January 26, 2018

January 26, 2018

What’s up with the shutdown — Congress made a deal on Monday to keep the federal government open until February 8th, when funding will once again expire. Monday’s deal included six years of funding for the Children’s Health Insurance Program (CHIP), and Senate Majority Leader Mitch McConnell (R-KY) promised Senate Democrats a vote on a legislative fix for Deferred Action on Childhood Arrivals (DACA). So mark your calendars, and let’s move forward.

Senate confirms Powell as Fed Chairman — The Senate voted 84-13 on Tuesday to confirm the nomination of Jerome H. Powell to serve as Chairman of the Board of Governors of the Federal Reserve System. Powell’s four-year term as Chairman will begin on February 1. He is currently serving a 14-year term as Governor that continues until 2028.

Cryptocurrency, here comes the SEC — In remarks to the Securities Regulatory Institute on Monday and a joint Wall Street Journal op-ed with CFTC Chairman J. Christopher Giancarlo today, SEC Chairman Jay Clayton warned “those who seek to evade the registration, disclosure and antifraud requirements of our securities laws” through bitcoin and other cryptocurrency offerings. “Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards . . . particularly in the initial coin offering (“ICO”) space, they can do better,” Clayton said Monday. “I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.” Clayton and Giancarlo acknowledged that their traditional approach to the regulation of currency transactions may not be appropriate for these new markets, and said they “would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era.”

McWilliams cites community bank regulatory burden, new charters, cybersecurity as priorities at FDIC — Appearing before the Senate Banking Committee on Tuesday, Jelena McWilliams said that as Chairman of the Federal Deposit Insurance Corporation, if confirmed, she would focus on easing unnecessary regulatory burden on community banks, addressing obstacles to de novo bank charters, and cybersecurity issues, as well as on how international regulations like Basel III affect community banks. Senator Dean Heller (R-NV) asked for her views on expanding the industrial loan company (ILC) charter; McWilliams agreed with previous FDIC chairs that ILCs pose no greater safety or soundness threat than any other charter type. She said that she is particularly concerned about bank consolidation that may leave rural areas underserved, and identified the Volcker Rule as one that needs review. Separately, the White House adjusted McWilliams’ nomination late Monday so that she would replace Thomas Hoenig as a member of the FDIC Board, rather than fill a current vacancy. This would prevent Hoenig from continuing to serve past the expiration of his term on April 16.

Treasury, Commerce, DoD endorse CFIUS reform proposal — Representatives of the Departments of Treasury, Commerce, and Defense appeared before the Senate Banking Committee on Wednesday to discuss S. 2098, the Foreign Investment Risk Review Modernization Act (FIRRMA) introduced by Senators John Cornyn (R-TX) and Dianne Feinstein (D-CA). Heath P. Tarbert, Assistant Secretary of the Treasury for International Markets and Investment Policy, called for speedy modernization of CFIUS to allow for the oversight of transactions beyond those that result in a controlling interest, and for oversight of real estate transactions. Assistant Secretary of Commerce Richard Ashooh cautioned against excessive overlap with existing Export Administration Regulations (EAR), but said that FIRRMA’s provisions were mainly complementary. Deputy Assistant Secretary of Defense Eric Chewning said FIRRMA represents the “whole of government” approach necessary to protect critical technology and data.

CFPB finalizes changes to prepaid rule, extends effective date to April 2019 — Yesterday the Consumer Financial Protection Bureau (CFPB) published its finalized updates to its rule on prepaid accounts. The changes clarify that consumer protections for registered prepaid cards apply prospectively, after registration is verified, rather than retrospectively. They make it easier for consumers to link prepaid accounts to digital wallets, and they extend the effective date of the overall rule to April 1, 2019.

CFPB opens comment on civil investigative demands — As CFPB Acting Director Mick Mulvaney promised last week, the Bureau published a request for information (RFI) on Wednesday to seek public comment about the Bureau’s Civil Investigative Demands (CIDs). “The Bureau understands . . . that responding to a CID can impose burdens on the recipients . . . The Bureau is especially interested in better understanding how its processes related to CIDs may be updated, streamlined, or revised . . . and how to align the Bureau’s CID processes with those of other agencies with similar authorities.” Comments are due to the CFPB by March 27.

Regulators will give CRA credit for Hurricane Maria-related activities — The federal banking agencies announced yesterday that they will give favorable consideration to community development activities targeted toward revitalizing or stabilizing areas affected by Hurricane Maria, regardless of where the institutions themselves are located. While CRA encourages institutions to help meet local needs, the agencies noted that much of Hurricane Maria’s devastation happened in areas outside the U.S. mainland, and the resulting effects extend to other parts of the United States. The agencies specifically mentioned assistance to those displaced by the hurricane as one activity eligible for CRA consideration.

Appeals court dismisses DOJ suit against MetLife — As expected, the U.S. Court of Appeals for the District of Columbia agreed Tuesday to dismiss the Financial Stability Oversight Council’s appeal of the court’s decision to rescind MetLife’s designation as a systemically important financial institution (SIFI). This brings that dispute to an end. Prudential is still waiting for FSOC to reconsider its SIFI designation.

William J. McDonough, 1934-2018 — Sadly, the Federal Reserve Bank of New York announced yesterday that William J. McDonough, president and CEO of the bank from 1993 to 2003, died on Monday. McDonough oversaw the 1998 resolution of Long Term Capital Management, and was led the New York Fed’s response to the liquidity crisis that followed 9/11. He became the first chairman of the Public Company Accounting Oversight Board (PCAOB) in 2003, stepping down from that position in 2005.

 

Next Week in Washington:

January 30     House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Examining Opportunities and Challenges in the Financial Technology (‘Fintech’) Marketplace.” 10:00 a.m., 2128 Rayburn House Office Building.

January 30     Senate Committee on Banking, Housing, and Urban Affairs holds a hearing to receive the Financial Stability Oversight Council’s Annual Report to Congress. Secretary of the Treasury Steven T. Mnuchin will be the only witness. 10:00 a.m., SD-538 Dirksen Senate Office Building.

January 30     House Financial Services Subcommittee on Oversight and Investigations holds a hearing on “Following the Money: How Human Traffickers Exploit U.S. Financial Markets.” 2:00 p.m., 2128 Rayburn House Office Building.

 

The Ellis Insight. Jim Ellis reports on political news:

Senate

Indiana:  US Rep. Todd Rokita (R-Brownsburg/Lafayette) released the results of his early January GS Strategy Group poll, the second such survey conducted for his campaign. According to the study (1/6-9; 500 IN likely GOP primary voters), Mr. Rokita has expanded his advantage over fellow Rep. Luke Messer (R-Greensburg/Muncie) while former state Rep. Mike Braun (R-Jasper) also gained support. According to the results, the western state Congressman leads his opponents, 24-9-9%. The Indiana primary is May 8th. The winner faces first-term Sen. Joe Donnelly (D) in the November election.

New Jersey:  After seeing a hung jury result in Sen. Bob Menendez’s (D) bribery trial, the US Justice Department announced that they will still push forward with further court proceedings. The timing of this latest legal battle is unclear, but it would almost assuredly not come before the Democratic primary on June 5th. It could, however, be scheduled before the general election, and in the middle of prime campaign time. Speculation is building that the Senator might be forced to resign, but that seems much less likely since he’s already come close to beating the charges and the new judge already rejected several more indictments. In the meantime, wealthy Republican pharmaceutical CEO Bob Hugin is moving closer toward entering the race giving the GOP what appears to be a viable candidacy.

Ohio:  Last year, rumors persisted that best selling author J.D. Vance (R) was going to enter the Republican Senate primary. With state Treasurer Josh Mandel (R) and investment banker Michael Gibbons (R) already in the race, Mr. Vance decided not to become a candidate. When Mr. Mandel changed his plans due to his wife’s recently discovered health issue, the Vance drumbeat again began to roll. Now, with Rep. Jim Renacci (R-Wadsworth) hopping into the Senate race from the Governor’s campaign, Mr. Vance has again decided to bypass a 2018 political run. The winner of the now-presumed primary between Rep. Renacci and Mr. Gibbons faces two-term Sen. Sherrod Brown (D) in the general election.

Utah:  Reports from the Beehive State indicate that former Republican presidential nominee and ex-Massachusetts Gov. Mitt Romney will announce his US Senate candidacy next week. Mr. Romney will be entering the race to replace retiring Sen. Orrin Hatch (R). Interestingly, it is believed that the presumed Senatorial candidate will bypass the Republican nominating convention and petition his way onto the primary ballot. With no major Republican expected to challenge Mr. Romney, this open seat race will likely be clinched the day he officially becomes a candidate.

House

CA-39:  Remington Research conducted the first public poll in this Orange/Los Angeles County congressional district since veteran Rep. Ed Royce (R-Yorba Linda/Fullerton) announced his retirement. According to RR (1/10-11; 761 CA-39 likely voters), former state Assemblywoman Young Kim (R), who Mr. Royce has already endorsed, would lead a pair of Democrats in prospective general election pairings. Against lottery winner Gil Cisneros, Ms. Kim would lead 41-38%. Paired with physician Mai Khanh Tran, the Republican advantage would be a more substantial 42-33%. This campaign is expected to be highly competitive and will rank high on the national Democratic conversion target list.

CA-49:  San Diego County Supervisor Kristin Gaspar (R-Encinitas) this week entered the open 49th District seat from which Rep. Darrell Issa (R-Vista) is retiring. Ms. Gaspar’s 3rd Supervisorial District captures all of the San Diego County coastal regions consistent with the 49th CD. Prior to her election to county office, she served as mayor and councilmember in the city of Encinitas. The open seat contest has attracted five Republicans and four Democrats, including 2016 Democratic general election participant Doug Applegate who attracted 49.7% of the vote against Mr. Issa. The race is rated a toss-up.

FL-27:  Former Health and Human Services Secretary Donna Shalala is the latest Democrat reportedly considering entering the crowded primary battle to succeed retiring Rep. Ileana Ros-Lehtinen (R-Miami). After leaving the Clinton Administration, Ms. Shalala became president of the University of Miami, a position from which she retired in 2015. Already eight Democrats are vying for the party nomination, including two state legislators and a pair of local South Florida officials. Ms. Shalala would celebrate her 78th birthday soon after being sworn into office should she run and successfully win the seat.

MI-13:  Investment advisor John Conyers III, son of resigned Rep. John Conyers (D-Detroit), filed paperwork with the Federal Election Commission to establish a campaign committee for the special election to replace his father. The special schedule will run concurrently with the regular election calendar. The younger Conyers named his new congressional committee, “Conyers to Conyers.”  Also in the field of candidates is his cousin, state Sen. Ian Conyers (D-Detroit). The Democrats will hold the seat in November, but whether or not a Conyers carries the day still remains to be decided.

NV-4:  Nevada’s 4th Congressional District was created in 2011, after the 2010 census awarded the state a new district in reapportionment because of massive population growth. Since that time, the electorate has yet to re-elect an incumbent Congressman. With freshman incumbent Ruben Kihuen (D-Las Vegas) being forced into retirement because of sexual harassment accusations, the seat will be open in 2018, and two defeated incumbents are attempting political comebacks. As reported here last week, former Rep. Cresent Hardy (R-Mesquite) announced his candidacy.

This week, ex-Rep. Steven Horsford (D-Las Vegas) declared that he, too, will again become a congressional candidate. The former Congressman still faces serious Democratic primary opposition in the person of state Sen. Pat Spearman, who says she will not yield to Horsford. Assuming Horsford wins the Democratic nomination, the general election will feature a re-match of the 2014 campaign. This pairing would obviously result in one of the two returning to Washington.

NY-24:  Former Syracuse Mayor Stephanie Miner (D), who was clearly the Democrats’ top recruitment prospect to challenge Rep. John Katko (R-Syracuse), declared late this week that she will not become a congressional candidate. Though the 24th District is politically marginal, Mr. Katko has performed very well, starting with a 59% defeat of incumbent Rep. Dan Maffei (D) in 2014. Rep. Katko was re-elected in 2016 with 58% despite being a top Democratic target and Hillary Clinton winning the CD with a four-point margin.

Pennsylvania:  The state Supreme Court this week struck down the Keystone State congressional lines as a political gerrymander under the Pennsylvania Constitution by a 4-3 vote. They have ordered the map re-drawn and enacted by February 15th. The Republican legislature is now tasked with re-crafting the congressional delegation map, which will be subject to Gov. Tom Wolf’s (D) veto. Therefore, it is a certainty that the map will undergo major changes that will favor the Democrats.

The current delegation split is 13R-5D. The four open seats currently represented by Reps. Pat Meehan (R-Chadds Ford), Bill Shuster (R-Hollidaysburg/Altoona), Lou Barletta (R-Hazelton), and Charlie Dent (R-Allentown) give the GOP map-drawers a major opportunity to concede seats using the territory within these districts and surrounding regions as the basis for the mandated changes in order to mitigate the party’s losses.

PA-7:  In the middle of a public sexual harassment controversy and staring at a likely adverse redistricting situation, Rep. Pat Meehan (R-Chadds Ford) announced late this week that he will not seek re-election to a fifth term. Mr. Meehan’s decision now brings the House open seat count to an even 50, of which 35 are Republican-held. The Philadelphia suburban seat has performed as a marginal political district though Mr. Meehan held it easily, averaging 58.9% in his four election victories. It’s craggily shape made it a natural for the redistricting argument, and this seat will come front and center in the subsequent re-draw action the state Supreme Court ordered earlier this week. It is likely a new 7th District will lean Democratic.

PA-8:  Attorney Scott Wallace (D), whose grandfather was Vice President Henry Wallace, filed candidate papers with the Federal Election Commission to enter the 8th District Democratic congressional primary. If he proceeds with his candidacy, Mr. Wallace will face attorney Rachel Reddick and non-profit organization executive Steve Bechler. The eventual nominee then challenges Rep. Brian Fitzpatrick (R-Levittown) in a race that has strong competitive potential.

Henry Wallace was Vice President during the war years of 1941-45, and served under President Franklin D. Roosevelt. He was dumped from the 1944 Democratic ticket at the national convention in favor of Missouri Sen. Harry Truman, who would obviously go onto become President.

PA-18:  A new DFM Research Democratic poll conducted for the Sheet Metal, Air, Rail, and Transportation union (1/18-19; 384 PA-18 registered voters) finds Republican state Rep. Rick Saccone (R-Canonsburg) leading Democratic attorney Conor Lamb by only a three-point margin, 41-38%. The poll appears correctly geographically dispersed within the four-county congressional district, but the partisan ratio is unreported. The close margin is inconsistent with other recent internal Republican polls, which show Mr. Saccone holding leads of nine and ten points. The special election to replace resigned Rep. Tim Murphy (R-Pittsburgh) is March 13th.

Governor

Alaska:  Former state Senate President Charlie Huggins (R) announced that he is ending his gubernatorial campaign mainly due to poor fundraising. The decision leaves former state Sen. Mike Dunleavy, state Rep. and former House Speaker Mike Chenault (R-Nikiski), and businessman and Anchorage Economic Development Corporation founder Scott Hawkins as the three major Republican candidates.

The question remains whether former US Sen. Mark Begich (D) will enter the race, but so far he continues to keep quiet about potentially launching a gubernatorial campaign. Assuming Mr. Begich does not run, then Gov. Bill Walker, the nation’s only Independent state chief executive, will again likely become the de facto Democratic nominee and be favored for re-election. If Begich decides to run, a free-for-all campaign could result.

Iowa:  For a state with just four congressional districts, the Iowa Governor’s race is attracting major financial resources according to the latest state financial disclosure report. Incumbent Gov. Kim Reynolds (R) has so far raised $3.7 million, and carries $4.1 million cash-on-hand. Her Republican primary opponent, Cedar Rapids Mayor Ron Corbett showed income of $844,000 with cash reserves of $579,000.

Big money is flowing on the Democratic side, both in terms of fundraising and candidate contributions with three candidates already exceeding the $1 million mark for the June primary. Businessman Fred Hubbell raised $2.9 million and has $1.2 million in the bank. Service Employees International Union official Cathy Glasson also cracked the $1 million barrier, bringing in $1.3 million, and now has $729,000 in her campaign account. State Sen. Nate Boulton (D-Des Moines) also broke into seven figures, raising $1.1 million with $481,000 remaining.