OVERNIGHT FINANCE: Banks brace for ‘too big to fail’ report

TOMORROW STARTS TONIGHT – FED’S MIXED SIGNALS? The Federal Open Market Committee released its policy statement today. And while the Fed continued tapering at its usual $10 billion pace (Vicki Needham has the recap on that here: http://bit.ly/UC86QA) Fed-watchers and investors sensed a less-dovish tone regarding when the central bank will raise interest rates.

— Here’s what happened: Patti Domm for CNBC: “In its statement, the central bank acknowledged the chances that inflation will stay below its 2 percent target, read as a hawkish sign by traders. But while pointing to improvements in the labor market and a lower unemployment rate, the Fed also noted that there remains a ‘significant under-utilization of labor resources,’ a dovish signal.” http://cnb.cx/1kmW1v2.

THIS IS OVERNIGHT FINANCE, Tweet:@kevcirilli; email: kcirilli@thehill.com; and subscribe: http://thehill.com/signup/48.

SIDESHOW, before we head into the financial services weeds... The House just voted 225-201 along party lines (only five GOPers voted against the measure) to sue President Obama over his use of executive power.

Meanwhile, back in wonk world...

FINSERV WORLD BRACES FOR ‘TOO BIG TO FAIL’ GAO REPORT. Oh, the drama. Policy wonks are in overdrive tonight bracing for a long-awaited report from the Government Accountability Office per the request bank-bashing bipartisan duo Sens. Sherrod BrownSherrod Campbell BrownSenate Democrats file ethics complaint against Hawley, Cruz over Capitol attack Facebook temporarily bans ads for weapons accessories following Capitol riots Biden and the new Congress must protect Americans from utility shutoffs MORE (D-Ohio) and David VitterDavid Bruce VitterBiden inaugural committee to refund former senator's donation due to foreign agent status Bottom line Lysol, Charmin keep new consumer brand group lobbyist busy during pandemic MORE (R-La.).

-- WHAT WE KNOW: Victoria McGrane sums it up nicely for The Wall Street Journal: “A long-awaited report that’s kept Wall Street on edge will be released Thursday, when the Government Accountability Office is expected to reveal whether the nation’s biggest banks enjoy a funding advantage because they are considered ‘too big to fail.’ It’s almost guaranteed the study won’t settle the issue and will likely give big bank supporters and detractors ammunition in their ongoing fight.

“The report was undertaken at the request of Sens. Sherrod Brown (D., Ohio) and David Vitter (R., La.), a bipartisan duo who contend the biggest banks continue to benefit financially from the perception the government would bail them out in the event of a crisis rather than risk their collapse.

“The banks, on the other hand, argue any funding advantage they might have enjoyed before the 2008 crisis is gone now. People on both sides of the debate appear likely to find support for their arguments within the GAO report, based on the competing narratives already emerging from the still-unpublished report.” http://on.wsj.com/1pBu1Qg.

— WHAT WE DON’T KNOW: What’s in the report. Brown and Vitter will hold a Banking subcommittee hearing on the report at 2 p.m. tomorrow. Expect more details to leak out tomorrow morning. The Dems have brought in Deniz Anginer, assistant finance professor at Virginia Tech; Edward Kane, finance professor at Boston College; and Anat Admati, Stanford finance professor.  (Names are linked to their testimony.)

Meanwhile, the opposition has brought in Douglas Holtz-Eakin, president of the conservative American Action Forum. We caught up with Holtz-Eakin for a preview of tomorrow’s hearing:

“I haven’t seen the report and I shouldn’t see the report. It’s supposed to be confidential. I understand the way this works. They’re running a kangaroo-court tomorrow. It’s not meant to be a fair hearing,” Holtz-Eakin told OVERNIGHT. “It’s meant to be a publicity job for their point of view.”

— THE BOTTOM LINE, Holtz-Eakin: “I’m confident that even without having read it that there’s no way the GAO will definitively identify a magic-number known as the ‘too big to fail’ subsidy because it can’t be done.”

— THE JAB AT WARREN, Holtz-Eakin: “No matter how big a weapon the Mr. Vitters and Mrs. Warrens of the world think they have – they’re hitting the wrong thing. ‘Too big to fail’ is the policymakers’ fault. If they want to fix it, they should get very large mirrors... The idea of government intervention is not something that’s unique to small banks. Look at the auto-companies – they got bailed out. ‘Too big to fail’ is not a bank issue. It’s a broader issue.”

Elsewhere in GAO-land...

GAO TO LOOK AT CFPB, via Rep. Patrick McHenry’s (R-N.C.) request along with House FinServ Chairman Jeb Hensarling (R-Texas). McHenry is chairman of the House FinServ subcommittee on investigations. Per a release:

“The Government Accountability Office will look into the CFPB’s organizational culture and management practices in light of allegations that Bureau managers are discriminating against employees based on race and gender and retaliating against employees who complain, Rep. Patrick McHenry (R-NC) announced at a hearing today.”

NOTABLE: The Consumer Financial Protection Bureau (CFPB) announced yesterday that they’re extending the comment period 30-days for a controversial federal consumer complaint system that is essentially “Yelp.com.” CFPB wants to be able to publish a consumer’s “complaint narrative.” Businesses are taking issue with this arguing they’re being unfairly targeted. The delay is a mini-win for the industry:

— Francis Creighton, head of government affairs at the Financial Services Roundtable emails OVERNIGHT on the CFPB portal: "Extending the comment period by 30 days is needed and we welcome the move. But more broadly, this online portal proposal, which would post unverified claims on a government website, therefore lending credibility to salacious accusations, is a poor proposal and should be withdrawn."

— Read the CFPB’s take here: http://1.usa.gov/1knfWtM

QUOTABLE, former IRS official Lois Lerner in a leaked email, referred to conservative talk show radio listeners as “a—holes.” Bernie Becker on the ongoing drama at the IRS: http://bit.ly/1u0BpsB.

WARREN / 2016 WATCH – WARREN UNLEASHED. “Sen. Elizabeth WarrenElizabeth WarrenOVERNIGHT ENERGY: Biden's Interior Department temporarily blocks new drilling on public lands | Group of GOP senators seeks to block Biden moves on Paris, Keystone | Judge grants preliminary approval for 0M Flint water crisis settlement Senate approves waiver for Biden's Pentagon nominee House approves waiver for Biden's Pentagon nominee MORE (D-Mass.) called on Congress to pass a bill that would stop corporate ‘freeloaders.’

“’They’re taking advantage of everything our government provides ... and then running out on the bill,’ Warren said on the Senate floor Wednesday. “If a person did that, we’d call them a freeloader. The time for freeloading is over.”

“Warren, along with Sens. Dick DurbinDick DurbinOvernight Defense: House approves waiver for Biden's Pentagon nominee | Biden to seek five-year extension of key arms control pact with Russia | Two more US service members killed by COVID-19 Senate approves waiver for Biden's Pentagon nominee Bipartisan Senate gang to talk with Biden aide on coronavirus relief MORE (D-Ill.) and Carl LevinCarl Milton LevinMcConnell and Schumer need to make the most of this moment Progressives offer mixed messages on key Biden economic aide Five House Democrats who could join Biden Cabinet MORE (D-Mich.), has introduced the Stop Corporate Inversions Act, which would prevent companies that leave the United States from taking advantage of tax benefits.

“Under current law, if 20 percent or more of a U.S. company is owned by stakeholders overseas the company can avoid paying U.S. taxes even if they keep their headquarters within the United States. Her legislation aims to dissuade such corporate inversion.” Ramsey Cox for The Hill: http://bit.ly/1rIgxVs.

BIG NUMBER: 4 PERCENT <- - That’s the percentage the economy grew during the second quarter, according to the Commerce Department’s estimate released earlier today. Gross domestic product (GDP) shrank in the first quarter by 2.1 percentage points. So there was a 6.1 percentage point swing between the first and second quarter.

HIGHWAY TRUST UPDATE — The saga continues. President Obama urged lawmakers to hurry up and finish working on a bill to extend federal transportation funding before the August recess. Keith Laing has POTUS's pressure here: http://bit.ly/1o5Myr0 and a recap of today's fight here: http://bit.ly/UC7WIZ

HAPPENING NOW: House Financial Services ranking member Maxine Waters (D-Calif.) urging Export-Import Bank reauthorization on the House floor.

DAYS UNTIL EX-IM EXPIRES: 62. Rep. Paul RyanPaul Davis RyanBiden's inauguration marked by conflict of hope and fear The Hill's 12:30 Report: Sights and sounds from Inauguration Day Revising the pardon power — let the Speaker and Congress have voices MORE (R-Wis.) has been one of the most high-profile GOP critics of the Export-Import Bank. But on Wednesday, he kept the door open for reauthorization. While he maintained in a speech at a Christian Science Monitor event that he thinks the bank is nothing more than “crony capitalism,” he also said it could be reformed – signaling an opening for Tea Partiers and centrists to come together.

— WHAT RYAN SAID: “Could the thing be reformed? Of course. Would that be better than the status quo? Yes. But at the end of the day I really do believe there are so many more things we should be dedicating taxpayer resources to.” Bernie Becker was there and got the story: http://bit.ly/1zwLBMr.

— MEANWHILE, House Minority Whip Steny Hoyer (D-Md.) held out hope that a bill will be brought to the floor on reauthorization. But most folks think it’s going to go through a continuing resolution in September. “The overwhelming majority of the House of Representatives support reauthorizing the Export-Import Bank because they know that it makes America competitive,” Hoyer said at a presser. “I want them to bring [a bill] to the floor. Regular order. We want a bill brought to the floor.”

MOSCOW’S FRUIT FOOD FIGHT, via Polina Devitt and Gabriela Baczynska for Reuters: “Russia fought back on Wednesday over new U.S. and EU sanctions imposed over Ukraine even as G7 leaders warned of further steps...

“Russia announced a ban on most fruit and vegetable imports from Poland and said it could extend it to the entire European Union, a move Warsaw called Kremlin retaliation for new Western sanctions over Ukraine imposed on Russia on Tuesday.

“Moscow called the new EU and U.S. sanctions ‘destructive and short-sighted’ and said they would lead to higher energy prices in Europe and damage cooperation with the United States on international affairs.”http://reut.rs/1xALNre.

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