A bad week for American icons — The week began with the death of Stan Lee, co-creator of the Marvel Comics Universe and father of such immortal characters as Spiderman and The Incredible Hulk. It continued with the loss of Roy Clark, and if you only remember him from “Hee Haw,” or don’t remember him at all, take three minutes to watch this. And today we lost William Goldman, the great American mythmaker who, among other creations, invented the phrase “Follow the money.” Raise a glass, or three.
Crapo will return as Chairman of Senate Banking — Senator Mike Crapo (R-ID) will serve as Chairman of the Senate Committee on Banking, Housing, and Urban Affairs again in the next Congress. He has held that office since January 2017, and might have moved to chair the Senate Finance Committee had Senator Charles Grassley (R-IA) not decided to take that chairmanship.
OFR warns against market risks, cybersecurity concerns — This week the Office of Financial Research (OFR) published its fourth annual report to Congress on risks to US financial stability, concluding that while overall risks remain in the medium range, some areas may need more attention. “Market risks remain high,” the OFR said, because of historically high stock prices and the vulnerability of bond prices to interest rate hikes. “Cybersecurity remains a key risk,” and the OFR plans to collect data on cleared bilateral repurchase agreements (repos) to assess related risks. The OFR co-hosted a two-day conference this week to discuss the appropriate balance of activity-based and entity-based regulation, as the Financial Stability Oversight Council shifts focus from designating systemically important financial institutions to identifying systemically risky activities.
FDIC wants to support innovation, says McWilliams — Speaking at the OFR’s conference on Thursday, FDIC Chairman Jelena McWilliams said that the agency was creating an Office of Innovation in order to keep up with changing technology in financial services, and to help firms use technology to meet the needs of unbanked and underbanked customers. McWilliams said that she had no personal opinion about whether the industrial loan company (ILC) charter offered by some states was a better option for fintech companies than the OCC’s proposed special-purpose fintech charter, but that the FDIC expects to work with these companies: “Whether or not we want to deal with fintech, fintech wants to deal with us.” She noted that the statutory requirements for an ILC are difficult to meet, and the FDIC has not had an opportunity to process an application for one in a while. They would have to consider it carefully to determine its potential exposure to the deposit insurance fund, and make sure the agency knew enough about the organization and its technology. That was one goal of the Office of Innovation, McWilliams said.
Quarles reports to Congress — Federal Reserve Board Vice Chairman for Supervision Randal K. Quarles made upbeat appearances before the House Financial Services Committee and the Senate Banking Committee this week, reporting on the agency’s progress in implementing the Economic Growth, Regulatory Reform, and Consumer Protection Act. Quarles said that the Fed’s priorities were to improve transparency, and to make the post-crisis regulatory framework simpler and more efficient. The Fed is watching cybersecurity and IT risks, and Quarles told Senator Elizabeth Warren (D-MA) that they’re “quite athletically looking” at leveraged lending activities. Quarles told both panels that the federal banking agencies would be publishing a proposal for a community bank leverage ratio “very soon.” (The FDIC will vote on publishing this proposal next Tuesday; see the calendar for details.)
Senate Judiciary discusses Chapter 14 bankruptcy proposal — The Senate Judiciary Committee held a hearing on big bank bankruptcies on Tuesday, with testimony from experts who were involved in the Lehman Brothers bankruptcy and the drafting of the proposed Chapter 14, which would create a system for the orderly resolution of a bank holding company bankruptcy designed to leave its subsidiary bank(s) recapitalized. Senators John Cornyn (R-TX) and Chris Coons (D-DE) have introduced legislation that is narrower than the bills introduced by Senators Cornyn and Pat Toomey (R-PA) in the last two Congresses, and Judiciary Committee members on both sides of the aisle sounded motivated to change the law (although probably not in this Congress).
Bowman confirmed to Federal Reserve Board — The Senate voted 64-34 on Thursday to confirm Michelle Bowman’s nomination to the Federal Reserve Board. Bowman, a fifth-generation banker from Kansas, was most recently the Kansas State Bank Commissioner. She previously worked for Senator Bob Dole, and was Deputy Assistant Secretary and Policy Advisor at the Department of Homeland Security under Secretary Tom Ridge. Bowman was appointed to complete a term that expires in 2020.
Republicans re-elect McConnell, vote on Senate leadership — As expected, Senator Mitch McConnell (R-KY) was re-elected Senate Majority Leader on Wednesday. Republicans also elected Senator John Thune (R-SD) party whip, Senator John Barrasso (R-WY) conference chairman, and Senator Roy Blunt (R-MO) Republican Policy Chairman. Senator Joni Ernst (R-IA) was elected vice chair of the Republican Senate Conference, and is the first woman to serve in the Republican Senate leadership since 2010. Senator Chuck Grassley (R-IA) succeeds retiring Senator Orrin Hatch (R-UT) as Senate President pro tempore, the most senior Senate Republican. Senator Todd Young (R-IN) will chair the National Republican Senatorial Committee.
Democrats re-elect Schumer — Senator Charles Schumer (D-NY) was unopposed in the vote for Senate Minority Leader. Nevada Senator Catherine Cortez Masto was named chair of the Democratic Senatorial Campaign Committee on Thursday. The rest of the Democratic leadership remains unchanged: Senator Dick Durbin (D-IL) as Minority Whip, Senator Patty Murray (D-WA) as Assistant Democratic Leader, and Senator Debbie Stabenow (D-MI) as chair of the Democratic Policy and Communications Committee.
McCarthy elected House Republican leader — House Republicans chose Rep. Kevin McCarthy (R-CA) to serve as Minority Leader in the 116th Congress, replacing the departing Speaker of the House, Paul Ryan (R-WI). Rep. Steve Scalise (R-LA) was re-elected Republican Whip, and Rep. Liz Cheney (R-WY) was re-elected House Republican Conference chair.
Kennedy introduces flood insurance extension — Senator John Kennedy (R-LA), with Senators Marco Rubio (R-FL), Bill Cassidy, M.D. (R-LA), and Robert Menendez (D-NJ) introduced a bill Thursday to reauthorize the National Flood Insurance Program (NFIP) for six months. Without an extension, the NFIP will expire on December 7. Kennedy said, “I am increasingly frustrated that we haven’t made long-term fixes to the NFIP. However, this program is absolutely necessary to more than five million American homes and businesses.”
FDIC seeks comment on small-dollar lending — The Federal Deposit Insurance Corporation (FDIC) issued a request for information this week to seek public comment on ways the agency could encourage “FDIC-supervised institutions to offer responsible, prudently written small-dollar credit products that are economically viable and address the credit needs of bank customers.” Comments are due to the FDIC 60 days after the notice appears in the Federal Register.
MMI Fund remains strong, but premiums will continue — The Federal Housing Administration published its 2018 Report to Congress this week, with the good news that the Mutual Mortgage Insurance Fund (MMIF) had a total economic net worth of $34.9 billion, and exceeded its statutory minimum capital reserve ratio for a fourth consecutive year. Nevertheless, FHA Commissioner Brian Montgomery told reporters on Thursday, he said the agency is “still far away from being able to consider any reduction in our mortgage premiums.”
Dreyer resigns from Federal Insurance Office — Steven J. Dreyer, Director of the Federal Insurance Office within the Department of the Treasury, announced his resignation this week. Dreyer had been in the office only since June. The Director of the Federal Insurance Office holds a non-voting seat on the Financial Stability Oversight Council and represents the United States at the International Association of Insurance Supervisors. With Dreyer’s departure, FIO Deputy Director Steven Seitz will serve as acting director.
Coming Up in Washington:
Congress is out of town next week, and the Eris offices will be closed from Wednesday through Friday (though most of us will still be checking email). We wish you all a happy Thanksgiving. The Golden Apple will return on November 30.
November 20 FDIC Board of Directors meets to vote on several items, and discuss a Notice of Proposed Rulemaking on Proposed Changes to Applicability Thresholds for Regulatory Capital Requirements and Liquidity Requirements. 10:00 a.m., 550 17th Street NW.
November 29 Senate Banking Committee holds a hearing on “Combatting Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” 10:00 a.m., SD-538 Dirksen Senate Office Building.
The Ellis Insight. Jim Ellis reports on political news:
First Post-Midterm National Poll: Morning Consult and the Politico publication joined forces to test the national Democratic presidential primary, the first such released survey after the 2018 mid-term election. According to the result (11/7-9; 1,952 US registered voters; 773 Democratic primary voters), former Vice President Joe Biden jumps out to a lead with more than one-quarter support, but far from reaching the majority plateau. Mr. Biden commands 26% in the poll, followed by Vermont Sen. Bernie Sanders with 19%, and newcomer Beto O’Rourke, the Texas Congressman and defeated US Senate candidate, who posts 8% preference.
Sens. Elizabeth Warren (D-MA), Kamala Harris (D-CA), and Cory Booker (D-NJ), follow with 5, 4 & 3%, respectively. Former New York City Mayor Michael Bloomberg draws 2% support. Nine other candidates attracted just 1%, while four lesser known individuals did not even register on the poll.
Turnout Report: National voter turnout reports are surfacing and University of Florida professor Michael McDonald, who manages the United States Election Project, estimates that more than 115 million people will have voted in the 2018 midterm election when all of the results are final. This is an all-time record in terms of aggregate vote, and the eligible voter turnout percentage of an estimated 48.9% is the highest since the 1914 midterm.
By contrast in 2014, the national voter turnout was 83.2 million people, or just under 37% of the eligible voters. That total was the lowest in the post-World War II era. The 2016 presidential election saw almost 137 million voters cast a ballot, the highest aggregate ever.
Arizona: While Rep. Martha McSally (R-Tucson) conceded her US Senate battle to Rep. Kyrsten Sinema (D-Phoenix) on Monday, speculation is growing that she still may find herself in the Senate sooner rather than later. Should Sen. Jon Kyl (R) resign after the lame duck session, as he indicated that he would when he accepted Gov. Doug Ducey’s (R) appointment, Rep. McSally would be in prime position for the next appointment.
In any event, the Arizona seat will be in special election mode during the 2020 regular cycle. Sen. John McCain (R) was re-elected in 2016, meaning this seat will again come before the electorate for the six-year term in 2022. Therefore, the appointed Senator must stand before the voters in the next regular election. Among Democrats, two names are quickly surfacing as possible candidates. Former Republican Attorney General Grant Woods, who is now a Democrat, and US Rep. Ruben Gallego (D-Phoenix) are frequently being mentioned as possible special election contenders.
Florida: The recount deadline expired on Thursday, and 66 of Florida’s 67 counties submitted new totals after completing the machine recount process. The one county not complying, Palm Beach, did not meet the time requirement because of machine malfunctioning. Their antiquated system can only count races consecutively and not simultaneously.
Because of more than 174,000 ballots being mis-read or mis-counted and then the machines overheating, all 600,000+ votes must be resubmitted. In addition to the US Senate race being legally within the recount guidelines, so are the Governor and Agriculture statewide contests. In addition, Palm Beach County has one state House of Representatives race that is also in political limbo.
Counting Palm Beach’s original numbers, which were re-submitted at the deadline, Gov. Rick Scott (R) leads Sen. Bill Nelson (D) by 12,603 votes, an increase of 47 votes. The next step is constituting three-member canvassing teams in all counties who will review contested ballots and submit them to hand counting. Seven lawsuits have been filed regarding including or excluding pockets of ballots in the various counties, the largest vote cache in Broward County. Palm Beach is ordered to have its recounts submitted by 3 pm on Sunday.
Massachusetts: Sen. Ed Markey (D) announced this week that he will stand for re-election to a second full term in 2020, but it might not be without significant primary opposition. Though he claims to have no plans to challenge Sen. Markey, Rep. Seth Moulton (D-Salem) is not completely ruling out doing so. Before winning a special Senate election after then-Sen. John Kerry (D) became Secretary of State and clinching a full term in 2014, Sen. Markey served in the House for 37 years. He would again be rated as a heavy favorite in both the ensuing primary and general elections.
California: The Golden State’s voting system that allows voters to postmark their ballots on Election Day is again making California the last state in the union to call their races, and the process is likely to drag on for a much longer period of time. State and county authorities estimate that they have an astounding 3.4 million more mail ballots remaining to count. Adding to the approximately 8 million votes already tabulated would take the statewide voter turnout number to the 11.5 million range. In contrast, only 7.3 million voted in the 2014 midterm election. Almost 14.2 million participated in the 2016 presidential campaign.
CA-10; NJ-3: Two more congressional campaigns have been clinched. Both Reps. Jeff Denham (R-CA) and Tom MacArthur (R-NJ) have now lost their seats to Democratic challengers Josh Harder and Andy Kim, respectively. With these victories, it appears that the new Democratic majority could grow to as high as 235, meaning an increase of 40 seats. Five races remain uncalled, and Democrats look well positioned in at least three of the remaining undecided House campaigns, if not all.
CA-45 & 39: Though this race has not yet been officially called, it is appearing more likely that Rep. Mimi Walters (R-Irvine) will become yet another Republican casualty of the California vote. Now falling behind challenger Katie Porter (D) by just under 4,000 votes, the swing toward the Democrat has eclipsed 10,000 votes since the post-Election Day counting began. There could still reasonably be about 75,000 votes still to count, but the trends here favor a Porter victory.
If the open 39th District contest between Young Kim (R) and Gil Cisneros (D) also goes Democratic, although that election is still within 1,000 votes and Ms. Kim leading, the party will have converted six Republican seats in California alone when tabulations are finally completed at the end of the month.
CA-48: Though thousands of votes will be added to the final total, a projection was made in what should be the safely Republican 48th Congressional District, a seat fully contained within Orange County. Businessman Harley Rouda (D) defeated Rep. Dana Rohrabacher (R-Costa Mesa), ostensibly ending the Congressman’s 30-year political career. Mr. Rohrabacher’s strange ties to the Russian government and his many favorable comments about Russian President Vladimir Putin were a major reason for his defeat in addition to the national political climate.
ME-2: As expected, the Ranked Choice Voter system that allows people who vote for minor candidates to effectively have more voting power than those who support major party candidates changed the outcome of Maine’s 2nd District campaign. Now, Democratic state Rep. Jared Golden (D-Lewiston) will be declared the victor by just under 3,000 votes, as the second and third choices from the voters who supported the two independent candidates were factored in to the major party totals. The incumbent, Rep. Bruce Poliquin (R-Oakland/Bangor) has already filed a lawsuit against the instant run-off procedure.
MD-6: Democratic businessman David Trone (D) won the open district campaign last Tuesday, but just after his victory a federal court ruled that his congressional district boundaries constitute an illegal gerrymander. Should the ruling hold through the Appellate courts, the legislature will be forced to re-draw the seat, and any adjacent districts that the new boundaries affect. Thinking that the district may become more Republican, state Delegate Neil Parrott (R-Funkstown/ Hagerstown) announced that he is forming a 2020 congressional exploratory committee in order to possibly launch a federal campaign at a later date.
North Carolina: Democrats will end the decade again filing suit against the North Carolina congressional and state legislative maps, as they have done consistently since 2011. Even when they were successful in forcing a re-draw, the NC congressional map did not improve upon the 10R-3D split that Democrats have been attempting in vain to change.
Their chances are now considerably better. Armed with a new 5-2 majority on the state Supreme Court, the Democrats filed suit this week emulating the Pennsylvania strategy of challenging under the state constitution. The US Supreme Court refused to hear a challenge to such a Pennsylvania lawsuit last year, thus opening the door for other similar legal maneuvers. The North Canarolina Democrats are the first to make the subsequent move.
NC-9: Another close congressional was called, this one in the Charlotte, NC area. Here, Baptist former pastor Mark Harris (R) looks to have clinched about a 2,000-vote victory over businessman Dan McCready (D). It appeared that Mr. McCready was well positioned to score an upset, especially immediately after the May primary when Mr. Harris denied three-term Rep. Bob Pittenger (R-Charlotte) re-nomination. In electing a Republican, it appears this district defied the national trend.
TX-23: The TX-23 campaign result has been the most difficult to read. On election night, Rep. Will Hurd (R-San Antonio) had been projected as the winner. Later in the evening, the projection was rescinded, only to be later reinstated. Now, with Democratic challenger Gina Ortiz Jones challenging some ballots, the race appears to be undecided once again. The current count stands with Rep. Hurd holding an 1,150 vote edge over Ms. Jones from over 209,000 votes cast.
UT-4: In a lead for congressional challenger Ben McAdams (D), the Salt Lake County Mayor, that had grown almost to 9,000 votes, Rep. Mia Love (R-Saratoga Springs) appeared in grave danger of losing the congressional seat that she has represented for four years. But, post-election counting from the rural areas has seen her storm back, and she is now within 1,229 votes of Mr. McAdams.
At this point, Ms. Love is filing a lawsuit to halt the remaining counting so further signature verification can begin of each mailed ballot. Approximately 40,000 votes remain uncounted. Models are present suggesting that each candidate could ultimately win, but the more likely victor remains Mr. McAdams.
Florida: Continuing the Florida recount story (see Florida Senate above), the Governor’s race is much closer to concluding. The statewide recount, sans Palm Beach County, now finds former US Rep. Ron DeSantis (R) leading Tallahassee Mayor Andrew Gillum (D) by 33,683 votes. Since this race did not fall within ¼ percent after the recount, the three-member county canvassing process will not occur. Therefore, after Sunday, DeSantis will likely be declared the unofficial winner pending lawsuit resolution.
Kentucky: Now that the 2018 midterm elections are behind us, potential office seekers are now turning their attention toward 2019. The Kentucky Governor’s race will be on the ballot next year with Gov. Matt Bevin (R) presumably seeking re-election to a second term. He has already drawn opposition from Attorney General Andy Beshear (D), son of former Gov. Steve Beshear (D), now has company in the Democratic primary. State House Minority Leader Rocky Adkins (D-Sandy Hook) announced his gubernatorial campaign this Wednesday, and others are expected to join.
Louisiana: Attorney General and former US Congressman Jeff Landry (R), who appeared to be preparing a challenge to Gov. John Bel Edwards (D) next year, announced late this week that he will seek re-election to his current position. The move sends yet another signal that Sen. John Kennedy (R) will enter the race. Earlier in the week, Mr. Landry said he would not run for Governor if Mr. Kennedy chose to become a candidate.
The Senator has said he will make his political plans known before December 1st, but all indications now point to him running for Governor. Not having to run for re-election until 2022, Mr. Kennedy does not have to risk his Senate seat in order to run for Governor.