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

In Partnership with the Eris Group

Full speed ahead – The Senate worked late into the night last Wednesday to pass a budget reconciliation bill that the House passed Friday afternoon. The legislation includes a blueprint for the repeal of the Affordable Care Act (Obamacare) without the risk of a Senate filibuster. Both Senate and House votes closely followed party lines, setting a precedent we’ll expect to see recur often over the next two years.

Carson calls for “holistic” approach to housing issues – At Thursday’s confirmation hearing before the Senate Banking Committee, Dr. Ben Carson said that he would seek “holistic” solutions to issues such as public housing, veterans’ housing, and rental assistance. While he had few specific suggestions or policy goals, Dr. Carson said he believed that private alternatives could replace Fannie Mae and Freddie Mac, and that the private sector could offer an alternative to government guarantees for 30-year mortgages.

US, EU reach bilateral agreement on insurance regulation – Last Friday the Treasury announced that the United States and the European Union have agreed on standards of prudential oversight for insurers and reinsurers that operate in both the US and the EU. The agreement, required by Dodd-Frank, covers reinsurance, group supervision, and the exchange of insurance information between supervisors. It establishes that companies doing business in more than one country are subject to prudential oversight only by supervisors in their home jurisdiction, although regulators in host countries can request information about activities that might harm policyholders or financial stability in their territory.

House approves SEC reform bill – The House of Representatives voted last Thursday to pass H.R. 78, the SEC Regulatory Accountability Act. The bill would require the SEC to identify the specific problem a proposed regulation is meant to address, would require a cost-benefit justification for all proposed regulations, and would require all regulations to be written in plain English. The SEC will also have to review all its regulations every five years to make sure they are still relevant.

SEC announces 2017 exam priorities – Electronic investment advice tops the priority list for the SEC’s Office of Compliance Inspections and Examinations, released last Thursday. SEC Chair Mary Jo White, who leaves the office this week, said that the agency would continue to monitor a wide range of issues, “from traditional areas such as market-wide risks to new forms of technology including automated investment advice.” Examiners will also be looking at wrap fee programs that bundle advisory and brokerage services; expanding their focus on senior investors and those investing for retirement; and compliance with Regulation SCI and anti-money laundering initiatives, among other areas.

FHA lowers insurance premiums, draws fire – The Federal Housing Administration announced last Monday that it will lower its annual mortgage insurance premiums for most FHA-insured borrowers by 25 basis points, effective January 27. HUD Secretary Julián Castro said that “four straight years of growth” for the FHA’s Mutual Mortgage Insurance Fund had built reserves to a level that justified the reduction. House Financial Services Committee Chairman Jeb Hensarling (R-TX) called the move a “parting gift” from the Obama administration that puts taxpayers “at greater risk of footing the bill for yet another bailout.”

FINRA to seek comments on operations – Robert W. Cook, who took office last year as CEO and President of the Financial Industry Regulatory Association (FINRA), said last Monday that the organization will soon issue a public notice to ask for comments about how FINRA engages with its members and other stakeholders, and how it can improve the transparency of its operations. “We do a lot today to foster transparency and engagement, but my listening tour indicates to me that we may need to do more, or do it differently,” he said.

Senators Brown and Merkley challenge fintech charter plans – Senator Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, and Senator Jeff Merkley (D-OR) wrote to Comptroller of the Currency Thomas J. Curry last week to express concerns about the OCC’s plans to create a new federal charter for financial technology firms. A charter that provides only one type of financial service, they said, was at odds with the federal government’s efforts to make sure all Americans have access to basic banking services. They also worried that a new charter “could . . . allow predatory alternative financial services providers to spread more quickly.”

FSB issues policy recommendations for asset managers – The international Financial Stability Board made 14 policy recommendations to reduce systemic risk from asset management activities. The FSB identified liquidity mismatches, leverage, operational risk, and securities lending activities as the sources of structural vulnerability. Recommendations include stress testing, greater transparency, additional reporting, and monitoring of policies and practices.

This Week in Washington:

Between the Martin Luther King, Jr. holiday and the inauguration on Friday, DC has a short week, with a lot packed into it.

January 17
Senate Committee on Health, Education, Labor and Pensions (HELP) holds a hearing on the nomination of Betsy Devos to be Secretary of Education. 10:00 a.m., SD-430 Dirksen Senate Office Building.

January 18
Senate Commerce Committee holds a hearing on the nomination of Wilbur Ross to be Secretary of Commerce. 10:00 a.m., Room G50, Dirksen Senate Office Building.

January 18
Senate Committee on Health, Education, Labor and Pensions (HELP) holds a hearing on the nomination of Rep. Tom Price to be Secretary of Health and Human Services. 10:00 a.m., SD-430 Dirksen Senate Office Building.

January 19
Senate Finance Committee holds a hearing on the nomination of Steven Terner Mnuchin to be Secretary of the Treasury. 10:00 a.m., SD-215 Dirksen Senate Office Building.

January 20
Inauguration of Donald J. Trump as 45th President of the United States, 12:00 noon, U.S. Capitol.


The Ellis Insight. Jim Ellis reports on political news:

> President

President-Elect Donald Trump’s election is now official. After the Electoral College votes were reported to Congress, Democratic House members did raise protests in a last ditch attempt to contest certain electoral votes.

To lodge a protest, at least one member from both the House and Senate must jointly object. The houses then return to their respective chambers and debate the issue for no more than two hours. A vote is then taken whether or not to sustain the objection. Though many House Democrats comprised the group that lodged the complaint, the motion died because no Senator would join them. Therefore, the 2016 presidential election cycle has finally drawn to a close. Mr. Trump will be officially inaugurated as the nation’s 45th President on January 20th.

> Senate

Alabama:  Gov. Robert Bentley (R) provided some clues as to how he will handle the special election process when Sen. Jeff Sessions (R) is confirmed as the new Administrations’ Attorney General. Under Alabama election law, the Governor can schedule a special election any time before the next regular election, under certain parameters, and can also run it concurrently with the regular cycle. This latter option is Gov. Bentley’s choice, according to statements he made this week. Such a move means his eventual appointment will serve in the Senate through the 2018 election.

The eventual election winner will then continue through the balance of Sen. Sessions’ term before running for a full six-year term in 2020. There is no definitive indication as to whom the Governor may appoint. Attorney General Luther Strange (R) has already announced that he will run in the special Senate election, irrespective of who is appointed. He also says that he will, naturally, accept the appointment himself.

Pennsylvania: The Keystone State features both a Senator and Governor on the ballot for re-election in 2018. Republicans have a new sense of optimism in the state from helping to push Donald Trump over the top against Hillary Clinton, and re-electing Sen. Pat Toomey (R).

With most of the focus on the Governor’s race since incumbent Tom Wolf (D) appears more vulnerable than Sen. Bob Casey Jr. (D), one potential federal GOP candidate did come forward last week. Pittsburgh area state Rep. Bob Saccone (R) confirms that he is “seriously considering” challenging Sen. Casey. The only other names previously associated with the Senate race are businessman Paul Addis and US Rep. Pat Meehan (R-Chadds Ford), but both of them are also in the mix for Governor. The same is true for US Rep. Mike Kelly (R-Butler/Erie). Sen. Casey is a clear favorite for re-election, but the 2016 results certainly make the Pennsylvania prospects more attractive for potential Republican challengers.

Texas:  Rep. Beto O’Rourke (D-El Paso) is considering challenging Sen. Ted Cruz (R) next year. O’Rourke made some definitive statements about running early last week but, as time progressed, he became less committal. Rep. O’Rourke could be a relatively strong Democratic statewide candidate. Though Hillary Clinton performed relatively well in the state – she carried five of Texas’ largest metropolitan areas, for example – the Dems are still a long way from overcoming the Republicans’ inherent nine to ten point advantage that they have enjoyed for the better part of 20 years, and particularly so under a mid-term turnout model.

West Virginia:  Sophomore Rep. Evan Jenkins (R-Huntington) admits that he is considering challenging Sen. Joe Manchin (D) next year. Attorney General Tim Morrisey (R), who was just re-elected to his current position, is also a potential Senate candidate.  The fact that West Virginia is a virtual certainty to lose one of its three seats in the next reapportionment could be one reason Rep. Jenkins may look more seriously upon the 2018 statewide contest.

> House

CA-34:  Rep. Xavier Becerra (D-Los Angeles), Gov. Jerry Brown’s (D) appointment to replace Sen. Kamala Harris (D) as California’s Attorney General, was expected to clear his confirmation vote in the state Assembly last Friday. Under California procedure, both houses of the legislature must confirm gubernatorial appointees. The state Senate will next consider the Becerra confirmation. Once approved, he will resign from the US House in order to assume his new duties.

At that point, Gov. Brown will schedule the replacement special election in the safely Democratic district. Under state law, the election must occur between 126 and 140 days from the call date. State Assemblyman Jimmy Gomez (D) already looks to be the establishment Democrats’ pick. Even without an election being called, he has received public endorsements from Sen. Harris, Los Angeles Mayor Eric Garcetti, and state Treasurer and gubernatorial candidate John Chiang.

KS-4:  Anticipating the coming special election when Rep. Mike Pompeo (R-Wichita) is confirmed as CIA Director, GOP attorney George Bruce became the first individual to officially announce his congressional candidacy. There will be no primary to determine party nominees. Each party’s leadership can decide for themselves how the nominee is to be chosen. The Republicans will allow the 126-member 4th District Republican Committee to select the official special election contender. Democrats have yet to announce a nomination system, but their nominee will be at a decided disadvantage in the special general election.

This seat will likely be the first filled because Kansas has a short special election cycle. State law mandates that the entire process must be completed within a 45-60 day window from the election call date. This means, if Rep. Pompeo is confirmed in February that the replacement vote will be held sometime in April.

MT-AL:  Former gubernatorial nominee Greg Gianforte (R), a wealthy businessman who held Gov. Steve Bullock (D) to a 50-46% re-election victory in November, is taking steps to run for the at-large special election nomination after Rep. Ryan Zinke (R-Whitefish) is confirmed as US Interior Secretary. Reportedly helping Gianforte contact Republican Party convention participants who will choose the nominee is Sen. Steve Daines (R), which would suggest that members of the state’s GOP leadership are beginning to line up behind Gianforte.

TX-3: Thirteen-term Rep. Sam Johnson (R-Plano), also a 29-year Air Force veteran, seven of which spent as a Viet Nam prisoner of war, announced that he will not seek re-election in 2018. In addition to what will be 26 years of service in Congress, he was also elected four times to the Texas House of Representatives. The 3rd District sits to the north and east of Dallas, and encompasses the cities of Plano, McKinney, and Frisco. Most believe the leading candidate will be state Senator Van Taylor (R), but the lawmaker says he will not make any future political decision until the legislative session concludes later this year.

> Governor

New York:  State Senate Majority Leader Michael Flanagan (R) is reportedly considering challenging Gov. Andrew Cuomo (D). The Governor has yet to announce he is running for a third term, but it is assumed he will do so and his robust campaign treasury provides further evidence of a budding campaign. Sen. Flanagan and Gov. Cuomo have allied to pass several key pieces of legislation, but that is apparently not stopping the legislative leader from looking toward a statewide confrontation. Westchester County Executive Rob Astorino (R), who lost 53-39% to Gov. Cuomo in 2014, is also considering another run.

Oregon:  State Rep. Knute Buehler (R) is a presumed candidate for Governor. Though the state legislator neither confirms nor denies he is running, he is highly active on the campaign fundraising circuit, thus providing further clues of his intentions. Gov. Kate Brown (D), serving the final two years of resigned Gov. John Kitzhaber’s (D) term, is expected to seek a full four-year term in 2018.

Texas:  Rumors were surfacing that Lt. Gov. Dan Patrick was contemplating a Republican primary challenge to Gov. Greg Abbott. Such talk quickly ended last week when Mr. Patrick declared he will seek re-election, and quickly endorsed Gov. Abbott for a second term.