President Biden’s Economic Nominees and Policy Priorities

Written by:

• Leslie Sack, Head of Government Relations, Structured Finance Association 
• Ben Parish, Vice President of Government Relations, Structured Finance Association 

Last week, the Senate began evaluating President Biden’s nominees to fill key economic positions in his administration. Secretary of the Treasury Yellen was sworn in on January 26, but the Senate’s timeline for considering and confirming most of President Biden’s nominees remains fluid with the backdrop of the Senate’s upcoming impeachment trial for former President Trump set to begin the week of February 8.

On January 26, Senate leaders approved a new power-sharing agreement, known as an organizing resolution, after Minority Leader Mitch McConnell (R-KY) conceded his requirement that the agreement include filibuster protections after Senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) publicly reaffirmed they would not vote to end the procedural tactic. The new Democratic 50-50 majority required Senate leaders to reach consensus on filibuster rules, committee makeup, tie-vote procedures, and agenda-setting. Modeled after the agreement and based on the 2001 organizing resolution when the Senate was also split 50-50, committees will be split evenly between Democrats and Republicans with Democrats holding committee gavels.

Treasury

After testifying at a January 19 Senate Finance Committee confirmation hearing, the full Senate confirmed Janet Yellen as Secretary of the Treasury on January 25 by a vote of 84 to 15.  Yellen, a former Federal Reserve Chair and the first woman to lead Treasury, will prioritize COVID-19 related stimulus relief, noting in her confirmation hearing that a significant economic stimulus package is necessary to combat the negative effects of the pandemic. She is also expected to focus on income inequality, a priority for progressive Democrats. Furthermore, at her confirmation hearing last week, Yellen said that “climate change poses a potential systemic risk to the American economy, and I believe we must seriously look at assessing the risks to the financial system from climate change.” Given these remarks, we expect climate change to also be an area of focus for the department under Yellen’s leadership. Yellen will be responsible for implementing tax regulation, and President Biden has signaled his desire to raise taxes on wealthy individuals and corporations.

Yellen will be joined at Treasury by her Chief of Staff Didem Nisanci and two Deputy Chiefs of Staff Julie Siegel and Alfred Johnson.

President Biden nominated Adewale Adeyemo as Deputy Treasury Secretary. He was the first president of the Obama Foundation, the first Deputy National Security Advisor for International Economics, and a Deputy Director at the NEC under President Obama. His work at BlackRock is expected to come under scrutiny during the confirmation process. Former Federal Reserve official Nellie Liang is the nominee to serve as Undersecretary for Domestic Finance.

 Securities and Exchange Commission (SEC)

In what is seen as a win for progressives, Gary Gensler was nominated to replace Jay Clayton as Chairman of SEC. Gensler is a former Goldman Sachs banker and served as Chairman of the Commodity Futures Trading Commission under President Obama. His role in developing the Dodd-Frank financial reform law and strong advocacy for its swift implementation earned him the reputation for being a vocal and robust regulator who does not shy away from controversy. If confirmed, Gensler’s priories will likely include new rules promoting diversity in corporate governance and setting standards for companies’ disclosure of environmental, social, and governance (ESG) factors in public filings. Current Commissioner Allison Lee has been named Acting SEC Chair until Gensler’s confirmation.

If Gensler is confirmed, Democrats will have a 3-2 majority at the SEC and an agenda aligned with leaders on the House Financial Services (HFSC) and Senate Banking Committee (SBC). In the 116^th Congress, the HFSC passed ESG related legislation focused on increasing company disclosures to include human capital disclosures, climate risk disclosures, and diversity disclosures. Specifically, in the diversity space, Representative Greg Meeks (D-NY) and Representative Carolyn Maloney (D-NY) passed legislation through the House that would require public companies to disclose the diversity data of their corporate boards. While the Senate has not taken any legislative action, Senator Brian Schatz (D-HI) introduced legislation, the “Climate Change Financial Risk Act,” to require the Financial Stability Oversight Council (FSOC) to examine climate change as a systemic risk. Similarly, Senator Elizabeth Warren (D-MA) introduced legislation, the “Climate Risk Disclosure Act,” to require public companies to disclose climate risk data. Under Chairwoman Waters, the HFSC has increasingly focused on diversity and inclusion issues.

We expect Capitol Hill to remain focused on ESG in the 117^th Congress and SFA is closely monitoring several bills that were introduced but not advanced in the last Congress as they provide a benchmark measure for future bipartisan negotiations on ESG legislation.

Consumer Financial Protection Bureau (CFPB)

CFPB Director Kathy Kraninger resigned on January 20, 2021, per the request of the Biden administration. Due to the Supreme Court decision in Selia Law, which ruled that the structure of the CFPB, with a single director who could only be removed from office “for cause,” violates the separation of powers, the President has the power to fire current Consumer Financial Protection Bureau.

Biden has nominated Rohit Chopra to replace Kraninger and run the Bureau. Chopra is currently a Commissioner of the Federal Trade Commission and former CFPB Assistant Director and Student Loan Ombudsperson. Chopra’s nomination is viewed as a win for progressives and indicates the CFPB will be much more aggressive under a Biden Administration. Chopra worked with Sen. Elizabeth Warren (D-MA) to establish the CFPB before joining the Bureau in 2011, where he helped lay the foundation for President Barack Obama’s Student Aid Bill of Rights. Early priorities are expected to be enforcing the CFPB’s fair lending practices and expanding enforcement.

On December 10, the CFPB issued final rules related to qualified mortgage (QM) loans. On October 1, SFA submitted a response to the CFPB on their Notice of Proposed Rulemaking (NPRM) for QM Loan Seasoning. SFA previously submitted responses on the CFPB’s Patch Extension NPRM and General QM NPRM. The Loan Seasoning NPRM would allow a loan held by the originator for a certain time, where the borrower makes on-time payments during that time, to be deemed a Qualified Mortgage. In addition to possible revocation of the rules through new rulemakings under a new CFPB Director, SFA will be tracking if Congress decides to use the Congressional Review Act (CRA), which we have determined the CFPB’s recently finalized Qualified Mortgage Definition rule would be subject to. Under the CRA, the House or the Senate can introduce a joint resolution within 60 “working days” disapproving an agency’s final rule and only requires a simple majority vote in both chambers to submit the measure to the President. If the President vetoes a resolution, a two-thirds majority vote in both chambers would be required to override.

Pending Chopra’s confirmation, Dave Uejio will be the Acting CFPB Director. He currently serves as the Bureau’s Chief Strategy Officer and has worked at the Bureau since 2012, previously having served as Acting Deputy Chief of Staff and Lead for Talent Acquisition.

 Office of the Comptroller of the Currency (OCC)

While President Biden has yet to officially nominate a Comptroller, he is expected to nominate Michael Barr, a dean for public policy at the University of Michigan and non-resident fellow at the Center for American Progress. Barr served as Assistant Treasury Secretary for Financial Institutions in the Obama administration and helped craft the 2010 Dodd-Frank Financial Reform Act. Last June he said “We need to undo the damage caused by the last four years of policy: rebuilding a strong Consumer Financial Protection Bureau and building resiliency in the financial system with stronger capital and liquidity regulations.”

Democrats in Congress have been highly critical of the OCC’s valid-when-made and “true lender” rules finalized under the Trump administration. Both are currently being challenged in court by Attorneys General from states across the country arguing they encourage predatory lending, promote “rent-a-bank” schemes, and attempts to evade state consumer protections and interest rate caps. Under new leadership, the OCC could rescind and revise the final “true lender” rule. While the regulation falls within the lookback period for a Congressional challenge, it was not deemed a “major rulemaking” by the Office of Information and Regulatory Affairs (OIRA), and only “major rules” are subject to the CRA.

SFA has been highly supportive of the OCC’s efforts to provide regulatory clarity and certainty to lenders and secondary market participants. SFA is currently working in partnership with a coalition of trade associations in support of the OCC and FDIC final rules codifying the valid-when-made doctrine.

Secretary of Housing and Urban Development (HUD) 

President Biden nominated Congresswoman Marcia Fudge (D-OH) to serve as HUD Secretary, and she has received rave reviews from top Democratic lawmakers with jurisdiction over housing issues. Senator Sherrod Brown said in a statement, “I am confident that as Secretary of the U.S. Department of Housing and Urban Development she will work to address this public health crisis and our affordable housing crisis and make our housing system more equitable.” Similarly, Representative Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee (HFSC), stated, “In nominating Representative Marcia Fudge as Secretary of the Department of Housing and Urban Development, President-elect Joe Biden has selected a seasoned legislator who is ready to address the challenges that lie ahead.” Representative Fudge has a strong relationship with Chairwoman Waters as fellow longtime Congressional Black Caucus members, and she is also close with Senator Brown as both are members of the Ohio delegation and hail from Cleveland. Representative Fudge’s selection could suggest close coordination between HUD, SBC and HFSC. She will appear before the SBC for a nomination hearing on January 28.

Federal Housing Finance Agency (FHFA)

On December 9, 2020, the Supreme Court heard oral arguments in Collins v. Mnuchin, which arose from litigation initiated by GSE shareholders arguing that the Third Amendment to the Preferred Stock Purchase Agreements (PSPA)—which govern the terms of the 2008 bailout of the GSEs—should be vacated due to the unconstitutional structure of the FHFA. The substance of the case turns on various channels by which the PSPAs could be invalidated or found unconstitutional, and another impactful determination is whether the FHFA Director could be removed at-will by the President. Such a finding would follow an earlier determination in Seila Law that the CFPB Director could be removed at-will and would have potentially large-scale ramifications under a Biden presidency. The Supreme Court’s decision is expected this June. It is unclear if President Biden would try to remove Director Calabria before the Supreme Court’s ruling.

At the heart of these complex issues is the still-unresolved nature of Fannie Mae and Freddie Mac and whether to proceed with exiting them from conservatorship. Their unique nature as corporations chartered by Congress gives rise to several unprecedented questions— are they private entities or public companies? More than twelve years into conservatorship, such questions remain unanswered. Apart from the GSEs, the housing finance system encompasses a wide range of issues including social justice, credit risk transfers, trading of derivatives, and the pricing of pre-payment options just to name a few. Considering Congress’ recent inability to legislate through regular order, it remains to be seen if a government under unified Democratic control will be able to address housing finance policy in a meaningful way.

Office of Management and Budget (OMB)

President Biden nominated Neera Tanden to lead OMB. Tanden is the President and CEO of the Center for American Progress and has advocated for eliminating stock buybacks and raising taxes for corporations. In an article she wrote entitled “A New Social Contract for the 21st Century,” Tanden wrote about COVID-19 implications, saying: “To exit from this crisis, we need to fix the broken parts. And to fix what is broken and rebuild stronger than before, we need a new social contract for the twenty-first century, one that updates the New Deal. It is high time to rethink the relationship—the basic bargain—between the individual, companies, and our government.” This is one pick that will certainly get push back from Republicans, especially since she has been outspoken against Republican Senators on social media.

 The following political appointments have been announced and do not require a Senate confirmation.

 National Economic Council (NEC) 

Brian Deese has been named Director of the NEC. Deese served as Deputy Director of OMB and NEC in the Obama administration and served as the Global Head of Sustainable Investing at BlackRock. Two notable progressives will also join the NEC as David Kamin, a former Obama administration official, has been named as Deputy Director and Bharat Ramamurti, a former aide to Senator Elizabeth Warren, was announced as Deputy Director for Financial Reform and Consumer Protection. Ramamurti reportedly played a large role in Senator Warren’s Climate Risk Disclosure Act, which, had it passed, would have required public companies to disclose critical information about their exposure to climate-related risks.

 Council of Economic Advisors (CEA)

Celia Rouse is expected to head the CEA. Rouse is an economist and Dean of Princeton’s School of Public and International Affairs. She served as a member of the CEA under President Obama.

Climate Policy

Former Secretary of State John Kerry has been tapped to be the leader of the Biden administration’s efforts on climate change related to international policies. This will likely be a big focus for the administration and could impact the financial services industry, particularly with regards to systemic risk.

 The First 100 Days

As the Biden administration settles in and nominees are confirmed by the Senate, the first 100 days are expected to focus on additional COVID-19 relief, a coordinated vaccine roll out, and Executive Orders that seek to overturn Trump era policies and regulations. The President will also need to rely on Congress to pass many of the initiatives he aims to accomplish within the first 100 days including additional COVID-19 relief, economic recovery, climate change, repealing tax cuts, gun control, immigration, and racial equality issues. Passing legislation on some or all these issues may be politically difficult as Democrats seek to protect the slight majority they currently hold in both chambers. The first item to be considered will be a $1.9 trillion COVID-19 relief legislative package, the American Rescue Plan, that President Biden presented on January 14. Notable provisions that include:

• pandemic response and health care measures;
• $440 billion in relief for small businesses and state and local governments;
• Increasing the federal minimum wage to $15/hour;
• Expanded and extended unemployment insurance benefits through September;
• $1,400 per person direct payments with expanded eligibility;
• $30 billion in assistance for renters and small landlords and an extension of the eviction and foreclosure moratorium through September, and
• Expansion of the Child, Earned Income, and Child and Dependent Tax Credits.

SFA will monitor the confirmation process and engage with policymakers as offices staff up across agencies. While the near-term focus for the administration will be getting the health crisis under control and curbing the resulting economic effects, the longer-term priorities will start to take shape as well.  As always, SFA will continue to update its members of any personnel and policy changes that may impact the structured finance industry.