Executive Order calls for climate risk disclosure and management policies
President Joe Biden issued an Executive Order on Climate-Related Financial Risk that calls for “consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk” throughout both the private and public sectors. The EO calls for the development within 120 days of a government-wide strategy to measure, assess, mitigate, and disclose climate-related financial risk to federal government programs and assets. It also directs the National Economic Council and the National Climate Advisor to work with Treasury and the Office of Management and Budget to report within 120 days on the financing needs associated with achieving net-zero greenhouse gas emissions by 2050, and how public and private investments can play complementary roles in meeting those needs. It directs the Financial Stability Oversight Council (FSOC) to conduct a comprehensive, detailed assessment of climate-related risks to the stability of the US financial system, and to facilitate climate risk data-sharing among FSOC member agencies. The Secretary of Labor is directed to evaluate the effect of climate risk on employee retirement savings plans and pensions, and the Secretaries of Agriculture, Housing and Urban Development, and Veterans Affairs are directed to integrate climate risk into their loan underwriting and servicing.
House approves insider trading definition, six other financial services bills
The House of Representatives approved HR 2655, the Insider Trading Prohibition Act sponsored by Rep. Jim Himes (D-CT), as part of a set of seven financial services bills last Tuesday. HR 2655 would codify the definition of illegal insider trading and explicitly prohibit it under federal securities law. It has no Senate counterpart. Other bills in the legislative package included HR 1711, a bill introduced by Rep. David Scott (D-GA) to require the Consumer Financial Protection Bureau (CFPB) to identify leading causes of and solutions for the shortages in banking services in unbanked and underbanked areas; and HR 3008, the Homebuyer Assistance Act introduced by Rep. Brad Sherman (D-CA), which would align the Federal Housing Administration’s appraisal requirements with those of Fannie Mae and Freddie Mac.
Fed to seek comment on central bank digital currency this summer
Federal Reserve Board Vice Chairman Randal Quarles got several questions last Wednesday’s House Financial Services Committee hearing about whether and when the Federal Reserve system would launch a central bank digital currency (CBDC). Quarles reminded the Committee that the Federal Reserve Bank of Boston had launched a Digital Currency Initiative with MIT last year, but stressed that this is the beginning of a years-long process. The Federal Reserve Board Chairman Jerome Powell issued an unusual video press release that elaborated on Quarles’s remarks and said that the Fed would publish a discussion paper on digital payments this summer, “with a particular focus on the benefits and risks associated with CBDC in the US context.” The Fed will ask for public comment on issues related to payments, financial inclusion, data privacy, and information security. Although the statement suggested a greater sense of urgency than Quarles did last Wednesday, Powell said the discussion paper was only “the beginning of what will be a thoughtful and deliberative process.”
Acting Comptroller warns against “complacency,” pledges open mind on CRA
US banks and credit unions have come through the pandemic in strong financial condition, regulators told the House Financial Services Committee last Wednesday, but Acting Comptroller of the Currency Michael Hsu said that the banking system is in danger of becoming complacent, especially the largest banks. As the economy recovers, financial institutions will feel pressure to grow, and Hsu worries that overconfidence may lead to losses similar to those experienced by investors in Archegos Capital. In his first two weeks in office, Hsu has asked OCC to review several rules, regulatory standards, and pending matters, including last year’s Community Reinvestment Act rule and interpretative letters and guidance on cryptocurrency and digital assets. The effects of the pandemic, responses to the Fed’s request for comment on CRA reform, and the OCC’s own experiences with partial implementation of the 2020 CRA rule had all convinced Hsu that they needed to reconsider the rule, he said. He wants to consider all the information they collect before he takes action, which could include rescission and/or joining the Federal Reserve and FDIC in joint rulemaking.
China lending policies create trade imbalances
Unusual confidentiality clauses and unfair collateral arrangements put countries that borrow from China at risk and threaten the architecture of global trade, witnesses told a House Financial Services subcommittee last Tuesday. The Subcommittee on National Security, International Development, and Monetary Policy held a hearing on China’s “Belt and Road” lending practices as part of its consideration of legislation to authorize US participation in replenishing the Asian Development Fund, participate in UN debt relief programs for least developed countries, and make US funds available for Special Drawing Rights at the International Monetary Fund. China has become the single largest official lender to developing countries over the last 20 years, and its strict nondisclosure agreements, collateral demands, and use of acceleration and cross-default clauses trap sovereign nations in debt and make it difficult for them to borrow from other official lenders or restructure their debt. Challenging these practices is a strongly bipartisan goal in both the House and the Senate, and Subcommittee members agreed that the US should be leading multilateral action to counter the Belt and Road program.
Scott, Sullivan call for cruise industry revival
At a hearing of the Senate Commerce Subcommittee on Tourism, Trade, and Export Promotion last Tuesday, Senator Rick Scott (R-FL) and Senator Dan Sullivan (R-AK) emphasized the need to reopen ports to cruise ship traffic and welcome back international visitors. Bill Talbert, President and CEO of the Greater Miami Convention and Visitors Bureau, described how the pandemic’s shutdown of the cruise industry had meant the loss of seven million passengers through Port Miami, with accompanying drops in hotel room occupancy, hospitality jobs, and tax revenue collections from tourists. He called for clear public health benchmarks and a defined timeline for reopening, and asked the CDC, Departments of Transportation and Homeland Security, and other federal agencies to come together and develop a data-driven, risk-based road map to facilitate in-bound international travel.
Administration’s tax compliance agenda would boost IRS funding and powers, regulate paid tax preparers
A report issued by the Department of the Treasury last week provides more details about the Biden administration’s proposal to improve tax compliance as part of the American Families Plan. The plan calls for an additional $80 billion in funding for the IRS over the next ten years, supporting growth at a rate of approximately 10% a year. It would also require financial institutions to report total account outflows and inflows to the IRS and overhaul IRS information technology that dates back to the 1960s. The plan would regulate and set standards for paid tax preparers, including sanctions for “ghost preparers” who do not identify themselves on the returns they prepare. Treasury’s Office of Tax Analysis estimates that these measures could bring in an additional $700 billion in tax revenues over the next ten years.
Federal banking agencies extend comment period on AI to July 1
Financial institutions and members of the public will have an extra month to comment on the federal regulators’ request for information on financial institutions’ use of artificial intelligence (AI), the agencies announced last week. The Federal Reserve Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency want information about how financial institutions are currently using AI, including machine learning; appropriate governance, risk management, and controls over AI; and what challenges AI might present as financial institutions develop, adopt, and manage these programs.
House Financial Services Committee names Vice Chairs
House Financial Services Committee Chairwoman Maxine Waters (D-CA) announced the appointment of Vice Chairs to the Subcommittees and full Committee. Freshman Rep. Jake Auchincloss (D-MA) will serve as Vice Chair of the full Committee. Rep. Sean Casten (D-IL) will be Vice Chair of the Subcommittee on Investment Protection, Entrepreneurship, and Capital Markets; Rep. Ayanna Pressley (D-MA) will be Vice Chair of the Subcommittee on Consumer Protection and Financial Institutions; Rep. Cindy Axne (D-IA) will be Vice Chair of the Subcommittee on Housing, Community Development, and Insurance; Rep. Josh Gottheimer (D-NJ) will be Vice Chair of the Subcommittee on National Security, International Development, and Monetary Policy; Rep. Nikema Williams (D-GA) will be Vice Chair of the Subcommittee on Oversight and Investigations; and Rep. Sylvia Garcia (D-TX) will be Vice Chair of the Diversity and InclusionSubcommittee.
This Week in Washington
May 24-27 Securities and Exchange Commission hosts its 40th Annual Government-Business Forum on Small Business Capital Formation. Sessions will be virtual, and registration is free and open to the public.
May 24 at noon House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets holds a hearing on “Going Public: SPACs, Direct Listings, Public Offerings, and the Need for Investor Protections.”
May 25 at 9:30 a.m. Senate Committee on Finance holds a hearing on the nominations of Lily Lawrence Batchelder and Benjamin Harris to be Assistant Secretaries of the Treasury and Jonathan Davidson to be Deputy Under Secretary of the Treasury.
May 25 at 10 a.m. Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “The Semiannual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System.” Federal Reserve Board Chairman Randal Quarles will be the only witness.
May 25 at noon House Financial Services Subcommittee on Diversity and Inclusion holds a hearing on “The Legacy of George Floyd: An Examination of Financial Services Industry Commitments to Economic and Racial Justice.”
May 25 at 3 p.m. Senate Commerce Subcommittee on Tourism, Trade, and Export Promotion holds a hearing to examine investing in America’s tourism and hospitality workforce and small businesses.
May 26 at 9 a.m. Treasury Secretary Janet Yellen will chair a public meeting of the Financial Literacy and Education Commission (FLEC).
May 26 at 10 a.m. Senate Banking Committee holds a hearing on “Annual Oversight of Wall Street Firms,” with testimony from the CEOs of Wells Fargo, Goldman Sachs, Citigroup, JPMorgan Chase & Co., Bank of America, and Morgan Stanley.
May 26 at 10 a.m. House Committee on Small Business holds a hearing on “An Examination of the SBA’s COVID-19 Programs.” SBA Administrator Isabella Casillas Guzman will be the only witness.
May 26 at noon House Financial Services Subcommittee on Oversight and Investigations holds a hearing on “Consumer Credit Reporting: Assessing Accuracy and Compliance.”
May 26 at 2 p.m. House Appropriations Subcommittee on Financial Services and General Government holds a hearing on oversight of the Securities and Exchange Commission SEC Chair Gary Gensler will be the only witness.
May 26 at 2:30 p.m. Senate Committee on Small Business & Entrepreneurship holds a hearing to examine the pandemic response and the small business economy, with an update from the Small Business Administration.
May 27 at 11 a.m. House Appropriations Subcommittee on Financial Services and General Government holds a hearing on oversight of the Department of the Treasury. Secretary of the Treasury Janet Yellen will be the only witness.
May 27 at noon House Committee on Financial Services holds a hearing on “Holding Megabanks Accountable: An Update on Banking Practices, Programs, and Policies.”
May 27 at noon House Energy and Commerce Subcommittee on Higher Education and Workforce Investment holds a hearing on “Workforce Innovation and Opportunity Act Reauthorization: Creating Employment Pathways for Dislocated Workers.”
May 28 at 10 a.m. House Appropriations Subcommittee on Financial Services and General Government holds a hearing on oversight of the Small Business Administration. Administrator Isabella Casillas Guzman will be the only witness.
The Ellis Insight
Jim Ellis reports on political news
Florida: Reports surfaced that Rep. Stephanie Murphy (D-Winter Park) was set to announce a US Senate challenge to incumbent Marco Rubio (R), but the Congresswoman’s spokespeople quickly denied that any such decision had been made. It appears the latter information was correct.
Last week, it broke that Rep. Val Demings (D-Orlando), which the same Axios news service source was reporting would soon announce for Governor, now appears on the threshold of declaring her Senate candidacy according to a Politico story. If true, it becomes more likely that Rep. Murphy will run for re-election.
Georgia: US Rep. Buddy Carter (R-Pooler/ Savannah) tweeted that he has spoken to former Georgia football star Herschel Walker, who still lives in Texas after ending his professional career in 1997 with the Dallas Cowboys, about the latter man’s intentions regarding the 2022 Georgia Senate race. Rep. Carter, who says he will run statewide if Mr. Walker doesn’t, reports that the former University of Georgia football legend “will make up his mind by summer.”
Ohio: Secretary of State Frank LaRose (R), who was openly considering entering the open US Senate race, instead announced last week that he will seek re-election to his current position. Mr. LaRose was first elected to his statewide office in 2018 after serving two four-year terms in the Ohio Senate.
AZ-6: Elijah Norton, a financial executive who is a strong Republican campaign donor, announced that he will challenge Arizona GOP Rep. David Schweikert (R-Fountain Hills) for the party nomination next year.
Mr. Norton says he will make the Congressman’s admitted ethical and campaign finance violations an issue in the race. Before the 2020 election, Rep. Schweikert agreed to eleven House ethics violations. This was a general election campaign issue but did not deter the Congressman from winning a sixth term in office. He defeated physician Hiral Tipirneni (D), 52-48%.
IL-18: Reports coming from Illinois suggest that four-term US Rep. Darin LaHood (R-Peoria) is contemplating running statewide for a seat on the Illinois State Supreme Court. If he were to vacate his western Illinois congressional seat, it would be highly likely that this would be the seat collapsed in redistricting. Reapportionment is causing Illinois to lose one congressional seat for the 2021 redistricting process because the state actually has fewer people today than in 2010.
OH-15: Candidate filing for the special election to replace resigned Rep. Steve Stivers (R) in Ohio’s south-central 15th Congressional District concluded last week. Twelve Republicans are now vying for the party nomination, including four sitting members of the Ohio state legislature and one local official. Democratic state Rep. Allison Russo (D-Columbus) appears to be the parry’s consensus candidate. The partisan primary election is scheduled for August 3rd with a special general on November 2nd.
OR-5: Retired Army officer Nate Sandvig recently declared his congressional candidacy for the Republican nomination in hopes of challenging seven-term Rep. Kurt Schrader (D-Canby/Salem) next year in a western Oregon contest that could draw more attention than what we have typically seen.
With reapportionment adding another Oregon seat, and both Reps. Schrader and bordering Congressman Peter DeFazio (D-Springfield/Eugene) desiring to have more Democrats added to their districts, which may be difficult to achieve without creating at least one competitive district, the ensuing Oregon congressional campaigns are likely to become a key 2022 political focal point.
SC-7: Former Myrtle Beach Mayor Mark McBride is now the 12th Republican to announce his candidacy against Rep. Tom Rice (R-Myrtle Beach). The large primary field would normally help a challenged incumbent win with just a plurality, but South Carolina is a runoff state. Therefore, if Rep. Rice can’t obtain majority support in the initial election, the Congressman will have to face one of these challengers in a head-to-head two-week electoral contest.
TX-23: Marine Corps veteran John Lira became the first credible Democrat to announce his congressional candidacy with the hope of squaring off in the general election against freshman Texas Rep. Tony Gonzales (R-San Antonio). CD-23 is a politically marginal district that stretches from San Antonio all the way to El Paso. This was a 2020 open Republican district where Democrats were confident of victory, yet they lost in a bigger margin than in previous years. Expect this seat to significantly improve for Rep. Gonzales in redistricting.
WY-AL: While Wyoming at-large Rep. Liz Cheney (R-Wilson/Jackson) continues to make national news, her cadre of Republican primary opponents also grows. Sheridan County Republican Party chairman and two-time failed US Senate candidate Bryan Miller announced his congressional candidacy.
Mr. Miller is now the eighth GOP contender attempting to deny Rep. Cheney re-nomination, which plays into the incumbent’s hand. The large field in a state that does not have a runoff system will help an embattled incumbent because even a political base that’s only a quarter the size of the voting universe could be strong enough to win a plurality election.
Arizona: Republican state Treasurer Kimberly Yee announced, as expected, that she will enter the open Arizona Governor’s race. Prior to her statewide election in 2018, Ms. Yee served in the state Senate, where she became Majority Leader, and in the Arizona House of Representatives.
Former Congressman and 2002 gubernatorial nominee Matt Salmon (R) is another potential gubernatorial contender who reportedly may soon announce his candidacy. Ex-Nogales Mayor Marco Lopez (D is the only officially declared Democratic candidate. Gov. Doug Ducey (R) is ineligible to seek a third term.
Idaho: Idaho Lt. Governor Janice McGeachin (R), a business owner and former state Representative from Idaho Falls, announced that she will launch a Republican primary campaign against Gov. Brad Little (R) as he mounts an effort for a second term. Ms. McGeachin won a 60-40% victory in the 2018 general election after winning a five-way plurality Republican primary with just 29% of the GOP vote.
Michigan: Target Insyght, polling for the MIRS News organization (5/9-11; 800 MI registered voters; live interview), finds retiring Detroit Police Chief James Craig (R) coming within range of Michigan Governor Gretchen Whitmer (D) in an early ballot test. According to the results, Gov. Whitmer would lead Chief Craig, 48-42%.
She would top former GOP Senate nominee John James by a larger 49-39%, but the latter man would have the advantage in the Republican primary. TI reports that Mr. James would hold a 36-21% lead over Chief Craig among GOP voters. It is not clear whether Mr. James is moving toward another statewide bid after running a pair of close losing US Senate campaigns.
Nevada: Two-term North Las Vegas Mayor John Lee, a Republican who had served in both houses of the state legislature as a Democrat, last week officially announced his campaign for the GOP gubernatorial nomination as expected. Mr. Lee is the first significant Republican to come forward for the 2022 statewide campaign. Gov. Steve Sisolak (D) is expected to seek a second term. We can count on seeing a competitive contest in what is again becoming a highly competitive battleground state.
New York: Andrew Giuliani, son of former New York City Mayor Rudy Giuliani, declared his candidacy for the Republican gubernatorial nomination. Last month, Mr. Giuliani confirmed he was considering entering the race, and now he has formally announced.
Because of incumbent Gov. Andrew Cuomo’s (D) political troubles, the 2022 NY Governor’s race is drawing much more interest than usual in such a strongly Democratic state. In addition to Mr. Giuliani, US Rep. Lee Zeldin (R-Shirley/East Long Island) is in the race and has already clinched the official New York Republican Party endorsement with primary support from a majority of Republican county organizations. Former two-term Westchester County Executive and 2014 GOP gubernatorial nominee Rob Astorino has also announced his intention to run.
Pennsylvania: Former US Representative Lou Barletta (R), who served four terms in the House before running unsuccessfully for the US Senate three years ago, announced that he is making a political comeback in the state’s 2022 open Governor’s race. Prior to winning his congressional seat, Mr. Barletta was elected three times as Mayor of Hazelton where he attracted national notoriety for his tough immigration stance.
All are expecting Attorney General Josh Shapiro to soon announce his candidacy for the Democratic nomination. Mr. Shapiro, at the present, is favored for both the party nomination and keeping the Governor’s office in the Democratic column come November of 2022. Gov. Tom Wolf (D) is ineligible to seek a third term.
Georgia: Last week, Georgia Secretary of State Brad Raffensperger (R), who was at the focal point of the 2020 election controversy in the state, announced that he will run for re-election next year. Lt. Gov. Geoff Duncan (R), now a vocal critic of former President Trump, is taking the opposite course after announcing his retirement.
The Secretary of State’s race will likely attract national attention considering the controversy that erupted. US Rep. Jody Hice (R-Greensboro) announced his Republican primary opposition to Mr. Raffensperger some weeks ago and has earned Mr. Trump’s endorsement.
Democracy Corps: The progressive left Democracy Corps organization just completed one of their regular battleground states polls through Greenberg Research (4/27-5/3; 1,000 registered voters in identified battleground states with a 500-person Republican oversample; live interview). This survey was designed to mainly test the Trump loyalty factor within the GOP and to examine voter intensity for the midterm elections.
Not surprisingly, the survey showed that the Republican coalition, particularly the Trump loyalists, are more intense about the next election than their Democratic counterparts. The Republican coalition recorded 68% in the current most enthusiastic category, down from 84% before the 2020 election, while Democrats registered only 57% from their high of 85%.
It is typical that the party scoring a big victory in the previous election tends to be less politically focused about future voting opportunities. This is a major contributing reason why the party winning the White House almost always loses congressional seats in the succeeding midterm election.
New York City: For the first time in a publicly released poll, former presidential candidate Andrew Yang has not finished first on a New York City mayoral ballot test.
Change Research conducted a poll of the New York City Democratic electorate (released 5/13; 1,422 likely NYC Democratic primary voters; online) and found Brooklyn Borough President Eric Adams taking a slight 19-16% Democratic primary lead in the open mayoral contest. No other candidate reached double-digits, though the undecided factor is 22% as we move closer to the June 22nd nomination election. Winning the Democratic primary will be tantamount to succeeding term-limited Mayor Bill de Blasio (D).
Pittsburgh: State Rep. Ed Gainey (D-Pittsburgh) upset Mayor Bill Peduto with a 46-39% margin to win the Democratic Mayoral primary on Tuesday. This election is tantamount to victory in November because the Republicans did not field a candidate. Mr. Peduto is the first Mayor to lose re-election since World War II, and Mr. Gainey will become the city’s first African American chief executive.