What some Puerto Rico bondholders dreaded the most under the creation of a federal oversight board may end up leading to a long-sought resolution to the first debt-restructuring agreement reached by the commonwealth. After coming to terms with creditors and bond insurers in January, the Puerto Rico Electric Power Authority (PREPA), the island’s main electricity provider, has been unable to close the deal, in part because of seven different lawsuits in Puerto Rico courts that oppose the $9 billion workout plan and a new customer surcharge that will repay the restructuring bonds. Both creditors and the utility had pushed forward for nearly two years on the deal under the premise that an agreement would be more beneficial to all parties rather than having the matter resolved by a judge once the oversight board was in place. It turns out that the PROMESA oversight law passed in June contains a provision, called Title III, that’s similar to municipal bankruptcy and forces investors to take losses while also resolving legal suits. “That proceeding will resolve all claims,” said attorney James Spiotto, managing director at Chicago-based Chapman Strategic Advisors LLC, which advises on municipal restructurings. Under the agreement bondholders would take a 15 percent loss and wait longer to be repaid in exchange for new debt with stronger repayment pledges. While the accord is set to expire Dec. 15, the agency is working to extend the pact with creditors as it has done several times through the negotiations, according to Javier Quintana, executive director of PREPA. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Puerto Rico's financial oversight board said that litigation brought by creditors against the U.S. territory should remain on pause while the island works to resolve $70 billion of public debt its government has said that it cannot pay, Reuters reported on Friday. In a brief, the seven-member board said the Puerto Rican rescue law known as PROMESA requires the lawsuits to stay frozen. This would allow the board to fulfill its mandate of overseeing the island's fiscal turnaround plan and facilitating debt restructuring talks with creditors, it said. PROMESA, signed by President Barack Obama on June 30 after earning bipartisan support in Congress, called for creditor lawsuits against Puerto Rico to be put on hold, or "stayed," while the federally appointed oversight board gets up to speed on the fiscal situation. But creditors have filed at least a dozen lawsuits both before and since the law's passage, and in several cases have claimed the stay does not apply to them. The lawsuits generally allege that Puerto Rico violated the U.S. Constitution by imposing a debt moratorium this year, allowing it to forgo certain payments and redirect revenues that had been earmarked for debt to cover other expenses instead. The creditors claim to be exempt from the stay because they are not seeking an actual payment of debt, just a declaration that the moratorium was unlawful. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Hillary Clinton in early February appeared on ABC’s “This Week” with George Stephanopoulos to defend her relationship with Wall Street as her primary challenger Bernie Sanders had been pillorying her over paid speeches to Goldman Sachs, according to the <em>Huffington Post</em> yesterday. A video of Elizabeth Warren was circulating showing the consumer champion criticizing Clinton for supporting a bankruptcy bill that helped credit card companies squeeze vulnerable families. People had it all wrong, Clinton told Stephanopoulos: She hadn’t switched her position to appease financiers, but had helped women’s groups fix the bill to protect single mothers. However, according to a trove of internal emails recently released by WikiLeaks, Clinton’s team knew the true story. “We have a problem,” Clinton senior policy advisor Ann O’Leary wrote to campaign staffers that afternoon. “HRC overstayed (sic) her case this morning in a pretty big way. She said women groups were all pressuring her to vote for it,” O’Leary wrote back. “Evidence does not support that statement.” The bankruptcy bill, which was eventually signed into law in 2005, was designed to make it harder for people to qualify for bankruptcy ― a process in which a judge can discharge personal debts, allowing people to start over financially, albeit with a ruined credit rating. “While this amendment may have provided some political cover, it offers virtually no financial help to single mothers, since the overwhelming majority of ex-husbands don’t pay anything in distributions during bankruptcy,” Warren wrote in her 2004 book, The Two-Income Trap. Over 30 women and family groups opposed the bill, including the Children’s Defense Fund ― where Clinton once worked ― the Feminist Majority Foundation, the National Organization for Women, the National Women’s Law Center and the National Youth Law Center, according to a Women’s eNews article from 2001. 

Congress cleared a bill yesterday to fund the government and the federal response to Zika, avoiding a potentially embarrassing government shutdown just weeks before the election, CNN.com reported yesterday. The House and Senate approved the measure -- which would fund federal agencies through December 9 -- with just two days before federal agencies were set to run out of money. Once leaders resolved the final sticking point -- finding a mechanism to approve money for the city of Flint, Michigan, after its water system was contaminated with lead -- members of both parties were eager to wrap up votes and head home to campaign in the final sprint to the November election. Once bipartisan leaders agreed to add an amendment to a separate water infrastructure bill earmarking funds for Flint there was quick agreement to approve the spending bill. The final package included $1.1 billion for Zika, $500 million for flooding in Louisiana and other states, and $37 million for opioid addiction.

Congress has until midnight on Friday to pass legislation funding the government as the fiscal year draws to a close, the New York Times reported today. Many Senate Democrats — and some Republicans — have said that they intend to oppose a short-term funding bill proposed by Senate Majority Leader Mitch McConnell (R-Ky.), setting the stage for a legislative scramble to avoid a government shutdown. Among other things, Democrats are objecting that the legislation provides no money to deal with water contamination in Flint, Mich., located in a state with two Democratic senators, while it includes funds that could go for flood relief in Louisiana, which is represented by two Republicans. A test vote is set for Tuesday, and a rejection of the McConnell plan could make it difficult to find a new compromise in time to avert a shutdown. McConnell is working to avoid that situation, since he has made it a priority to steer clear of such government disruptions, particularly with the election just over a month away.

A bipartisan group of senators is pushing to include municipal bonds in bank-safety rules, the latest wrinkle in a continuing fight over how safe — and salable — the debt of states and localities would be in another financial crisis, the Wall Street Journal reported today. Sens. Mark Warner (D-Va.), Charles Schumer (D-N.Y.) and Mike Rounds (R-S.D.) are set to introduce legislation on municipal bonds this week, according to Senate aides. The bill aims to open the door for big U.S. banks to count municipal bonds as liquid assets under rules completed in 2014 that were designed to ensure Wall Street firms have enough cash during a crisis to fund their operations for 30 days. The Senate legislation would place municipal bonds on the lowest rung of the “high quality liquid assets” category. That means they would be treated on par with corporate bonds, but not as favorably as under related legislation approved by the House early this year.