Yellen’s Ukraine mission

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QUICK FIX

The Biden administration is making a new push this week to rally reluctant allies behind the idea that billions in immobilized Russian assets should be tapped to support Ukraine.

Treasury Secretary Janet Yellen will spend the coming days laying the groundwork as fellow finance ministers gather in Washington for the IMF-World Bank spring meetings. It’s expected to be an agenda item at this afternoon’s meeting of G7 finance leaders and in other discussions on the sidelines.

Officials are considering a menu of options. They include seizing Russia’s sovereign assets outright as well as structuring a loan backed by windfall profits from the assets. The goal is to advance discussions so top G7 leaders can make a decision when they gather in June.

U.K. Chancellor Jeremy Hunt told MM Tuesday that the loan idea is “intriguing” and that he wants to talk with Yellen more about it.

“We’re very supportive of ways to make Russia pay the price for the appalling crimes that they’ve committed in Ukraine,” he said. “Our starting point is to look at these proposals, particularly the recent proposal from Secretary Yellen, and say, what would it take to make it work?”

The Biden administration faces domestic and international political challenges on this front.

At home, Speaker Mike Johnson has signaled that the House may act in the coming days on legislation that would give President Joe Biden explicit authority to seize the assets. It comes as Johnson’s job is potentially on the line, with far-right members opposing a related plan to send aid to Ukraine.

The proposal to grant seizure authority for Russian assets is bipartisan — and not envisioned as a substitute for more direct financial assistance for Ukraine — but it’s also facing some resistance from the right.

As MM scooped Tuesday, Sen. J.D. Vance of Ohio, a Republican close to former President Donald Trump, is rallying opposition. He said in a memo to GOP lawmakers that it poses “potentially dire consequences for the Western financial system and could hinder a future President’s ability to negotiate an end to the Russia-Ukraine conflict.”

House Foreign Affairs Chair Michael McCaul, whose committee approved the “REPO Act” legislation at issue, responded in a statement to MM that said “Senator Vance’s memo repeats many of the same arguments that I’ve heard previously from the Biden Administration as reasons to not enact this policy.” He said “financial markets understand that this is not a signal that the United States will begin to seize assets from other countries at will.” (Vance says McCaul is “explicitly pushing a priority of the Biden administration and I’m opposing it.”)

Rep. French Hill of Arkansas, one of the Republicans who has been most actively involved in driving the REPO Act, is trying to shore up support. In a letter to fellow lawmakers on Friday, he said the plan would not negatively impact the dollar or violate the U.S. Constitution, and he made the case that it’s consistent with international law.

“The speaker is supportive of including the REPO Act in his legislative proposal,” Hill told reporters Tuesday. “I think it strengthens the bill. I think it would encourage more Republican yes votes, because of the opportunity to use Russian sovereign assets as collateral as a source of earnings or directly to benefit Ukraine and have less reliance today or in the future on American or French or German taxpayers.”

What may be a bigger problem is international buy-in. Europe is home to the bulk of the assets — around $200 billion, compared to the $5-8 billion in the U.S. — and it’s also where there is deep concern about the legal ramifications, economic fallout and potential Russian retaliation that could arise from tapping the money. European leaders have instead opted to claw back profits from the Russian assets.

“There is a high degree of unity amongst G7 countries that we need to do everything possible within international law,” Hunt said. “We are also conscious of the fact that the reason that we are so concerned about what Russia did in Ukraine was because it broke international law, and we are trying to uphold the international system. So when it comes to financial sanctions, we want to make sure that we stay on the right side of the line. But we also want to do everything we can to make sure that Russia picks up the tab for the terrible damage that they’ve caused.”

Yellen acknowledged the concerns in a press conference Tuesday.

“Of course there could be retaliation, and we are looking at the risks that are associated with using these assets and evaluating different strategies that we might present to the G7 leaders,” she said. “Evaluating the risks is part of that. But overall I believe there are ways of managing the risks, particularly if the G7 acts together in unison, and that it’s important for us to do so.”

In a related MM scoop, Bank of America and USAID are set to announce today that the lender will assign a senior capital markets executive to advise Ukraine’s government on how to finance the country’s rebuilding effort, according to sources briefed on the plan. BofA CEO Brian Moynihan, who spoke with MM in January about the bank’s efforts in Ukraine, first floated the idea with U.S. officials last year.

The move is expected to be discussed at a Ukraine House event in Washington today that will feature U.S. and Ukrainian government officials as well as private sector leaders. The gathering will also highlight Nasdaq’s recent announcement that it will waive listing fees for Ukrainian companies, another initiative that was rolled out with USAID.

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Driving the day

Bank of England Governor Andrew Bailey, Fed Governor Michelle Bowman and White House CEA Chair Jared Bernstein are among the speakers at the IIF’s Global Outlook Forum beginning at 8 a.m. … House Financial Services holds a legislative markup at 10 a.m. … U.S. Trade Representative Katherine Tai testifies at Senate Finance at 10 a.m. ... European Investment Bank President Nadia Calvino speaks at the Center for Global Development at 10:30 a.m. … The Fed releases its “beige book” report on regional economic conditions at 2 p.m. … Yellen will participate in a meeting of G-7 finance ministers and central bank governors at 4:15 p.m. … Yellen will attend a working dinner for G-20 finance ministers and central bank governors in the evening

Big stablecoin news — Senate Banking Chair Sherrod Brown told our Jasper Goodman that he’s open to advancing stablecoin legislation as part of a package with other financial services proposals, breathing unexpected life into the digital asset push on Capitol Hill.

Brown, who has long been an outspoken crypto critic, said he is “very open” to working with House Financial Services leaders Patrick McHenry and Maxine Waters, who say they are close to agreement on a federal regulatory framework for stablecoins. It’s a notable move as other vocal crypto detractors like Sen. Elizabeth Warren argue that enshrining stablecoins in law could be a recipe for new financial risks.

Brown said he wants to see the package also address cannabis banking safeguards, bank executive accountability, crypto consumer protections and illicit finance.

In another big move, Jasper reports that Sens. Cynthia Lummis and Kirsten Gillibrand are unveiling their own long-awaited legislation to set up rules for stablecoins. Aides said that staff for Lummis and Gillibrand were in close contact with McHenry and Waters’ teams about the legislation and that they also solicited feedback from the Biden administration and regulators.

Lummis said in an interview that she hopes the bill will be “a signal” to “the whole Congress.”

Powell validates rate cut pessimism — Fed Chair Jerome Powell on Tuesday signaled what markets already expected: we might have to wait a while longer before we get interest rate cuts, Victoria Guida reports.

Citing “a lack of further progress so far this year” on reaching 2 percent inflation, Powell said recent data “have clearly not given us greater confidence” that the U.S. is getting there and “instead indicate that it’s likely to take longer than expected to achieve that confidence.”

“That said, we think policy is well-positioned to handle the risks that we face,” he added. “If higher inflation does persist, we can maintain the current level of restriction for as long as needed. At the same time, we have significant space to ease should the labor market unexpectedly weaken.”

Per Adam Behsudi, IMF economic counsellor Pierre-Olivier Gourinchas wrote in the organization’s World Economic Outlook that “somewhat worryingly, the most recent median headline and core inflation numbers are pushing upward.”

“This could be temporary, but there are reasons to remain vigilant,” he said.

In its latest Global Financial Stability Report, the IMF said that bank exposure in the commercial real estate sector, particularly in the U.S., is a short-term issue to worry about.

Housing

First in MM: Dems press Biden on title insurance revamp — Eighteen House Democrats today will call on the president to rethink his State of the Union push to scrap title insurance requirements for certain federally backed mortgages. Industry groups are lobbying against the planned policy.

“While well-intentioned, this pilot program will not address the true issue of housing affordability in our communities and puts homebuyers at risk,” the House Democrats led by Rep. Wiley Nickel say in a letter to Biden. “Title insurance has a proven track record of protecting consumers and lenders for over a century. For a one-time, up-front fee, consumers and lenders are protected against future title defects and can rest assured that their largest investment and wealth generator is safe.”

Other Democrats on the letter include Reps. Josh Gottheimer, Nikema Wlliams, Vicente Gonzalez and Ritchie Torres.

Regulatory Corner

A court case to watch — Declan Harty reports that a conservative think tank and two individuals from Texas sued the SEC Tuesday to block a giant trading database that’s intended to give regulators a real-time look into the market.

The National Center for Public Policy Research, Erik Davidson and John Restivo say in their lawsuit that the SEC lacks authority to set up the Consolidated Audit Trail and that the agency is trying to impose “dystopian surveillance, suspicionless seizures, and real or potential searches on millions of American investors.” It follows a separate industry legal challenge over how the CAT is funded.

First in MM: Banks warn about anti-money laundering costs — The Bank Policy Institute says a new industry survey found that the government is underestimating the time it takes for banks to file suspicious activity reports. The group, which represents large U.S. banks, is releasing the data in response to a request for comment from Treasury’s Financial Crime Enforcement Network.

“While these resources might be manageable if the filings were effective, examiners at the federal banking agencies continue to push banks to investigate irrelevant matters, diverting time and resources from more effective methods of detecting and reporting illegal activity,” BPI president and CEO Greg Baer said in a statement.

First in MM: Consumer advocates warn Republicans on CFPB rule — House Financial Services is planning to vote today on a GOP-led measure to block the CFPB’s credit card late fee cap. Ahead of the markup, 90 consumer groups are urging lawmakers to oppose the resolution, Katy O’Donnell reports.

“Simply put, opposing this Biden administration reform will result in higher credit card fees for working families,” the groups including Public Citizen and U.S. PIRG write in a letter they plan to send to lawmakers this morning. “This rule is a critical step toward protecting Americans from excessive and unjustified financial burdens imposed by credit card companies.”

Climate

First in MM: Proxy adviser draws new GOP scrutiny – Sen. Bill Hagerty and Rep. Bryan Steil are pressing proxy advisory firm ISS for details on how it conducts economic analysis when issuing recommendations to big investors on public company matters. Their letter was triggered by a March 11 CNBC interview, where the firm’s head of governance solutions discussed ESG trends. The lawmakers dispute her comment that ISS takes a “centrist” stance in its benchmark views.

“Institutional investors, which owe fiduciary duties to the beneficial owners of the securities, hire proxy advisers such as ISS specifically to advise them how to vote, in alignment with their fiduciary duties,” Hagerty and Steil write in a letter to ISS president and CEO Gary Retelny. “If ISS does not conduct an economic analysis with respect to shareholder proposals and presumes that investors will undertake it, then none of the parties involved are discerning what is in the best economic interest of the company and its shareholders.”

Big proxy advisers have long faced Republican complaints about their influence and impact on ESG-related matters. The companies, which are also targeted by the U.S. Chamber of Commerce, argue their role is limited.

Fly Around

People moves — Kyle Bligen, previously a policy adviser for Rep. Juan Vargas, has joined the Chamber of Progress as director of financial policy … Morgan Tickle has joined the National Multifamily Housing Council as PAC manager. Tickle was previously a program manager for political programs at the American Bankers Association (h/t Daniel Lippman)