July 21, 2017

July 21, 2017

Where are all the IPOs? — The decline in entrepreneurship generally and in initial public offerings specifically was the subject of two hearings before the House of Representatives this week. Broadmark Capital CEO Joe Schocken told the Small Business Committee on Wednesday that a Commission on the Innovation Economy should focus on long-term policy issues, while Congress and regulators could make smaller tweaks, such as self-certification for accredited investors. That recommendation also came up at a hearing of the House Financial Services Subcommittee on Capital Markets, Securities, and Investment on Wednesday, where witnesses also cited the major burdens created by Section 404 of Sarbanes-Oxley and the low ceiling for companies to remain Emerging Growth Companies under the JOBS Act.

House, Senate Republicans move to block CFPB rule on arbitration — Senate Banking Committee Chairman Mike Crapo (R-ID) and his Republican colleagues filed a Congressional Review Act Resolution of Disapproval Thursday against the Consumer Financial Institution Bureau’s rule to prohibit mandatory arbitration. Rep. Keith Rothfus (R-PA), introduced the House version of the resolution yesterday as well, cosponsored by all 34 Republican Members of the Financial Services Committee. The Congressional Review Act permits Congress to overturn an agency rule within 60 legislative days after an agency has submitted the rule to Congress, with a simple majority vote.

Crapo, Brown introduce flood insurance bill — The Chairman and ranking member of the Senate Banking Committee announced Tuesday that they were introducing a bill to reauthorize and reform the National Flood Insurance Program (NFIP), which expires on September 30. Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH) said that the bill represented “the many areas where we have found agreement,” and that it will serve as a base text for amendments. The bill would make several changes to the current program, including updating flood maps and authorizing sanctions on communities that do not comply with requirements for identifying repetitively-flooded structures and making community-specific mitigation plans.

Noreika says OCC will pursue fintech chartering — Although he noted that he could not comment on pending litigation from the New York State Banking Department and the Conference of State Bank Supervisors, Acting Commissioner of the Currency Keith Noreika told a group Thursday that he thinks issuing national bank charters to fintech companies “is a good idea that deserves the thorough analysis and careful consideration we are giving it.” He noted that hundreds of fintech companies currently compete against banks, but without the same oversight and regulation. “The status quo disadvantages banks in many ways.” He said that the OCC has the authority to issue fintech bank charters under a 2003 regulation that clarifies eligibility for a special purpose national bank charter.

House committee moves bill to repeal fiduciary rule — The House Committee on Education and the Workforce voted along party lines Thursday to approve H.R. 2823, the Affordable Retirement Advice for Savers Act, sponsored by Rep. Phil Roe (R-TX). H.R. 2823 would overturn the Department of Labor’s fiduciary rule, and would amend ERISA and the Internal Revenue Code to define “investment advice” and ensure that all financial professionals providing personalized advice about retirement investments, distributions, or the use of other advisors are legally required to act in the best interest of their clients.

Secondary market access critical to small mortgage lenders — Equitable access to the secondary market is essential for keeping small lenders in the mortgage market, witnesses told the Senate Banking Committee on Thursday. Committee Chairman Mike Crapo (R-ID) cited broad bipartisan support on basic principles of housing and GSE reform, including preservation of the 30-year fixed rate mortgage and a level playing field that ensures equitable access for small lenders. Ranking Member Sherrod Brown (D-OH) asked the witnesses about GSE volume discounts, which all agreed placed small lenders and new mortgage lenders at a competitive disadvantage.

Luetkemeyer introduces bill to change systemic risk standards — Rep. Blaine Luetkemeyer (R-MO), chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, introduced a bill Wednesday to change the standards for designating a financial institution “systemically important” from $50 billion in assets to a more comprehensive set of criteria that evaluate interconnectedness, substitutability, global cross-jurisdictional activity, and complexity as well as size. The bill has bipartisan support, with four Republican and four Democrat original co-sponsors.

NCUA to restructure, close regional offices — The National Credit Union Administration (NCUA) Board announced today that it will restructure the agency over the next few years to make it more efficient, responsive and cost-effective. Planned changes include consolidating the agency’s five regional offices into three, closing offices in Albany, NY and Atlanta; restructuring the Office of Examination and Insurance into specialized working groups; and redefining/realigning several chartering and membership-related programs into one Office of Credit Union Resources and Expansion. The agency also plans to consolidate offices with overlapping functions and improve examination reporting, records management, and procurement.

Peirce named to SEC — As anticipated, President Trump announced this week that he will nominate Hester Maria Peirce to serve as a Commissioner of the Securities and Exchange Commission, completing a term that will expire in June 2020. Ms. Peirce is currently Director of the Financial Markets Working Group at the Mercatus Center at George Mason University, where she is also a Senior Research Fellow. She was previously a staff member for the Senate Banking Committee, and a staff attorney with the SEC.

Faster Payments Task Force report calls for formal governance, better infrastructure — The Federal Reserve’s Faster Payments Task Force published the second part of its Final Report today, and held a briefing to discuss the report’s ten recommendations to make payments faster and more accessible for everyone. These recommendations include the creation of a voluntary, industry-led framework for collaboration and policy decisions; the establishment of rules and standards that promote safety, integrity, trust and interoperability; improvements to the payment infrastructure; and continuing research on new technology.

No silver bullet on money transmitters — The House Financial Services Subcommittee heard testimony Tuesday from four expert witnesses on international remittances and money transfers, exploring the inherent risks of terrorist and illicit financing. Duncan DeVille, Senior Vice President and Global Head of Financial Crimes Compliance for Western Union, said that better information sharing could improve identification of potential terrorists, but that the U.S. system is still better than Europe’s in this area. The cost and complexity of compliance were noted as reasons for the proliferation of unlicensed hawalas; hawalas are legal in the U.S. as long as they register with FinCEN, but most don’t know how to navigate the system.

HUD nominees, Senate Banking members minimize concerns about community development funding — At a nomination hearing on Tuesday, the Administration’s choices to serve as Assistant Secretary of HUD for Fair Housing and Equal Opportunity and Assistant Secretary of HUD for Community Planning and Development pledged to work on a bipartisan basis to expand affordable housing and enforce fair housing laws, despite an Administration budget proposal that would eliminate funding for several community-based programs, including the CDFI Fund. Anna Farias, the Fair Housing nominee, said that she will continue to enforce the final rule on Affirmatively Furthering Fair Housing (AFFH), and Neal Rackleff, the Community Planning and Development nominee, said that he was confident that Congress and the Administration would make sure HUD had enough money to fulfill its mission. Senators on both sides of the aisle noted the importance of Community Development Block Grants in their states; Mr. Rackleff said they had been important to the city of Houston during his tenure as head of the city’s Department of Housing and Community Development.

Tax reform will demand bipartisanship — Four former Assistant Secretaries of the Treasury for Tax Policy testified before the Senate Finance Committee on Tuesday about guiding principles for comprehensive tax reform. Representing the administrations of George W. Bush and Barack Obama, the four former Assistant Secretaries agreed that comprehensive tax reform is overdue, and could boost growth and competitiveness. They also agreed that partisan approaches to tax reform would be counterproductive. All said the code should be simplified. Several of the witnesses and senators spoke positively about a consumption tax, saying it would be effective and bring us in line with international competitors, and could be designed to be progressive.

Next Week in Washington:

July 25            House Financial Services Committee meets to consider six pieces of legislation: HR 1624, the “Municipal Finance Support Act of 2017;” HR 2864, the “Improving Access to Capital Act;” HR 3110, the “Financial Stability Oversight Council Insurance Member Continuity Act;” HR 3321, the “National Strategy for Combating Terrorist, Underground, and Other Illicit Financing Act;” HR 3326, the “World Bank Accountability Act of 2017;” and H. Res. 442, directing the Secretary of the Treasury to provide certain documents in the Secretary’s possession to the House of Representatives relating to President Trump’s financial connections to Russia, certain illegal financial schemes, and related information. 10:00 a.m., 2128 Rayburn House Office Building.

July 25            Senate Committee on Banking, Housing, and Urban Affairs meets to vote on the nominations of J. Paul Compton, Jr. to serve as General Counsel of the Department of Housing and Urban Development; Anna M. Farias to serve as Assistant Secretary of HUD for Fair Housing and Equal Opportunity; Neal J. Rackleff to serve as Assistant Secretary of HUD for Community Planning and Development; Richard Ashooh to serve as Assistant Secretary of Commerce for Export Administration; Elizabeth Erin Walsh to serve as Assistant Secretary of Commerce for Global Markets and Director General of the United States and Foreign Commercial Service; and Christopher Campbell to serve as Assistant Secretary of the Treasury for Financial Institutions. 10:00 a.m., SD-538 Dirksen Senate Office Building.

July 27            House Financial Services Committee hears the annual testimony of the Secretary of the Treasury on the State of the International Financial System. 10:00 a.m., 2128 Rayburn House Office Building.

July 27            Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on the nominations of Joseph Otting to serve as Comptroller of the Currency and the Honorable Randal Quarles to be a member and Vice Chairman of the Board of Governors of the Federal Reserve System. 10:00 a.m., SD-538 Dirksen Senate Office Building.

The Ellis Insight. Jim Ellis reports on political news:

Senate

Indiana:  The OnMessage survey research firm conducted a statewide Republican primary survey (7/10-12; 400 IN GOP likely primary voters) and found a flat 23-23% tie developing between US Reps. Todd Rokita (R-Brownsburg/Lafayette) and Luke Messer (R-Greensburg/Muncie). Two other potential GOP candidates, Attorney General Curtis Hill and state Rep. Mike Braun (R-Jasper) register 4 and 2 percent, respectively. Sen. Joe Donnelly (D) will run for a second term, and awaits the eventual GOP for the general election. This will be a top Republican conversion opportunity race all the way to Election Day 2018.

Missouri:  Last week, Remington Research released their late June survey that tested four Republican potential US Senate candidates, three House members and a statewide official, and found all to be leading Sen. Claire McCaskill (D) by single-digit margins. While Remington did not test new Attorney General Josh Hawley, so did the Club for Growth. According to their study (Fabrizio, Lee & Associates; 7/10-11; 500 MO likely Republican primary voters), Mr. Hawley maintains a small four-point lead over Sen. Claire McCaskill (D), 46-42%. Rep. Vicky Hartzler (R-Harrisonville/Columbia), who had been openly considering running for the Senate next year, announced that she will not enter the statewide campaign. The move could be a precursor toward Hawley announcing his candidacy.

Utah:  While Sen. Orrin Hatch (R) publicly debates whether he will seek an eighth term in the Senate – he was originally elected in 1976 and is the second-longest serving Republican Senator in US history – the Democrats now have a credible candidate either to oppose him or run in an open seat. Salt Lake County Councilwoman Jenny Wilson officially announced her candidacy. Ms. Wilson has twice won the at-large Council position, meaning she has won two elections countywide in the state’s largest governmental entity. She is the daughter of former Salt Lake City Mayor Ted Wilson (D). While Sen. Hatch says he is leaning toward running again, his substantial fundraising action ($1 million in the second quarter; $4.1 million cash-on-hand) suggests that he will once again be on the ballot in the next election. Republicans are heavy favorites to hold this seat, but it now appears that at least some competition is on the political horizon.

House

CA-39:  California becoming the nation’s top Democratic state is even carrying its effects through to veteran Orange County Republican House members. Rep. Ed Royce (R-Fullerton) was originally elected to the House in 1992 after serving eleven years in the California state Senate. He won a 12th term with 57% of the vote against the flow of a 2016 Democratic Golden State landslide. He currently serves as chairman of the House Foreign Affairs Committee.

To date he had a pair of announced Democratic opponents and, this week, an additional two came to the forefront. Gil Cisneros (D) may be the first lottery winner to run for the House. In 2010, Mr. Cisneros won $266 million in California’s Mega Millions lottery, so he obviously has the wherewithal to run for Congress. Former Commerce Department official Sam Jammal also announced his candidacy. He previously served as chief of staff to California Congressman Tony Cardenas (D-Pacoima/Los Angeles). A large minority population in this southern California district could make this race seriously competitive next year despite of Rep. Royce’s long record of success here.

FL-6:  Former Deputy National Security Advisor (to President Bill Clinton) Nancy Soderberg announced her congressional candidacy yesterday, presumably against three-term Rep. Ron DeSantis (R-Palm Coast/ Daytona Beach). But, Ms. Soderberg may soon find herself in an open seat situation because Rep. DeSantis remains a potential gubernatorial or state Attorney General candidate. A crowded Republican primary will ensue if Rep. DeSantis opts for a statewide race, with the GOP winner becoming the general election favorite. While Ms. Soderberg may prove to be a credible general election candidate, she will be a decided underdog in this north/central Florida CD.

ME-2:  It’s unlikely that we will see a third campaign between two-term Rep. Bruce Poliquin (R-Oakland/Bangor) and former state Sen. Emily Cain (D). But, another failed two-time candidate is stepping forward. Construction business owner Jonathan Fulford (D), who supported Bernie Sanders’ presidential campaign, declared his congressional candidacy this week. In the last two elections, Mr. Fulford lost close contests to state Senate President Mike Thibodeau (R). The 2nd District has been traditionally Democratic, but Poliquin scored the upset win in 2014, and then increased his victory margin last November. The Congressman already has well over $1.1 million in his bank account, meaning he will be well prepared to run another strong re-election campaign.

MI-7:  It appears we will see a re-match in Michigan’s 7th CD next year. Former state Representative Gretchen Driskell (D), despite losing to Rep. Tim Walberg (R-Tipton/Jackson) by 15 percentage points, will return for another campaign. Mr. Walberg was first elected in 2006 after defeating then-Rep. Joe Schwarz (R) in the Republican primary. He lost the seat two years later, but regained it in 2010 and has held ever since. The 7th was re-drawn in 2011 to give the GOP Congressman more favorable territory.

MN-2:  Last November, Democratic healthcare executive Angie Craig was widely expected to convert then-retiring Rep. John Kline’s (R) politically marginal southeastern Minneapolis suburban US House district. But, former radio talk show host Jason Lewis and the GOP voting base came to a different conclusion and Craig went down to a close defeat despite raising and spending almost $4 million, translating into a 4:1 resource advantage over her Republican opponent. This week, Ms. Craig announced she will try again. Mr. Lewis surprised most people with his strength as a campaigner and was one of the most under-rated winners of the 2016 election cycle. The new Congressman has raised well over $550,000 in his first two quarters as an incumbent, an amount representing more than half of what he spent during his original campaign.

NM-2:  State Land Commissioner and former congressional candidate Aubrey Dunn (R) announced that he will enter the open 2nd Congressional District race next year. Incumbent Rep. Steve Pearce (R-Hobbs) declared for Governor last week, thus opening the district for the 2018 election. Already in the GOP primary is state Rep. Yvette Herrell (R-Alamogordo).  The district encompasses virtually the entire state south of the Albuquerque metropolitan area. The electorate votes generally Republican (Trump: 50-40%), but did elect a Democrat, Harry Teague, for one term the last time the district was open (2008).

Governor

Nebraska:  Gov. Pete Ricketts (R) has drawn his first announced 2018 challenger. Republican state Senator Bob Krist announced his challenge to Gov. Ricketts, but not the in the GOP primary…nor, will he run as a Democrat. Instead, Sen. Krist is forming his own political party under Nebraska election law and will attempt to qualify for the ballot as a general election third party candidate.

Nevada:  Attorney General Adam Laxalt (R) has had the early Republican gubernatorial field mostly to himself this year, but that may soon change. State Treasurer Dan Schwartz is confirming that he will file a gubernatorial exploratory committee in August, with the expectation of kicking off an official campaign for Governor in September. Mr. Schwartz was elected Treasurer in 2014, scoring a 51-41% victory margin. He is eligible to seek re-election, but looks to be eschewing that opportunity for the gubernatorial run.

New Mexico:  US Rep. Michelle Lujan Grisham (D-Albuquerque) appears well on her way to locking up the Democratic gubernatorial nomination. Late last week, businessman and 2014 statewide candidate Alan Webber said he will not run for Governor next year and instead endorses Rep. Grisham. Earlier, Attorney General Hector Balderas (D) did the same. The position is open in 2018 because Gov. Susana Martinez (R) is ineligible to seek a third term. US Rep. Steve Pearce (R-Hobbs) appears to be coalescing support for the Republican gubernatorial nomination.

Ohio:  According to a Cleveland Plain Dealer newspaper columnist close to the subject, Consumer Financial Protection Board director Richard Cordray (D), a former Ohio Attorney General, “is certain” to run for Governor and will enter the open race no later than September. Mr. Cordray is the first and only CFPB director. The organization was the brainchild of then-Harvard law professor Elizabeth Warren. President Obama nominated her as the first Board director, but she could not overcome Republican confirmation opposition. The President then chose Mr. Cordray when it became obvious that Warren would fail to be confirmed. If Mr. Cordray does return to Ohio to run statewide, he will already face four Democratic gubernatorial opponents, including former US Rep. Betty Sutton (D-Copley) and Dayton Mayor Nan Whaley.

South Carolina:  Appointed Lt. Gov. Kevin Bryant (R) is moving toward challenging Gov. Henry McMaster (R) in next year’s GOP statewide primary. Mr. Bryant, this week, formally launched a fundraising committee and will likely make a final decision about running sometime in August. Mr. McMaster, the elected Lt. Governor, ascended to the state’s top position when Gov. Nikki Haley (R) was appointed US Ambassador to the United Nations. Mr. Bryant was then chosen by the state legislature to replace McMaster. Former Lt. Gov. Yancey McGill (R) is already an announced candidate. Gov. McMaster is expected to seek a full term.