In a week where the House of Representatives voted via proxy for the first time in American history, and the Senate began to signal that a new stimulus package may come in the next month, skeptics remain that state and local governments need more direct funding, even as a vast majority of cities have yet to receive any funding.
Following Senator Graham’s (R-SC) direct lobbying of President Trump last week, on Wednesday the President met with New York Governor Andrew Cuomo to discuss infrastructure and ways that a federal package could “supercharge” the American economy. While this doesn’t seem to be a viable idea in the Senate, the House continues to press for further stimulus measures.BDA Enhancing Policy Overview – A more granular analysis of current policy issues impacting the US bond markets.
The BDA continues to work to expand the breadth of its policy products provided to membership. A new policy analysis series is being developed that will include a deep policy dive into both legislative and regulatory issues that directly effect the U.S. fixed income markets. This includes policy briefs on: infrastructure; municipal fixed income/corporate fixed income tax policy; GSEs; SEC focus on US bond markets.
**The BDA’s initial policy brief covers infrastructure through a municipal lens.
Legislative Recap:
House Admonishes OCC Head for CRA Proposal
While the House waits for the Senate to take up the recently passed HEROES Act, Committee work picked up steam. Following the announcement of the finalization of the Community Reinvestment Act by the Office of the Comptroller of the Currency, and the subsequent news of OCC head Joseph Otting’s plan to resign, House Financial Services Committee Chairwoman Maxine Water (D-CA) immediately announced that Congress will be taking future actions of investigation of the proposal and of the process. Chairwoman Waters officially stated:
“It is simply outrageous that in the midst of the Coronavirus pandemic and on his way out the door, Comptroller Otting has rushed out a final Community Reinvestment Act (CRA) rule that will be harmful for so many communities across the country at a time when they are under severe distress due to the pandemic.
“This confirms my long-held suspicions that his singular focus on CRA was simply a vendetta against a program and an agency that held him accountable for his poor management of OneWest’s CRA program. Otting may be done with his rule dismantling CRA but this is by no means the end of the story. Congress will not let this final rule stand.”
This follows Waters prior actions to curb rule-making during the pandemic not related to COVID-19. While there are currently no hearings scheduled, it is safe to say that in the coming weeks the Chair will move to host Mr. Otting to discuss the proposal, as well his pending departure.
Elsewhere in the House, Ways and Means Chairman Richard Neal (D-MA) this week indicated that talks of negotiation with the Senate have begun behind the scenes. While he kept details to a minimum, the main focus of the discussions have centered around funding for state and local governments, unemployment insurance, and another round of stimulus checks to individuals.
Senate Moves Towards Relief–SLOWLY
This week, Senate leadership singled movement toward the development of a new stimulus package to contrast the House HEROES Act. Leader McConnell stated that the Senate will determine in June if they need to take further action, but McConnell continued to hedge on state and local funding, fully dismissing the House package and stated that they will continue to watch how state and local governments economically respond to the gradual opening in the coming weeks. McConnell went as far as to say that any additional relief for state and local governments should be tailored only for use to cover increased expenses and revenue lost due to COVID-19.
Many other ideas are floating around the Chamber including revamping of the unemployment insurance program, creation of back to work bonuses, new liability protections for doctors and businesses, and the pet project of President Trump, a payroll tax holiday. These provisions will face an uphill fight for passage, and all of which complicate potential passage.
Much like in the House, Senate Committees continue to ramp up activity. Next week, the Senate Committee on Banking, Housing, and Urban Affairs will host a hearing on the Implementation of Title IV of the CARES Act, which includes the authority for the Fed to intervene in both the corporate and municipal market.
Regulation Recap:
FIMSAC to Hold Virtual Meeting
The SEC has announced that FIMSAC will meet via webcast on Monday, June 1st. The agenda, which can be viewed here, features discussion on:
- The Role of Bond Pricing Services;
- Consideration of a Recommendation Regarding Internal Fund Crosses;
- Consideration of a Recommendation Concerning Issuer-Pay Conflict of Interest in Credit Ratings;
- Discussion of Transparency in the Market for Large Size Trades; and
- Consideration of a Recommendation Concerning Pre-Trade Transparency in the Municipal Securities Market.
Other Regulatory News
- BDA Fixed Income Legal and Compliance Webinar-June 11th
- FHFA Announces BDA Requested Capital Requirement for Fannie and Freddie
- OCC Finalizes CRA Proposal
Federal Reserve Recap:
The Fed continues to take steps towards entering the primary municipal market. In testimony before the Senate Committee on Banking, Chairman Powell indicated that the MLF will be fully operational by the end of May(though this may be pushed into early June), and that the Fed expects the program to “have a big impact on the markets.” Following these statements, the New York Fed released application materials for the MLF and the Notice of Interest for issuers.
The Chairman also acknowledged a recent letter by a bi-partisian group of Senators urging the Fed to intervene in the secondary municipal market, but gave no indication they were preparing to do so.
This week, the Fed took additional steps to operationalize the MLF by publishing sample purchase rates solely to provide indicative pricing information to market participants. They plan to release these rates weekly for reference, however note the actual transactions will be priced according to the specifics of each transaction and may differ from these rates.
