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Washington Wrap: Treasury gets a trim in Trump's budget cuts

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.

At the Treasury

President Donald Trump named three new officials to work alongside Treasury Secretary Steven Mnuchin. On March 15, Trump announced his intention to nominate another Goldman Sachs Group Inc. banker to the U.S. Treasury by naming James Donovan, a managing director at Goldman, as deputy Treasury secretary.

Both Mnuchin and National Economic Council Director Gary Cohn are Goldman Sachs alums.

Trump also nominated David Malpass, an economic adviser to Trump's campaign, as Treasury undersecretary for international affairs and named Sigal Mandelker as the undersecretary for terrorism and financial intelligence.


Mnuchin might be working with a smaller budget than his predecessors at the Treasury did, thanks to the president. In a budget proposal released March 16, Trump made it clear that he wanted to pursue an "America First" strategy that broadly cuts spending among agencies like the Environmental Protection Agency and the Department of Agriculture and increases spending at the Department of Defense and the Department of Homeland Security.

The budget for the Treasury involves a $519 million decrease, or 4.1%, from the 2017 annualized level. Most of the cuts would occur at the Internal Revenue Service, where the plan hopes to remove about $239 million in "antiquated operations" related to tax filing processes.

The budget also hopes to eliminate funding for Community Development Financial Institutions Fund grants, which was created to give private institutions access to capital needed to extend financial services to underserved communities. The plan claims the cut will result in savings of $210 million.

The budget also outlines an intention to strengthen the Treasury's cybersecurity and prioritizing funding on the department's enforcement tools.

In a statement, Mnuchin said that the plan "focuses Treasury on our core missions" and said it "will ensure that we have the resources we need."

At the Fed

The Federal Reserve decided March 15 to raise the benchmark interest rate by 25 basis points to a target range of 0.75% to 1.00%, after seeing improvements in labor markets and stronger indications that inflation will move toward the central bank's long-run 2% target.

Market observers were not particularly shocked by the Federal Open Market Committee's decision to raise the rates, and the Fed seemed insistent on assuring markets it plans on pursuing "gradual" hikes going forward. Updated dot plot projections from the Fed's meeting show that policymakers still see three rate hikes for 2017. The sole dissenting voter, Minneapolis Fed President Neel Kashkari, wrote that data did not support the move.

Markets edged slightly higher after the FOMC announcement.


The Federal Reserve Bank of Atlanta named Raphael Bostic as its new president and CEO on March 13. The Atlanta Fed's previous president, Dennis Lockhart, retired from the position on Feb. 28. Bostic, a professor at the University of Southern California specializing in wealth distribution and housing markets, has a background in the public sector as a Senate-confirmed assistant secretary at the U.S. Department of Housing and Urban Development. He is also the first African-American to become a regional Fed president.

News

FDIC Vice Chairman Thomas Hoenig articulated a plan to end too big to fail by requiring large banks to separate their traditional banking activities from their nontraditional activities through an intermediate holding company. Speaking at an event March 13, Hoenig explained a framework for bank organization in which companies would have to structure nontraditional functions like investment banking into separately capitalized units that could withstand the normal bankruptcy process.

Hoenig argues that the plan would lead to fewer regulations and allow businesses to continue operating its current portfolio of businesses under a larger public safety net.


Trump's pick for U.S. trade representative faced a Senate Finance Committee hearing on March 14. Robert Lighthizer, also the deputy trade representative in the Reagan administration, told the committee that the White House is prioritizing "more efficiency" in trade relationships. Lighthizer was tasked with elaborating on the administration's trade stance after National Trade Council Director Peter Navarro made remarks highlighting trade deficits as a major focus of the White House's policy.

In the hearing, Lighthizer declined to say if China is a "currency manipulator" and said the administration hasn't committed to breaking up the North American Free Trade Agreement into two separate bilateral agreements.


Trump made another personnel move March 15, nominating J. Christopher Giancarlo to a full-time post at the Commodity Futures Trading Commission, where he is serving as acting chairman. Giancarlo succeeds Timothy Massad, who chaired the agency until stepping down in January.


On March 13, Trump signed an executive order calling for a "thorough" review of all federal agencies and departments to reduce costs and avoid "duplication" of work. The executive order directs Office of Management and Budget Director Mick Mulvaney to consider whether some of all functions of a federal agency or program would operate better under state or local governments.


Preet Bharara, the U.S. attorney for the Southern District of New York, announced on social media March 11 that he was fired. Bharara was previously rumored to have been in discussion with Trump about staying on in his role, but confirmed on Twitter that he was indeed fired. As the U.S. attorney with New York City in his jurisdiction, Bharara prosecuted high-profile cases involving large financial institutions.

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