Your Weekly Report on the Discord from Washington, D.C.

In Partnership with the Eris Group

Help Wanted – Looking for a job? If you submitted a resume to President-Elect Trump’s transition team immediately after the election, you might want to send them another one, as they’ve had a management change. Vice President-Elect Mike Pence took over as head of the transition team two Fridays ago, and has reportedly dismissed many of the “landing team” members hired by Governor Chris Christie. Last week the team announced the appointments of Reince Preibus as White House Chief of Staff, Steve Bannon as Senior Advisor, Senator Jeff Sessions (R-AL) as Attorney General, retired Lt. General Mike Flynn as Assistant for National Security, and Rep. Mike Pompeo (R-KS) as director of the CIA. Meanwhile, SEC Chair Mary Jo White and Director of National Intelligence James Clapper announced their resignations last week. One of those was expected.

Schumer to Succeed Reid as Democratic Leader – Senate Democrats met last Wednesday to elect new leadership. Senator Chuck Schumer (D-NY) will succeed the retiring Sen. Harry Reid (D-NV) as Minority Leader. Senator Richard Durbin (D-IL) will be Minority Whip, while Senator Patty Murray (D-WA) will serve as Assistant Democratic Leader. Senator Debbie Stabenow (D-MI) will replace Senator Schumer as Chair of the Senate Democratic Policy and Communications Committee.

White’s Agenda: Consolidated Audit, Derivatives, Swaps and E-Dislosure – In her last appearance before the House Financial Services Committee on last Tuesday, Securities and Exchange Commission Chair Mary Jo White said that she hopes to complete work on the consolidated final audit plan, which the agency approved last Tuesday afternoon; approve the proposed rule on capital, margin and segregation requirements for swaps dealers under Title VII of Dodd-Frank; finalize the proposed rule on use of derivatives; and figure out how to allow electronic disclosure for mutual fund providers. Members of the Committee thanked her for her service, but several warned against rushing to promulgate new rules before Inauguration Day.

House Leadership Warns Administration Officials Against Rulemaking – Also last Tuesday, House Majority Leader Kevin McCarthy (R-CA) and the chairs of all the House committees wrote to the “Secretaries, Administrators, Directors and Commissioners” at the head of executive agencies to “caution” them not to finalize pending rules in the last days of the Obama Administration. “Should you ignore this counsel, please be aware that we will work with our colleagues to ensure that Congress scrutinizes your actions – and, if appropriate, overturns them.”

SEC Approves NMS Plan for Consolidated Audit Trail – We don’t know whether Chair White got the House letter before the Securities and Exchange Commission met last Tuesday afternoon, but the three members of the panel voted unanimously to finalize a national market system (NMS) plan to create a single, comprensive database that will give regulators a consolidated audit trail. The self-regulatory organizations (SROs) now have two months to choose a plan processor to build and operate the consolidated audit trail.

SEC Forum Looks at Regulating FinTech – The Securities and Exchange Commission hosted a day-long forum last Monday on the regulatory issues raised by innovation in the financial services industry. Panels of industry stakeholders and regulators discussed FinTech as a disruptive force in our markets, and how innovations can increase access to markets, improve transparency, and make transactions more efficient. With many of these technologies in their infancy, participants focused on how regulation can be a positive influence on the industry’s development.

Fed May Tweak Stress Tests, Will Probably Raise Rates – Federal Reserve Board Chair Janet Yellen defended the Fed’s annual stress tests at a hearing of the Joint Economic Committee last Thursday, saying that the GAO had found the tests to be generally effective, and that the Fed had already begun to make several of the changes the GAO suggested. She also said that she has no intention of resigning before her term ends in January 2018. Pointing to several positive economic indicators, Yellen told the Committee that might move on interest rates “relatively soon.” The Federal Open Market Committee meets again on December 13-14.

CFPB Seeks Comment on Access to Consumer Data – At a field hearing last Thursday in Salt Lake City, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said that the agency is looking at who should have access to consumers’ digital financial data, and how. While digital records are convenient for both consumers and service providers, Director Cordray said that “banks, credit unions, and others that house this information have operational concerns about when and how they are supposed to share the information with third-party providers.” The agency is asking for comment on the issue, with responses due in mid-February.

Nasdaq Names Friedman as New CEO – Nasdaq’s board of directors announced Monday that veteran Nasdaq staffer Adena Friedman, currently the organization’s President and Chief Operating Officer, will become CEO and join the board on January 1. Friedman succeeds Bob Greifeld, who will move over to become Chairman of the Board. Her career at Nasdaq began in 1993 and included service as Head of Data Products, Head of Strategy, and Chief Financial Officer. She also spent three years with The Carlyle Group, where she was CFO.

FDIC Finalizes Rule on Large-Bank Depositor Reimbursements – Last week the Federal Deposit Insurance Corporation (FDIC) approved its final rule to speed up access to deposits after the failure of a large bank. The rule requires insured depository institutions with more than 2 million deposit accounts to maintain complete and accurate information on each depositor, and be able to calculate the amount of insured funds in each account within 24 hours of a failure. The FDIC says the new rule will apply to 38 financial institutions.

Minneapolis Fed Unveils Plan to End Too-Big-to-Fail – Neel Kashari, President of the Federal Reserve Bank of Minneapolis, announced the bank’s proposal to end the dilemma of banks that are too big to fail, which “still exists today because current plans to address it have not been fully implemented.” The answer, Kashari told the Economic Club of New York, is to increase capital requirements significantly, and narrow the definition of equity capital to common equity and related items. At the same time, the plan proposes to tax the borrowings of large nonbank financial firms in order to prevent risky activities from fleeing to “shadow banks.” The Minnesota plan would also end the designation of banks with adequate capital ratios as “systemically important,” and reduce unnecessary regulatory burden on community banks.

Fed Expands Employment Restrictions for Departing Examiners – A larger group of bank examiners will now be subject to rules that prohibit them from working for the banks they supervised, under a change announced last Friday by the Federal Reserve System. An existing rule sets a one-year moratorium on “senior bank examiners” from working for the banks they had “primary responsibility” for supervising. The Fed had applied this rule primarily to central points of contact (CPCs) with banks with more than $10 billion in assets; now it applies a much wider range of examiners, more than doubling the number affected. Another new policy forbids ex-Reserve Bank officers from representing financial institutions and other third parties before the Fed for one year after leaving their position.
Coming up in Washington (and elsewhere):

Congress is out of town this week, and our offices will be closed on Thursday and Friday for Thanksgiving. We are thankful for you, among many other things, and wish you all a happy holiday.

The Ellis Insight. Jim Ellis reports on election-related news:

> President

It is now certain that the 2016 election will set an all-time turnout record. Right now, 130,945,796 individuals are recorded as voting in the presidential election. This already exceeds the 2012 final turnout number of 129,172,069 voters. The highest number of people ever participating in a US presidential election is 131,426,292. With more than 3.5 million ballots remaining to be processed in California alone, the Trump-Clinton presidential race now establishes a new high in voter participation.

The state of Michigan remains uncalled, but Donald Trump’s lead of 11,612 votes will likely survive the statewide canvassing procedure necessary to verify the final count in all 83 counties. Under Michigan election procedure, the contest has not yet been called because the end result is within one percentage point (47.6 – 47.3%), meaning a re-count can be requested. Once the period for requesting the re-count expires, the election will be called, but that will stretch after Thanksgiving.

It is unlikely that what’s left of the Clinton campaign will decide in favor of a re-count. Since Trump has already secured national victory irrespective of what happens in Michigan, it will matter little whether the state flips to Clinton.

> Senate

Florida: Turning to the 2018 Senate race, term-limited Gov. Rick Scott (R) again intimates that he is considering challenging Sen. Bill Nelson (D) in two years. For his part, Nelson says he welcomes the challenge and confirms he will seek re-election. He is still a retirement possibility, however. The Senator will be 76 years of age at the 2018 election, and in that year he will complete 30 years of congressional service when combining his years in the Senate and House. In 2012, Sen. Nelson won re-election to a third term, defeating then-Rep. Connie Mack IV (R-FL-19), 55-42%.

Nevada: Though Republicans only have to defend eight of their Senate seats in 2018, one of their most vulnerable seats is undoubtedly Nevada. Now Sen. Dean Heller (R) is not ruling out a run for what will be an open Governor’s chair. Incumbent Brian Sandoval (R) is term-limited, so Heller will have his choice as to whether he seeks re-election or makes a move for Governor.

South Carolina: Another Senator potentially looking at an open gubernatorial campaign is Sen. Tim Scott (R). Re-elected to a full six-year term last week, Sen. Scott was originally appointed in 2013, and won election to fill the balance of resigned-Sen. Jim DeMint’s (R) term in 2014. Should he attempt to succeed term-limited South Carolina Gov. Nikki Haley (R), it will mean Mr. Scott would conduct three statewide campaigns in the course of three consecutive election cycles. Should Scott be elected Governor, he would then be able to appoint his own successor in the Senate.

Wisconsin: Gov. Scott Walker (R), who is eligible to seek a third term and is likely to run again, closed the door this week on a potential 2018 challenge to first-term Sen. Tammy Baldwin (D). With Gov. Walker not posing a threat to the GOP nomination, it appears the person most likely to run for Senate is Rep. Sean Duffy (R-WI-7). The Congressman was just re-elected to a fourth term from his rural northwestern Wisconsin seat on November 8th, garnering 62% of the vote. Previously, Democratic Rep. David Obey held this district for the previous 42 years. Sen. Baldwin won her Senate term in 2012 in a 51-46% victory over former-four-term Gov. Tommy Thompson (R).

> House

CA-7: The laborious California counting process continues in this uncalled race. Rep. Ami Bera (D-Elk Grove/Sacramento) continues to lead Sheriff Scott Jones (R) by a 51-49% margin. It appears there are still potentially 67,000+ votes to tabulate. To overtake Rep. Bera, Mr. Jones would have to obtain approximately 53% of the remaining votes. It is likely that Mr. Bera will win another close election once the counting process finally concludes. This is the third consecutive election in which the Congressman has endured a long “political overtime” process.

CA-49: Rep. Darrell Issa (R-Vista) is in a similar position to Rep. Bera in his San Diego/Orange County district. He leads retired Marine Colonel Doug Applegate (D), 51-49%, with possibly as many as 88,000+ ballots remaining to be counted. Applegate would have to score 52.5% of the vote in order to defeat Rep. Issa. The final margin is expected to narrow, however, because Applegate actually has a lead in the counted San Diego County portion of the district, which represents 77% of the population. Issa exceeds 61% of the Orange County vote, but less than 9,000 votes remain to be counted there. If current trends continue, the Congressman should win re-election to a ninth term but in less than a 2,000-vote spread.

ID-1: Rep. Raul Labrador (R-Eagle/Boise) confirms that he is considering a bid for Governor in 2018. Gov. Butch Otter (R) is pledging to retire after three terms at the next election. Should he run, Rep. Labrador can expect a competitive statewide primary battle. A potential open 1st Congressional District campaign would also attract a wide array of Republican candidates. Mr. Labrador was re-elected to a fourth term two weeks ago with 68% of the vote.

LA-3: The double-Republican race between Public Service Commissioner and former gubernatorial candidate Scott Angelle and retired Lafayette police captain Clay Higgins, who now serves as Deputy Marshal for the city, continues. Twelve candidates ran in the open jungle primary on November 8th, and Angelle and Higgins placed first and second with 29 and 26% of the vote, respectively. Since both are Republicans, the GOP is guaranteed to hold Rep. Charles Boustany’s (R-Lafayette) open seat in the December 10th run-off election. The Congressman ran an unsuccessful race for US Senate. The 3rd District primary result was viewed as an under-performance for Angelle, who finished a strong third in the 2015 gubernatorial race. He is viewed now as only a slight favorite to win the run-off, but will again have a huge campaign resource advantage. Higgins spent just over $200,000 for the primary as compared to more than $1.3 million from Angelle.

LA-4: Though Democrat J. Marshall Jones Jr. placed first in the jungle primary, the favorite to win the December 10th run-off in this strongly Republican open district is second place finisher Mike Johnson (R), a Bossier City state Representative. Jones finished first in the Shreveport anchored jungle primary with 28%, followed by Johnson’s 25%. The remaining six candidates split the outstanding 47% of the vote. Since 69.8% of the 285,985 voters on November 8th chose a Republican candidate, the likelihood is strong that Mr. Johnson will be elected in the run-off election.

KS-2: Rep. Lynn Jenkins (R-Topeka) chose not to seek re-election as House Conference Vice Chair because she says she wants to concentrate on the high level legislation that will be passing through the Ways & Means Committee, especially the major tax reform package. While this certainly may have entered into her decision to exit the House leadership, a stronger reason is her testing the waters for a 2018 gubernatorial run. Gov. Sam Brownback (R), whose approval numbers are reaching an all-time low, is ineligible to run for a third term. Though Rep. Jenkins was re-elected with 61% of the vote ten days ago in her 2nd District, this Topeka/Lawrence seat can be marginal in an open situation.

SD-AL: Our first open seat of the 2018 cycle has already come into focus. At-large Rep. Kristi Noem (R-Castlewood) announced that she will become a candidate for Governor in the open contest two years from now. Rep. Noem made such an early announcement because of a new campaign finance law that was already taking effect. Because she became an official 2018 gubernatorial candidate before the new initiative that limits statewide campaign contributions to $4,000 took effect, Rep. Noem was able to transfer the $1.9 million from her congressional campaign account into a new gubernatorial committee. She will face strong primary opposition in the Governor’s race, and an open at-large congressional campaign is certain to attract many candidates from both parties.

> Governor/Legislature

The lone remaining uncalled Governor’s race began the canvassing period, which will determine whether North Carolina incumbent Gov. Pat McCrory (R) can overcome Democratic Attorney General Roy Cooper’s 4,772 vote lead. It is likely that McCrory will be defeated in the final count. Despite the loss, Republicans will have gained a net two gubernatorial chairs, taking Democratic governorships in Missouri, New Hampshire, and Vermont, and expanding their national partisan division advantage to 33-16-1, which will be an all-time high for the GOP.

Perhaps the most important unwritten story of the November election is the Republicans expanded dominance in state legislatures. Now Republicans control 66 legislative chambers of the nation’s 99 state Houses and Senates. The Nebraska unicameral legislature is elected on a non-partisan basis, but there is no doubt Republicans control that chamber, too. If the final count in the New York Senate allows the GOP to keep their tenuous hold on that body, the party division will expand to 68 Republican chambers.

The GOP’s strength at the legislative level is important because the 2020 census, reapportionment, and redistricting period are beginning to come into focus. The fact that the GOP controls so many chambers, and if they can hold them through the next two elections, means that the party will again control the redistricting pen. This could result in not only continued Republican control in state legislatures through as long as, perhaps, 2032, but it gives the GOP the ability to maintain a US House majority during that long period, as well.