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

In Partnership with the Eris Group

Senate Banking grills Clayton on data security, fiduciary rule — Securities and Exchange Commission Chairman Jay Clayton made his first official appearance before the Senate Banking Committee last Tuesday, days after the disclosure of a 2016 breach of the agency’s EDGAR test filing system. Clayton told the committee that he has spent most of the past four months on agency operations, and sees the need for additional focus and resources in four areas: cybersecurity, retail investor protection, market integrity, and capital formation. The SEC believes that its remediation efforts against the breach were successful, Clayton said, but reviews are continuing. Clayton said he saw no reason to delay implementation of the consolidated audit trail (CAT) surveillance tool, despite Senators’ concerns about the security of personally identifiable information. Chairman Mike Crapo (R-ID), Senator Tim Scott (R-SC) and Senator Jon Tester (D-MT) asked about the agency’s role in reviewing and coordinating its own version of the Department of Labor’s fiduciary rule; Clayton said that the agency is seeking updated views from investors and industry.

SEC announces new Cyber Unit, task force — Last Monday, the Securities and Exchange Commission announced the formation of a Cyber Unit within its Enforcement Division that will focus on the use of information technology to manipulate markets, obtain material nonpublic information, hack into retail accounts, threaten trading platforms and more. The Cyber Unit will consolidate and advance work the SEC is already doing in this area; its chief, Robert A. Cohen, has been serving as co-chief of the Market Abuse Unit. The SEC also created a Retail Strategy Task Force that will draw enforcement personnel from around the country to develop systems for identifying potential misconduct affecting retail investors.

Regulators propose capital simplification rule — The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency asked for comment last week on a proposal to simplify compliance with capital rules. Most of these changes would apply only to financial institutions that are not subject to the “advanced approaches” capital rule. The changes would include simplification and clarification of the definition of capital, the treatment of capital deductions, and the treatment of so-called High Volatility Commercial Real Estate, or HVCRE. The proposal is the product of a long process of soliciting ideas for improvements under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Comments are due to the agencies by the end of November.

GSE capital buffer would be limited, says Watt — Mel Watt, Director of the Federal Housing Finance Agency (FHFA), responded last Friday to a letter from Senator Sherrod Brown (D-OH) and five colleagues that urged him to let Fannie Mae and Freddie Mac keep some of their capital as a buffer against future losses. In a letter of his own, Watt said that the reduction in taxpayer commitment could adversely affect the market, and that no capital buffer would be enough to capitalize the GSEs in event of another collapse. He reiterated his position that Congress needs to address long-term housing finance reform, but said that he would be working with Treasury Secretary Steven Mnuchin on these issues in the meantime.

Tarbert confirmed to Treasury/CFIUS — The Senate voted 87-8 on Wednesday to approve the nomination of Heath P. Tarbert to serve as Assistant Secretary of the Treasury for international markets and development. This position includes the chairmanship of the Committee on Foreign Investment in the United States (CFIUS), which reviews transactions that could result in foreign ownership of U.S. businesses important to national security. Tarbert served as associate counsel to President George W. Bush in 2008, and had been special counsel to the Senate Banking Committee during its work on Dodd-Frank.

Things really did get better — From 2013 to 2016, real GDP grew at an annual rate of 2.2 percent, unemployment fell from 7.5 percent to 5 percent, and median family income grew 10 percent, the Federal Reserve Board reported last week. The Fed’s triennial Survey of Consumer Finances found “broad-based gains in income and net worth” over the 2013 report, though income inequality continued to widen. The homeownership rate continued to decline, reaching 63.7 percent at the end of 2016, but net housing values rose for homeowners. Business ownership grew to 13.0 percent, nearing its 2010 level.

This Week in Washington:

Although he “retired” as Chairman and CEO of Equifax last Tuesday, Richard Smith will appear before four public hearings on Capitol Hill this week. Equifax has announced a search for a new permanent CEO.

October 3
House Committee on Financial Services holds a hearing on “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” FHFA Director Mel Watt will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.

October 3
House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection holds a hearing on “Oversight of the Equifax Data Breach: Answers for Consumers.” 10:00 a.m., 2123 Rayburn House Office Building.

October 3
Senate Committee on Banking, Housing and Urban Affairs holds a hearing on “Wells Fargo: One Year Later.” Wells Fargo CEO and President Timothy J. Sloan will be the only witness. 10:00 a.m., SD-538 Dirksen Senate Office Building.

October 3
Senate Finance Committee holds a hearing on “International Tax Reform.” Witnesses include academic experts from the University of Houston, Reed College, Harvard Law School, and the Georgetown Law Center. 10:00 a.m., SD-215 Dirksen Senate Office Building.

October 3
Joint Economic Committee holds a hearing on “The Startup Slump: Can Tax Reform Help Revive American Entrepreneurship?” 10:00 a.m., 1100 Longworth House Office Building.

October 4
Senate Special Committee on Aging holds a hearing on “Still Ringing off the Hook: An Update on Efforts to Combat Robocalls.” 9:30 a.m., SD-562 Dirksen Senate Office Building.

October 4
House Committee on Financial Services holds a hearing on “Examining the SEC’s Agenda, Operations, and Budget.” SEC Chairman Jay Clayton will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.

October 4
House Ways and Means Subcommittee on Oversight holds a hearing on the Internal Revenue Service’s Information Technology Modernization Efforts. 10:00 a.m., 1100 Longworth House Office Building.

October 4
Senate Committee on Banking, Housing and Urban Affairs holds a hearing on “An Examination of the Equifax Security Breach.” Richard F. Smith, former Chairman and CEO of Equifax, will be the only witness. 10:00 a.m., SD-538 Dirksen Senate Office Building.

October 4
Senate Judiciary Subcommittee on Privacy, Technology and the Law holds a hearing on “Equifax: Continuing to Monitor Data-Broker Cybersecurity.” 2:30 p.m., SD-226 Dirksen Senate Office Building.

October 5
House Committee on Financial Services holds a hearing on “Examining the Equifax Data Breach.” 9:15 a.m., 2128 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Alabama:  As the polls predicted, former state Supreme Court Chief Justice Roy Moore unseated appointed Sen. Luther Strange last Tuesday in the special Republican run-off election. The victory margin was 55-45%. Judge Moore, now as the Republican nominee, advances to the special general election where he will face former US Attorney Doug Jones (D) in a vote scheduled for December 12th.  The winner will serve through 2020 and be eligible to seek a full six-year term in that particular election year.  Sen. Strange, who was appointed from his position as state Attorney General, will serve through the special general election. Run-off turnout increased 13.5% from the primary, and topped 480,000 voters. By contrast, just 165,006 Democratic voters nominated Mr. Jones back in August. Though Democrats will likely make a major push in the special general, Judge Moore begins the race as a clear favorite.

Florida:  Cherry Communications, the regular pollster for the Florida Chamber of Commerce, went into the field after Hurricane Irma to test the potential Senate race between three-term incumbent Bill Nelson (D) and Gov. Rick Scott (R). For the first time, possibly due to receiving high marks for his handling of the Hurricane Irma catastrophe, Gov. Scott has pulled ahead of Sen. Nelson. According to the Cherry poll (9/17-24; 615 FL likely voters via telephone interviews), Gov. Scott now maintains a small 47-45% edge over Sen. Nelson. In previous polls, it was the veteran Senator who posted a small lead.

Nevada:  Rep. Dina Titus (D-Las Vegas) maintained for months that she was considering entering the 2018 Senate race to challenge not only Sen. Dean Heller (R), but also fight for the party nomination against fellow Rep. Jacky Rosen (D-Henderson). Now, Ms. Titus’ plans have become clear. Last week, the Congresswoman announced that she will seek re-election to her 1st District seat, thereby taking herself out of any further discussion about a US Senate bid. The move means we will almost assuredly see a Heller-Rosen general election next year. This race will likely be considered a toss-up all the way through Election Day.

Tennessee:  Last week, Tennessee’s Bob Corker (R) became the first in-cycle Senator to announce that he will not seek re-election next year. Now as an open seat, observers look to possible Corker successors. A movement is forming to encourage former Rep. Stephen Fincher (R-Crockett County) to become a Senate candidate. The Congressman retired before the 2016 election because of a family illness, a situation that has improved. Rep. Marsha Blackburn (R-Brentwood) already confirms that she is considering entering the newly open statewide campaign. Previously announced as a primary challenger to Sen. Corker is Andy Ogles, the head of Tennessee’s Americans for Prosperity chapter. Former state Rep. Joe Carr (R), who previously challenged Sen. Lamar Alexander in the 2014 Republican primary, and Rep. Diane Black (R-Gallatin) in the last 6th District GOP primary, says he will soon make an announcement. Now speculation begins to swirl around term-limited Gov. Bill Haslam who confirms he is contemplating hopping into the Senate race.

In a blow to Democrats, former Gov. Phil Bredesen, US Rep. Jim Cooper (D-Nashville), and current Nashville Mayor Megan Barry all say they will not enter the open Senate race. Nashville state Sen. Jeff Yarbro, Chattanooga Mayor Andy Berke, and businessman Bill Freeman are all confirming they are considering Senate candidacies. Republicans will be favored to hold this new open seat.

> House

FL-1:  Freshman Rep. Matt Gaetz (R-Pensacola) had been considered a potential candidate for the state’s open Attorney General’s post, but last week made clear he will seek a second term in the House. Rep. Gaetz endorsed Judge Ashley Moore (R) for the statewide position, obviously indicating that he will not run himself.

GA-12:  Democratic former House member John Barrow (D-Savannah) served five terms in Congress before his defeat at the hands of Rep. Rick Allen (R-Augusta) in 2014. While it was believed that he would return to elective politics, up until last week he had not. Now, the former Representative has decided upon his political comeback. Mr. Barrow just announced that he will enter Georgia’s open Secretary of State race next year.

IA-1:  State Sen. Jeff Danielson (D-Cedar Falls) had earlier filed a congressional exploratory committee. Two weeks ago, the state legislator announced that he will not become a congressional candidate. This leaves the Democrats with two strong candidates: state Rep. Abby Finkenauer (D-Dubuque) and former US Labor Department official Thomas Heckroth (D) as serious Democratic contenders along with Bernie Sanders campaign activist Courtney Rowe (D) who is also in the race. The winner faces two-term Rep. Rod Blum (R-Dubuque) who represents the most Democratic seat in Iowa. This race has the potential of becoming highly competitive.

MA-3:  Ever since Rep. Niki Tsongas (D-Lowell) announced that she will retire after the current Congress concludes, many Democrats have filed exploratory committees, began seeking endorsements, and talked about running, but none have made the final declaration…until last week. On Wednesday, businessman Abhijit Das, CEO of Troca Hotels, Inc., announced that he will officially enter the Democratic primary. Likely to do so are Dan Koh, former chief of staff to Boston Mayor Marty Walsh, state Sen. Barbara L’Italien (D-Andover), Cambridge City Councilman Nadeem Mazen, and former congressional aide Lori Trahan. For the Republicans, only business owner Rick Green has come forward to announce his candidacy. Democrats are favored to hold the seat.

MI-11:  Republican National Committee chair Ronna Romney McDaniel made it clear last week that she will not enter the open 11th Congressional District race. Two weeks ago, Michigan Rep. David Trott (R-Birmingham) made public his decision not to seek a third term. In the race are Republican former one-term Rep. Kerry Bentivolio (R-Milford), state Rep. Klint Kesto (R-Pontiac), former state House Minority Leader and US Senate nominee Rocky Raczkowski, and businesswoman Lena Epstein who was Michigan co-chairman of Trump for President. Former Treasury Department official Haley Stevens and ex-Homeland Security appointee Fayrouz Saad are the announced Democratic candidates.  The Detroit suburban seat leans Republican.

TX-23:  Judy Canales, the former Texas Director for the US Department of Agriculture under President Obama, announced that she will enter the growing field of Democrats who want to challenge two-term Rep. Will Hurd (R-San Antonio). Previously, Ms. Canales had filed a fundraising committee with the Federal Election Commission but stopped short of making a formal declaration of candidacy. Also in the Democratic race is attorney Jay Hulings, Bernie Sanders campaign activist and former San Antonio City Council candidate Rick Trevino, ex-US Trade official and Iraq War veteran Gina Ortiz Jones, and dentist Alma Arredondo-Lynch. This race is likely to be categorized as a toss-up.

WA-8:  Rep. Dave Reichert (R-Auburn) retiring from this marginal district makes the seat highly competitive next year. At the beginning of last week, state Senator Dino Rossi (R-Kirkland), a former gubernatorial and US Senate candidate announced he would seek the open congressional seat, giving Republicans their top recruitment prospect. Mr. Rossi first came to national notoriety in 2004, when he forced then-Attorney General Christie Gregoire (D) into a major re-count that consumed weeks, and ending in him losing the statewide contest by just 129 votes. He returned to challenge then-Gov. Gregoire in 2008, resulting in a 53-47% loss. In a subsequent contest with Sen. Patty Murray (D), Mr. Rossi fell, but by a very respectable 52-48% against the veteran incumbent. In each case, the new Republican congressional candidate carried the 8th District. Republicans appear to be uniting behind Rossi, which aids their ability to retain the open seat.

> Governor

Alaska:  With Independent Gov. Bill Walker already seeking re-election as a nominee of neither major party, another GOP outsider has stepped forward. Energy company business owner Scott Hawkins declared his candidacy last week, expanding the GOP field to three candidates. The other two serious contenders are former state Senate President Charlie Huggins (R-Wasilla) and state Rep. Mike Chenault (R-Nikiski). Due to a medical condition, state Sen. Mike Dunleavy (R-Wasilla) has withdrawn from the statewide race. Former US Sen. Mark Begich (D) has not ruled out entering the Democratic gubernatorial primary.

Colorado:  State Treasurer Walker Stapleton (R), a distant relative of the Bush family, announced that he is entering the open Governor’s race next year. The Centennial State Treasurer will join Arapahoe County area prosecuting attorney George Brauchler as the main Republican contenders to-date.  Mr. Stapleton has been raising money for a state Super PAC prior to his announcement, funds that will undoubtedly go toward assisting his future gubernatorial campaign, so his effort is not starting from ground zero. Rep. Jared Polis (D-Boulder) and Lt. Gov. Donna Lynne lead a crowded Democratic field. Gov. John Hickenlooper (D) is ineligible to seek a third term. The eventual Democratic nominee will begin the general election in the favorite’s position.

New Jersey:  A new Suffolk University poll (9/19-23; 500 NJ likely voters) tested the 2017 general election gubernatorial candidates. This poll, like others before it, shows former US Ambassador to Germany Phil Murphy (D) continuing to lead Lt. Gov. Kim Guadagno (R) by substantial margins. According to their latest data, Mr. Murphy’s advantage is 44-25%. In the only potential opening Guadagno may have, the Democratic nominee’s trust factor appears low and the top issue is high taxes – levies that Murphy has already said he would support raising.

Rhode Island:  It appears the GOP will field at least two strong gubernatorial candidates, each vying to challenge first-term incumbent Gina Raimondo (D) next November. Cranston Mayor Allen Fung, who lost to Raimondo 41-36% with three Independents splitting the remaining votes, is telling supporters he will run again and soon make a formal announcement. State House Minority Leader Patricia Morgan announced her candidacy last week, meaning a significant primary will commence. Joe Trillo, President Trump’s former Rhode Island campaign chairman, is also in the race but his viability as a candidate is unclear at this point in time. Gov. Raimondo has poor favorability ratings and, with only a 41% victory percentage four years ago, this could become a competitive campaign despite Rhode Island’s strong Democratic voting history.

Virginia:  During the September 12-23 period, a quintet of political surveys was conducted and recently released. Pollsters from Monmouth University, Public Policy Polling, Roanoke College, Christopher Newport University, and Fox News conducted studies with sample sizes ranging from 499 (Monmouth) to 776 (Christopher Newport) respondents. All five find both Lt. Gov. Ralph Northam (D) and former Republican National Committee chairman Ed Gillespie within the 40s. The best poll for Gillespie, from Fox News, finds the two tied at 42%. The strongest for Lt. Gov. Northam comes from Christopher Newport and gives him a six-point edge (47-41%). The election will be decided November 7th.