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

In Partnership with the Eris Group

Blame the supermoon. Apparently last Wednesday’s new moon was a supermoon, an especially close point in the moon’s orbit around the planet that produces unusually high tides. We at The Golden Apple do not hold with astrology, being double Scorpio with Gemini in the ascendant, but it’s comforting to imagine a cosmic explanation for the chaos of the past week.

Time for CHOICE — “It is time again to hold Washington accountable; it’s time to hold Wall Street accountable; it is time for economic growth for all; it is time for bank bailouts for none.” With those words, House Financial Services Committee Chairman Jeb Hensarling (R-TX) put the Financial CHOICE Act of 2017 on the fast track. He formally introduced the 589-page bill last Wednesday as H.R. 10, at the first of two hearings last week. While Financial Services has primary jurisdiction over the bill, it has also been referred to the House Committees on Agriculture, Ways and Means, the Judiciary, Oversight and Government Reform, Transportation and Infrastructure, Rules, the Budget, and Education and the Workforce.

Last Wednesday’s hearing featured testimony from academics and think-tank experts who differed sharply in their opinions about the effects of Dodd-Frank on the financial system and the economy. Peter J. Wallison of the American Enterprise Institute and John Allison of the Cato Institute argued that bad housing policies caused the financial crisis, and that Dodd-Frank was an attempt to remedy, unnecessarily, a different set of issues. Dr. Norbert Michel of the Heritage Foundation said that Dodd-Frank had needlessly raised borrowing costs. Alex Pollock of the R Street Institute and Hester Peirce of the Mercatus Center said that the CHOICE Act would provide critically important regulatory burden relief to community banks, while Dr. Lisa D. Cook of Michigan State University and Michael S. Barr of the University of Michigan Law School said that the CHOICE Act would reinstate many of the circumstances that created the financial crisis.

A second hearing last Friday showcased Democratic views of the CHOICE Act, including testimony from Senator Elizabeth Warren, who called the bill “a 589-page insult to working families.” A ten-member panel of witnesses representing labor and consumer groups, state securities regulators, housing advocates, and institutional investors praised the work of the Consumer Financial Protection Bureau and expressed concern about increased risk exposure to small investors under the CHOICE Act.

So what would this bill do? An executive summary is online here, but major provisions include:

  • Replacing Dodd-Frank’s Orderly Liquidation Authority for large, complex financial institutions with a new chapter of the bankruptcy code
  • Eliminating the Financial Stability Oversight Council’s authority to designate firms as “systemically important financial institutions”
  • Rescinding certain nonbank firms’ access to the Federal Reserve discount window
  • Increasing penalties for self-dealing and criminal fines for insider training
  • Repealing the Chevron doctrine, which defers to a regulatory agency’s interpretation of its own enabling statute
  • Reorganizing the SEC
  • Repealing the Volcker Rule
  • Allowing financial institutions to exempt themselves from Basel III standards and other Dodd-Frank supervisory standards as long as they maintain certain capital and liquidity standards
  • Restructuring the Consumer Financial Protection Bureau into the Consumer Law Enforcement Agency, eliminating its supervisory authority and making it an executive branch agency with a director who serves at the will of the President
  • Repealing the Department of Labor’s fiduciary rule

The bill also includes dozens of capital formation and regulatory burden relief bills that have already passed the Committee or the House in some form.

Votes on the bill seem likely to line up along party divisions, although several its provisions have passed the Committee on a bipartisan basis. At last Wednesday’s hearing, Rep. Brad Sherman (D-CA) urged Chairman Hensarling to break up the bill, rather than force an up-or-down vote on the entire package.

State regulators seek to block OCC fintech charter — The Conference of State Bank Supervisors (CSBS) filed a complaint in US District Court last week against the Office of the Comptroller of the Currency (OCC), seeking to prevent the agency from creating a national bank charter for nonbank companies. “The OCC’s proposed action ignores Congress, seeks to preempt state consumer protection laws, harms markets and innovation, and puts taxpayers at risk of inevitable fintech failures,” said CSBS President and CEO John Ryan. In a speech last Friday at a conference on fintech and the future of finance, Comptroller of the Currency Thomas J. Curry responded by saying that “the business of banking is dynamic and I would urge caution to anyone who wants to define banking as a static state. Such a view risks choking off growth and innovation.” The OCC has been too risk-averse, Curry said, and needs to be more open to inevitable change.

Portman, Heitkamp introduce bipartisan regulatory reform bill — Senators Rob Portman (R-OH) and Heidi Heitkamp (D-ND) introduced the Regulatory Accountability Act last Wednesday, seeking to modernize regulatory processes across the federal government, some for the first time in 70 years. The bill would require cost-benefit analyses of new regulations, and would allow federal agencies to conduct hearings on any rule that would cost an industry more than $1 billion a year. It would impose new transparency requirements on the rulemaking process, and require an automatic review of major regulations every 10 years. It would also require the codification of certain executive orders, to provide greater certainty to businesses, consumers and the agencies themselves.

Patenaude named Deputy Secretary of HUD — President Donald Trump submitted five nominations to the Senate last Friday, including that of Pamela Hughes Patenaude to serve as Deputy Secretary of Housing and Urban Development. Ms. Patenaude is currently President of the J. Ronald Terwilliger Foundation for Housing America’s Families, which she co-founded in 2014. She was previously director of housing policy at the Bipartisan Policy Center. She served as HUD’s White House liaison under President Ronald Reagan, and was assistant secretary of HUD for community planning and development under President George W. Bush.

House panel begins BSA hearings with FinCEN review — The House Financial Services Subcommittee on Terrorism and Illicit Finance began a series of hearings on the Bank Secrecy Act last week with testimony from Jamal El-Hindi, Acting Director of Treasury’s Financial Crimes Enforcement Network (FinCEN). The hearing reviewed recent updates to the bureau’s information systems, which should improve data security and reduce unnecessary data collection. Opportunities remain to improve information-sharing, El-Hindi said, especially among financial institutions. The subcommittee’s ranking member, Rep. Ed Perlmutter (D-CO), asked for affirmation of the bureau’s guidance on transactions with marijuana-related businesses; El-Hindi said that he believes the guidance helps financial institutions distinguish between illicit activities and those that are legal under state laws.

House unanimously approves FOIA access to Fannie and Freddie records — The House of Representatives voted 425-0 yesterday to approve H.R. 1694, the Fannie and Freddie Open Records Act of 2017. The bill would allow public access to Fannie’s and Freddie’s records during any period that either enterprise is under conservatorship or receivership, with an exemption for trade secrets and commercial or financial information.

Senators demand continued SEC enforcement of conflict minerals rule — Senators Cory Booker (D-NJ), Sherrod Brown (D-OH), and Richard Durbin (D-IL) led a group that included Senators Chris Coons (D-DE), Patrick Leahy (D-VT), and Elizabeth Warren (D-MA) last week on a letter to the Securities and Exchange Commission demanding that the agency continue to enforce the Conflict Minerals Rule. The rule, which was included in Dodd-Frank, requires businesses that use materials from areas in conflict to make sure that their supply chain does not fund armed groups. SEC Commissioner Michael Piwowar instructed agency official to stop enforcing the rule earlier this month. The Senators strongly objected, saying the decision has no legal basis: “We note the dangerous precedent set when an Acting Chairman decides which laws the SEC should enforce . . . We urge you immediately to rescind your directive, and allow full enforcement of the Conflict Minerals law and rule.”

Fed to restructure its large bank supervision — The Wall Street Journal reported last week that the Federal Reserve has begun to make changes to its Large Institution Supervision Coordinating Committee (LISCC), which moved authority from the individual Federal Reserve Banks to the Board of Governors. The reported changes will streamline the LISCC’s six subgroups, and will improve the coordination of regional examiners’ work with directives from the Board. “This is a good time to step back and ask what changes have worked and where adjustments should be made,” Federal Reserve Board Governor Jerome Powell said two weeks ago at the Global Finance Forum. “Some aspects of the new regulatory program are proving unnecessarily burdensome and should be better tailored to meet our objectives.”

This Week in Washington:

May 2 
House Financial Services Committee begins to mark up H.R. 10, the Financial CHOICE Act of 2017. The markup will continue on subsequent days if necessary. A section-by-section summary of the bill is here. 10:00 a.m., 2128 Rayburn House Office Building.

May 2
Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “Examining the US-EU Covered Agreements.” Witnesses include representatives of state and federal regulatory agencies, the insurance industry, and academic experts. 10:00 a.m., SD-538 Dirksen Senate Office Building.

May 3
House Appropriations Subcommittee on Financial Services and General Government holds an oversight hearing on the IRS. The witnesses will be J. Russell George, Treasury Inspector General for Tax Administration, and Nina E. Olson, National Taxpayer Advocate, IRS. 1:00 p.m., 2362-A Rayburn House Office Building.

May 4
Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on reauthorization of the National Flood Insurance Program. Witnesses include Steve Ellis, Vice President of Taxpayers for Common Sense; Michael Hecht, President & CEO of Greater New Orleans, Inc.; and Larry Larson, Director Emeritus and Senior Policy Advisor of the Association for State Floodplain Managers. 10:00 a.m., SD-538 Dirksen Senate Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Alabama:  As expected, the new special Senate primary election scheduled for August 15th is already drawing several Republican opponents for appointed Sen. Luther Strange (R), likely with more to follow. Now in the race, or forming exploratory committees, are state Rep. Ed Henry, who began the impeachment offensive against resigned Gov. Robert Bentley (R), former Alabama Christian Coalition president Dr. Randy Brinson, and defeated state Rep. Perry Hooper.

None of the congressional Republicans have yet stepped forward, but it wouldn’t be surprising to see one or more enter the race, since they don’t have to risk their seats to do so. If no one wins a majority Republican vote in August, the top two will advance to a run-off election on September 26th. The special general is set for December 12th. Little is occurring on the Democratic side.

Nevada:  Businessman Steve Cloobeck, a self-funding potential candidate who was considering launching a challenge to Sen. Dean Heller (R), announced last week that he would not enter the race. Then, in a surprising move, Mr. Cloobeck actually endorsed Heller for re-election, saying that he doesn’t agree with the Republican incumbent on core issues, but appreciates the Senator’s “businesslike approach to politics and legislation.”  Though this should be the Democrats’ top national conversion target, they currently have no credible candidate to challenge Mr. Heller.

Pennsylvania:  Wealthy real estate executive Jeff Bartos (R) announced that he will enter the US Senate race, hoping to oppose Sen. Bob Casey Jr. (D) in the general election. Mr. Bartos joins Pittsburgh area state Reps. Rick Saccone and Jim Christiana in the race. Despite President Trump winning here last November, and Sen. Pat Toomey (R) also being re-elected, challenging two-term Sen. Casey has not drawn major activity as yet. This will likely change, but the Pennsylvania race is toward the bottom of the viable Republican conversion target list.

> House

CA-22:  Democrats have recruited a legitimate candidate to take a run at House Intelligence Committee chairman Devin Nunes (R-Tulare). Fresno County Assistant District Attorney Anthony Janz (D) says he will run for Congress next year. Though this will likely be Mr. Nunes’ most competitive challenge since he came to the House in 2002, the district is solidly Republican and the Congressman has averaged 72.5% in his eight federal elections.

CA-32:  Ten-term Rep. Grace Napolitano (D-Norwalk) announced that she will seek re-election next year. The Congresswoman, 80 years of age, suffered a minor stroke last year, thus adding to retirement rumors. She should have little trouble winning the general election but it could well be against another Democrat as a result of California’s jungle primary system.

IL-13:  Three-term Rep. Rodney Davis (R-Taylorville) has performed well in his central Illinois seat, but this is still politically marginal territory. Therefore, he will always draw Democratic interest. State Rep. Carol Ammons (D-Champaign) last week formed an exploratory committee to assess her chances of unseating the Congressman. Frequent candidate David Gill is already in the race, but could easily switch to running as an Independent, as he has previously done. This could become a race to watch, but Rep. Davis begins this cycle as a strong favorite for re-election.

MI-11:  Sophomore Rep. David Trott (R-Birmingham/Livonia) has drawn a significant 2018 opponent in his low 50s Detroit metro area district. Against an opponent who spent just under $1.2 million last year, Rep. Trott scored a 53-40% win. His new challenger is President Obama’s Auto Task Force chief of staff Haley Stevens (D) who made her candidacy official late last week. This race has some potential to become competitive.

MN-7:  Veteran Rep. Collin Peterson (D-Detroit Lakes/Western Minnesota), a retirement possibility for the past several election cycles, announced that he will seek a 15th term next year. Though a Democrat, Mr. Peterson represents the strongest Trump district (62%) in Minnesota. It is highly likely the GOP would easily capture the seat had he decided to vacate. The Congressman was only re-elected with 52% of the vote against a candidate who spent only in the $20,000 range. Therefore, it is likely the Republicans will run a stronger campaign against him in 2018, but clearly Mr. Peterson seeking re-election is the Democrats’ best ticket to holding what should be a GOP seat.

MT-AL:  Despite heavy campaigning in anticipation of the May 25th special election to replace Interior Secretary Ryan Zinke (R) in the state’s at-large House seat, no poll had been released until last week. The Emerson College Polling Society made public the results of their statewide survey (4/20-21; 648 MT-AL likely voters), which provides good news to Republican nominee Greg Gianforte. The results find the GOP candidate holding a strong 52-37% lead over Democrat Rob Quist, a country rock singer who is well known throughout the Rocky Mountain region. Both candidates have raised over $1.5 million, meaning this campaign will be highly active until its conclusion one month from now.

VA-10:  The Democratic challenger list forming against Rep. Barbara Comstock (R-McLean) continues to grow. Now, Virginia First Lady Dorothy McAuliffe (D) confirms that she is seriously considering entering the primary battle for the right to face the two-term Republican incumbent in the 2018 general election.

Already state Sen. Jennifer Wexton (D), ex-Fairfax County Education Association president Kimberly Adams, Iraq War veteran Don Helmer, and former Veterans Administration official Lindsey Davis Stover have announced their candidacies. To follow through on their commitment when they helping recruit her into the race, Reps. Donald McEachin (D-Henrico) and Gerry Connolly (D-Fairfax) both immediately endorsed Sen. Wexton. The 2016 campaign here was one of the most expensive in the country. Rep. Comstock pulled 53% of the vote in November, an impressive total considering President Trump lost this swing northern Virginia district by a full ten percentage points.

> Governor

Alabama:  With new Gov. Kay Ivey (R) installed in office, she is already beginning to solidify her position as the incumbent. Former Auburn football coach Tommy Tuberville (R), who had already filed a gubernatorial exploratory committee when the position was headed for open seat status, announced he would not run now that Ms. Ivey assumed the Governorship and can seek election in 2018. State Senate President Del Marsh (R), another would-be open seat gubernatorial candidate, also said he will not challenge Gov. Ivey but is likely to become a special election US Senate candidate.

Colorado:  A major Democratic primary could be brewing in the open race to succeed term-limited Gov. John Hickenlooper (D). Potentially joining the primary contest is Rep. Jared Polis (D-Boulder), who said last week that he is “seriously considering” becoming a gubernatorial contender. Already announced is Rep. Ed Perlmutter (D-Golden), so Polis joining would create a major battle featuring two Democratic Congressmen whose districts share common borders. The most prominent announced Republican is Arapahoe County District Attorney George Brauchler. This race promises to be competitive throughout the entire election cycle.

Georgia:  Former US Rep. Jack Kingston (R-Savannah) is making moves to join what is becoming a crowded field in the open Republican gubernatorial primary. Already in the race is Lt. Gov. Casey Cagle, Secretary of State Brian Kemp, and state Sen. Hunter Hill. Mr. Kingston served 22 years in the House, and lost a close Senate run-off in 2014 to the eventual general election winner, businessman David Perdue. Gov. Nathan Deal (R) is ineligible to seek a third term.

Maryland:  Democrats have their first official challenger for GOP Gov. Larry Hogan Jr. Baltimore businessman Alec Ross, well known in the Maryland high tech community, announced that he will enter next year’s gubernatorial contest. Gov. Hogan has strong job approval ratings, but Maryland is one of the strongest Democratic states in the nation so no Republican can ever be considered a safe bet for re-election.

Ohio:  Buckeye State voters may well see the return of former Representative and Cleveland Mayor Dennis Kucinich (D). Though he has not indicated he is planning to enter the open Governor’s race, he is traveling through the state with a candidate-like schedule speaking about issues. Already in the Democratic primary race is former Rep. Betty Sutton (D-Copley), newly-resigned state Senate Minority Leader Joe Schiavoni, and ex-state Rep. Connie Pillich. Republicans feature Lt. Gov. Mary Taylor, Attorney General and US Senator Mike DeWine, and Rep. Jim Renacci (R-Wadsworth). Secretary of State Jon Husted is also expected to join the race.

Kucinich is now a gadfly candidate who was last on the ballot in the 2012 US House race, a losing effort after being paired with Rep. Marcy Kaptur (D-Toledo). Still, he has a small constituency that could matter in a crowded primary if the votes split fairly evenly among the multiple candidates.