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

In Partnership with the Eris Group

Senate Banking Committee approves OCC, Fed nominations — The Senate Banking Committee voted 17-6 last Thursday to approve the nomination of Randal Quarles to serve as a member of the Federal Reserve System, and as vice chair of supervision. They approved the nomination of Joseph Otting to serve as Comptroller of the Currency by a vote of 13-10. They also agreed by voice vote to send S. 1463, the FSOC Insurance Member Continuity Act, to the Senate floor.

House panel starts work on regulatory reform measures — The House Financial Services Subcommittee on Financial Institutions and Consumer Credit heard testimony last Thursday on six bills designed to streamline the regulatory system and reduce unnecessary regulatory burden. One of the bills, H.R. 3312, would change the criteria for designating a financial institution as systemically important; another, H.R. 2359, would set limits on the amount of money awarded to members of class actions brought under the Fair Credit Reporting Act (FCRA). Thomas Quaadman, Executive Vice President of the Center for Capital Markets Competitiveness, noted that H.R. 2359 would bring FCRA in line with other credit reporting bills, and that customers generally won more through arbitration than through class actions.

Equifax reports massive data breach — Last Thursday, one of the nation’s largest credit bureaus announced the discovery of a cybersecurity breach affecting as many as 143 million Americans, or nearly 60 percent of American adults. “The company has found no evidence of unauthorized activity on Equifax’s core consumer or commercial credit reporting databases,” Equifax said, but the hackers stole information including names, addresses, Social Security numbers, birth dates, and in some cases, driver’s license numbers. They also got approximately 209,000 credit card numbers, and dispute documents with personal information from about 182,000 customers. The company is offering complimentary identity theft protection and credit monitoring to everyone who applies.

Huizenga warns FINRA against becoming a “deputy SEC” — Robert Cook, CEO of the Financial Industry Regulatory Authority (FINRA), told the House Financial Services Subcommittee on Capital Markets, Securities, and Investment last Wednesday about the organization’s FINRA 360 program, designed to improve the organization’s efficiency and effectiveness. Rep. Bill Huizenga (R-MI), chair of the subcommittee, asked Cook about FINRA’s “mission creep,” and voiced concern about the effects of regulation on the number of companies going public. Replying to a question from Rep. David Scott (D-GA), Cook said he would support a uniform rule for fiduciaries that would replace multiple overlapping rules that involve the Department of Labor, FINRA, and the SEC.

Can banks help identify “lone wolf” terrorists? — The House Financial Services Subcommittee on Terrorism and Illicit Finance heard testimony last Wednesday on whether and how financial institutions can recognize and report funding to “lone wolves” and small-scale terrorist organizations. Witnesses described the use of PayPal, Western Union, and eBay to accept funds for fake sales, and the ways attackers move money anonymously across national borders. Reporting requirements have not kept up with technological advances, but regulators and law enforcement officials are already overwhelmed by the volume of suspicious activity reports. Increased information sharing would help identify potential terrorists, but would also raise significant privacy concerns.

Fischer to leave Fed in mid-October — Stanley Fischer, Vice Chairman of the Federal Reserve Board, submitted a letter of resignation to the Board last Wednesday, and will step down on or around October 13. President Obama appointed Fischer in 2014 to an unexpired term that continues until January 31, 2020. His term as Vice Chairman would end in June 2018. Fischer, 73, has been the Fed’s representative in international negotiations, and chaired the Fed’s Committee on Financial Stability and the Committee on Economic and Financial Monitoring and Research. His departure would leave four vacancies on the seven-member Federal Reserve Board, although it seems likely that the Senate will approve Randal Quarles’s nomination before the end of September.

Education ends information-sharing agreement with CFPB — The Department of Education sent a letter to Richard Cordray, Director of the Consumer Financial Protection Bureau, two weeks ago to inform him that the agencies’ information-sharing agreements will end within 30 days. Acting Assistant Secretary Kathleen Smith and Dr. A. Wayne Johnson, Chief Operating Officer for Federal Student Aid, charged the CFPB with “unilaterally expanding its oversight role to include the Department’s contracted federal loan servicers,” and said that the CFPB had violated the agreements by handling complaints related to Title IV federal student loans itself, rather than referring them to the Department of Education.

Square applies for Utah industrial charter — Square Inc. submitted an application last week to the Utah Department of Financial Institutions for an industrial bank charter, becoming the second company to do so this year. Square has made small business loans and cash advances through its subsidiary, Square Capital, since 2014. Square Capital CEO Jacqueline Reses told the Wall Street Journal that the company’s plans for growth made it more important to have direct relationships with regulators. Square will have to apply separately to the FDIC for deposit insurance.

Milken Institute forms new Housing Policy Team — The Milken Institute announced last Thursday that it has formed a bipartisan group of senior fellows and a bipartisan Housing Advisory Council to focus on the next phase of housing finance reform. Eric Kaplan, most recently managing partner of Ranieri Strategies LLC, will head the Housing Finance Program within the Institute’s Center for Financial Markets, while Michael Milken and Lewis S. Ranieri will co-chair the new Housing Advisory Council. Members of the Council have not yet been named, but will include “a select group of current and former chief executives.”

This Week in Washington:

September 12
Senate Banking Committee holds a hearing on “Examining the Fintech Landscape.” Witnesses include Lawrance Evans, GAO Director of Financial Markets; Eric Turner, an analyst with S&P Global Market Intelligence; and Frank Pasquale, professor of law at the University of Maryland. 10:00 a.m., SD-538 Dirksen Senate Office Building.

September 12
House Energy & Commerce Subcommittee on Digital Commerce and Consumer Protection hold a hearing on “21st Century Trade Barriers: Protectionist Cross Border Data Flow Policy’s Impact on U.S. Jobs.” 10:15 a.m., 2322 Rayburn House Office Building.

September 12
House Financial Services Subcommittees on Financial Institutions and Consumer Credit and Monetary Policy and Trade hold a joint hearing on “Examining the Relationship between Prudential Regulation and Monetary Policy at the Federal Reserve.” Witnesses include Dr. Charles Calomiris of Columbia University, Dr. Stephen G. Cecchetti of Brandeis University, and Jim Sivon on behalf of the Financial Services Roundtable. 2:00 p.m., 2128 Rayburn House Office Building.

September 13
House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “A Legislative Proposal to Impede North Korea’s Access to Finance.” 10:00 a.m., 2128 Rayburn House Office Building.

September 13
House Ways and Means Subcommittee on Oversight holds a hearing on “IRS Reform: Resolving Taxpayer Disputes.” 2:00 p.m., 1100 Longworth House Office Building.

September 14
Senate Banking Committee holds a hearing on “Examining the Committee on Foreign Investment in the United States.” Witnesses include former Treasury Assistant Secretary Clay Lowery, now Managing Director of Rock Creek Global Advisors; and former Commerce Assistant Secretary Kevin J. Wolf, now a partner with Akin Gump Strauss Hauer & Feld. 10:00 a.m., SD-538 Dirksen Senate Office Building.

September 14
Senate Finance Committee holds a hearing on “Individual Tax Reform.” Witnesses include Professor Lily Batchelder of New York University; Alex Brill of the American Enterprise Institute; Iona C. Harrison of Pioneer Realty, Upper Marlboro, MD; and Ramesh Ponnuru of the American Enterprise Institute. 10:00 a.m., SD-215 Dirksen Senate Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Alabama:  A new Southeast Research poll (8/29-31; 401 AL likely Republican run-off voters) again finds appointed Sen. Luther Strange badly trailing former state Supreme Court Chief Justice Roy Moore for the special September 26thRepublican run-off election. According to the Southeast numbers, which includes an evangelical contingent that comprises more than 79% of the total respondent sample, Judge Moore leads the race, 52-36%.

The three polls that feature evangelicals making up more than 2/3 of the polling samples all find Moore leading by double-digits. Those that project a lower number for this particular religious segment find tighter results. The latter polls also position the former Judge in first place, however. There is no public poll that posts Sen. Strange to an advantage.

West Virginia:  A Repass and Research America Inc. poll for West Virginia Metro News (8/11-20; 400 WV likely voters drawn from each of the state’s 55 counties) finds Sen. Joe Manchin (D) faring well against both of his Republican competitors. Opposite Rep. Evan Jenkins (R-Huntington), the Senator posts a 50-40% advantage. If Attorney General Patrick Morrisey were the Republican nominee, Sen. Manchin would have slightly more support. The ballot test in this latter configuration is 52-37%.

Wisconsin:  As expected, based upon comments made two weeks ago, state Sen. Leah Vukmir (R-Brookfield) announced her US Senate candidacy. Already in the race with heavy financial backing is businessman Kevin Nicholson. Venture capitalist Eric Hovde, a 2012 Senate candidate, confirms he is still considering entering next year’s contest. The eventual Republican nominee will face first-term Sen. Tammy Baldwin (D) in what is expected to be a competitive general election campaign. The Wisconsin primary will be scheduled for a date next August.

> House

CO-3:  Grand Junction City Councilman Chris Kennedy has joined state Rep. Diane Mitsch Bush (D-Steamboat Springs) in the Democratic congressional primary next year. This likely means four-term Rep. Scott Tipton (R-Cortez/Western Slope) will face either a Kennedy or a Bush. Mr. Tipton has averaged more than 55% of the vote in his three re-election campaigns. The 3rd can be a competitive district but has voted consistently Republican since 2006. President Trump scored a 52-40% victory here last November despite losing the state, 43-48%.

MA-3:  Erin Murphy Meehan (D), a hospital consultant who was formerly married to ex-Rep. Martin Meehan (D-Lowell), says she will not run for the open seat that Rep. Niki Tsongas (D-Lowell) is leaving available. The Congresswoman last month announced that she will not seek re-election next year. No Democrat has yet declared his or her candidacy, but two Republican business owners, Rick Green and Scott Gunderson, have announced. Daniel Koh (D), the recently resigned chief of staff to Boston Mayor Marty Walsh (D), has filed a congressional exploratory committee.

The Democrats are certainly favored to hold the seat but with Gov. Charlie Baker (R) expected to win re-election, and therefore will carry this district, the stage could be set for a more competitive general election.

OK-1:  Upon confirmation to his new position as the next NASA Administrator, Rep. Jim Bridenstine (R-Tulsa) will resign his Tulsa-anchored congressional district meaning yet another special election could be scheduled in advance of the regular midterm vote. Five Republicans and no Democrats announced their candidacies before the Bridenstine appointment.  Businessman Kevin Hern appears to have the most resources to bring to the campaign. Former Tulsa County District Attorney Tim Harris, state Sen. Nathan Dahm, attorney Andy Coleman, and Baptist pastor Danny Stockstill comprise the current candidate field. We can expect more action now that the seat will likely be in special election mode.

PA-10:  Rep. Tom Marino (R-Williamsport), it was announced at the White House last week, will be nominated as the new Director of the Office of National Drug Control Policy, a position where the inhabitant is often referred to as the “drug czar.”  Rep. Marino was supposed to be nominated earlier in the year, but held back because of a serious illness in his family. Should he be confirmed quickly, the northeastern Pennsylvania seat could also go to special election to fill the balance of the current term. Republicans would be favored to hold the seat. Mr. Marino has averaged 66.1% of the vote in his three re-election campaigns.

PA-15:  Seven-term Rep. Charlie Dent (R-Allentown) surprisingly announced late last Thursday that he will not seek re-election next year. Just before his decision to retire became public, state Rep. Justin Simmons (R-Coopersburg) had officially launched his intra-party challenge. We can now expect vigorous open seat primaries in both parties. Rep. Dent is chairman of the House Ethics Committee. Before his election to Congress, he served 14 years in the Pennsylvania legislature.

TX-23:  Former one-term Rep. Pete Gallego (D-Alpine), who has lost the last two consecutive elections to Texas Rep. Will Hurd (R-San Antonio), announced that he will not be a congressional candidate next year. The former Congressman had filed a FEC committee for 2017-18, and said he was hoping the federal redistricting decision would change the district boundaries to his, and the Democrats’, benefit. But, such did not happen, as the court did not alter this particular district. Responding to the judicial ruling, Mr. Gallego will yield to other Democratic candidates.

Already announced are former federal prosecutor Jay Hulings, ex-San Antonio City Council candidate Rick Trevino, and Iraq War veteran and ex-US trade official Gina Ortiz Jones. Former state Rep. Trey Martinez Fischer (D) is said to be weighing his political options with respect to this campaign.

WA-8:  Seven-term Washington US Rep. Dave Reichert (R-Auburn) announced that he, too, will not seek re-election next year. Prior to winning his congressional seat in 2004, Mr. Reichert served in the King County Sheriff’s office for 33 years including eight in the top position. Just under 60% of the 8th District population resides in King County, with about a quarter living in Pierce County. Chelan and Kittitas Counties and part of Douglas are also included. The seat will likely feature a toss-up congressional race next year. Hillary Clinton carried the region last year with a 48-45% margin. President Obama defeated Mitt Romney here, 50-48%.

WI-1:  The Global Strategy Group, polling for Democratic congressional candidate Randy Bryce, finds House Speaker Paul Ryan (R-Janesville) with only tepid support from his southern Wisconsin constituency. According to the survey (8/22-24; 401 WI-1 likely voters), the Speaker would defeat the unknown Mr. Bryce by only 46-37% if the election were in the current period. Mr. Ryan’s favorability index is 50:41%, while 90% of the respondents had no familiarity with Mr. Bryce.

> Governor

Alabama:  Gov. Kay Ivey (R), who ascended to the Governor’s mansion when ex-Gov. Robert Bentley (R) was forced to resign over a plea bargain arrangement pertaining to campaign finance charges, formerly announced that she will seek a full term for the state’s top political position next year. Already, a large group of Republicans have declared for the race, including state Agriculture Commissioner John McMillan and State Auditor Jim Zeigler. State Sen. Bill Hightower (R-Mobile) and Huntsville Mayor Tommy Battle are also serious contenders. A total of nine candidates, including the new Governor, are now officially in the Republican primary.

Hawaii:  Over the holiday weekend, Rep. Colleen Hanabusa (D-Honolulu) announced that she will challenge Gov. David Ige in next year’s Democratic primary. Gov. Ige scored a huge primary win in 2014, defeating Gov. Neil Abercrombie with 67% of the vote, and now Rep. Hanabusa will attempt to repeat history next year. Doing so would be even more extraordinary in Hawaii, before an electorate that rarely defeats incumbents. Prior to unseating Gov. Abercrombie, Mr. Ige served for 30 years in the Hawaii state legislature. This primary will be hotly contested.

Maine:  Two state legislative leaders are on the verge of hopping into the Governor’s race. State House Minority Leader Ken Fredette (R-Newport), an ally of Gov. Paul LePage (R), formed a gubernatorial exploratory committee but left no doubt that he is planning to run. State Senate Majority Leader Garrett Mason (R-Lisbon Falls), who was an active supporter of Sen. Ted Cruz (R-TX) in the 2016 Maine presidential primary, is also planning to soon announce his statewide candidacy. Both men are from the Republican Party’s conservative wing.

Should Sen. Susan Collins (R) become a gubernatorial contender, and she says a decision will be forthcoming in the fall, the new candidate configuration, including former Health & Human Services Department Secretary Mary Mayhew, would help divide the conservative base thus possibly allowing the centrist Senator to attract enough support to win the nomination.

Nevada:  It had appeared that Attorney General Adam Laxalt (R) would have the Republican gubernatorial primary largely to himself, but that changed last week. State Treasurer Dan Schwartz, who scored a 51-41% open seat victory to secure his first statewide elected office in 2014, founded several financial companies and has written two books about the global financial sector. Mr. Schwartz will have capital to invest in his campaign, and may have appeal for the state’s more moderate Republican voters.

Mr. Laxalt remains the favorite to capture the nomination, but the contest will now feature a serious primary. Gov. Brian Sandoval (R) is ineligible to seek a third term. The open Nevada Governor’s race will be highly competitive in the general election and must be regarded as a major toss-up campaign.