Counting down to shutdown

Although Speaker of the House Kevin McCarthy (R-CA) said he would keep the House in session until they agreed on legislation to keep the government open beyond September 30, the House left town yesterday and will not return until Tuesday. We make no predictions, but it’s not a good sign that the House’s last vote yesterday morning (212-216) was a rejection of the rule to allow consideration of the defense spending bill.
 
FDIC Chairman calls for tailored oversight, regulatory structure for nonbanks
In a speech to the Exchequer Club this week, Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg called for more coordinated supervision and regulation of nonbank financial institutions. “Nonbank financial institutions have become an integral part of the financial system and are an important source of credit to the real economy,” he said. “Banks and nonbanks need to be seen as an interconnected whole and overseen accordingly.” Guidance proposed in April by the Financial Stability Oversight Council (FSOC) laid out new procedures for designating nonbanks for Federal Reserve supervision and prudential standards. Gruenberg said this was a step away from the binary nature of the FSOC’s former designation process, but added that policymakers should consider developing a more tailored process that applies prudential regulation as needed. He recommended that the FSOC, Treasury’s Office of Financial Research, and individual FSOC agencies work together to create a reporting framework for nonbanks to boost transparency and make it easier to identify risks.
 
FDIC Vice Chairman warns against regulatory “overreaction,” urges less burdensome merger requirements
A day after Gruenberg’s speech, FDIC Vice Chairman Travis Hill told the Cato Institute that he was worried that the federal banking agencies were “moving too quickly to impose a long list of new rules and expectations at a time when conditions remain precarious.” Hill said that capital requirements for the largest US banks were already “meaningfully more conservative” than other jurisdictions’, and that the proposed Basel endgame standards would produce “some combination of higher prices and less availability of products and services.” While he expressed general support for proposed new long-term debt requirements for large regional banks, he said the FDIC’s recent large bank resolution proposals could have focused more on critical areas, such as maximizing the likelihood of a weekend sale of a failed regional bank. Hill said the FDIC had been reviewing its bank merger policy for the past several years, and he hopes they will address the length and opacity of the merger application process if they decide to reopen that policy. “It is much, much better for a struggling institution to be purchased on an open bank basis rather than bought from the FDIC out of receivership.” 
 
Regulators must consider cumulative effect of changes, say witnesses
While every proposed new regulation includes its own analysis of anticipated costs and benefits, the federal banking agencies must look beyond the individual rules and try to understand their broader implications for bank customers, the financial system, and the macroeconomy. That was the message from witnesses to the House Financial Services Subcommittee on Financial Institutions and Monetary Policy at a hearing on Tuesday. Subcommittee Chairman Andy Barr (R-KY) called the joint proposal to implement the Basel III endgame capital requirements “glaringly arbitrary and capricious.” He said that regulators had taken the bank failures of March 2023 as an excuse for “a full-scale, rushed, and undeveloped rewrite of the rules of the road.” Rep. Maxine Waters (D-CA), ranking member of the full Committee, scolded panel Republicans for focusing on the needs of Wall Street rather than trying to strengthen the banking system.
 
FEMA’s Criswell says disasters are outpacing funding, asks for additional support
Deanne Criswell, Administrator of the Federal Emergency Management Administration, appeared before the House Transportation Subcommittee on Economic Development, Public Buildings, and Emergency Management on Tuesday to ask for an additional $16 billion for the Disaster Recovery Fund, and to defend the agency’s response to recent disasters and humanitarian needs along the southern border. Criswell denied that FEMA was diverting funds inappropriately to provide services to immigrants, and said that the agency’s funding shortage had required it to put any obligations not considered life-threatening on hold. If the Congressional spending authorization expires on September 30, FEMA will be able to use whatever limited money remains in its Disaster Relief Fund (DRF), but this would not be enough to continue ongoing operations, much less respond to new emergencies.
 
SEC proposed rules on open-end funds and predictive data analysis draw bipartisan opposition
Both Chairman Ann Wagner (R-MO) and ranking member Rep. Brad Sherman (D-CA) expressed concern at a House Financial Services Subcommittee on Capital Markets hearing on Tuesday about the Securities and Exchange Commission’s proposed rules on swing pricing, hard close, and liquidity risk management. Sherman urged the SEC to “substantially modify or abandon” the proposed rule on swing pricing, and Wagner said the agency should withdraw it. Wagner noted that the SEC had received almost 3,000 letters opposing the rule from the broadest possible spectrum, including both the Consumer Federation of America and the US Chamber of Commerce. William Birdthistle, Director of the SEC’s Division of Investment Management, said that decisions on pending rules would be up to the Commissioners, although his office would enforce them once final. SEC Chair Gary Gensler is scheduled to appear before the full Committee next Wednesday.
 
DOT is moving infrastructure funds out as fast as possible, says Buttigieg
As the House Committee on Transportation & Infrastructure began its hearing on oversight of the Department of Transportation on Wednesday, Rep. Rick Larsen (D-WA), the Committee’s ranking member, welcomed Secretary Pete Buttigieg “to what will be a long day.” Approximately six hours later, the hearing ended with Rep. Mike Collins (R-GA), a freshman member of the panel, blasting Buttigieg for “pushing a far left woke DEI, socialistic experiment” that was making the nation’s transportation modes less safe. In between, Buttigieg offered updates on dozens of specific projects in members’ districts and cordially but unapologetically defended the Administration’s commitment to a transition to electric vehicles and current age restrictions for pilots and commercial drivers, among other issues. He asked Congress to advance bipartisan freight rail safety legislation and encouraged state and local governments to take advantage of technical assistance programs to help them apply for infrastructure grants.

“Encourage innovation, but monitor for novel risks”
Artificial intelligence (AI) is already in use throughout the financial services industry, but “what was illegal before AI remains illegal,” Senator Mike Rounds (R-SD) observed at a Senate Banking Committee hearing on the topic this week. Witnesses told the Committee that while machine learning offers opportunities to improve fairness and inclusion in lending decisions, the “explainability and transparency” regulators require are often not available with generative AI programs. Daniel Gorfine, former Chief Innovation Officer at the Commodity Futures Trading Commission, said that policymakers should assess new AI-based models “on their ability to improve off of a highly imperfect status quo.” Chairman Sherrod Brown (D-OH) said that big corporations may be overhyping the potential benefits of AI while downplaying the risks, and Senator Robert Menendez (D-NY) said he worried about AI compounding existing fraud in the financial system. Witnesses and legislators agreed on the need to train a workforce to respond to AI in both the private sector and government.

Confirmations, Nominations, Departures

Senator Robert Menendez (D-NJ), Chairman of the Senate Committee on Foreign Relations and a senior member of the Senate Banking Committee, was indicted by the US District Court for the Southern District of New York on charges of conspiracy to commit bribery, conspiracy to commit honest services fraud, and conspiracy to commit extortion under color of official right.

Tanya F. Otsuka, senior counsel on the majority staff of the Senate Banking Committee, has been appointed to the National Credit Union Administration Board of Directors. If confirmed, she will take the seat last held by Rodney Hood, whose term expired in August.

The Week Ahead

NASA’s OSIRIS-Rex mission is bringing the largest-ever asteroid sample back to earth on Sunday (you can watch it live here), and maybe this will be so exciting that legislators will rally to pass a spending bill just to keep that program going. Stranger things have happened.
 
September 26 & 27 at 1:00 p.m. The Small Business Administration Office of Advocacy hosts two virtual roundtables to discuss the Department of Labor’s proposed overtime rule, which would raise the “white collar” exemption from the Fair Labor Standards Act from $35,568 to at least $55,068. Both roundtables are open to the public, but SBA asks that participants choose only one; RSVP with your date of choice to Janis Reyes at Janis.Reyes@sba.gov for the session link.
 
September 27 at 10:00 a.m. House Committee on Financial Services holds a hearing on oversight of the Securities and Exchange Commission.
 
September 27 at 10:00 a.m. House Committee on Small Business holds a hearing on “Action Through Innovation: Private Sector Solutions to Recouping Stolen Pandemic Loan Funds.”
 
September 27 at 10:00 a.m. Senate Committee on Agriculture, Nutrition, and Forestry holds a hearing on “Foreign Ownership in US Agriculture.”
 
September 27 at 10:30 a.m. Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “The State of Flood Insurance.”
 
September 27 at 2:30 p.m. Senate Committee on Intelligence holds a hearing to examine countering China’s malign influence operations in the United States.
 
September 28 at 10:00 a.m. House Transportation Subcommittee on Water Resources and Environment holds a hearing on "Clean Water Infrastructure Financing: State and Local Perspectives and Recent Developments.”
 
September 28 at 10:00 a.m. House Committee on Oversight and Accountability holds its first hearing on “The Basis for an Impeachment Inquiry of President Joseph R. Biden, Jr.”

The Ellis Insight - Jim Ellis on political news

PRESIDENT

Donald Trump: Former President Donald Trump indicated during the week that he will not join the other Republican national candidates at the September 27 debate forum at the Ronald Reagan Library in Southern California. Instead, he will be making a speech about the striking United Auto Workers union to lay the groundwork to gain potential support in the general election. 

Continuing to hold a big lead over the entire GOP candidate field, Mr. Trump would stand to gain little by participating in the next forum. Due to more stringent debate requirements, the Republican National Committee leadership expects to have fewer candidates earning a debate podium, with North Dakota Gov. Doug Burgum and ex-Arkansas Gov. Asa Hutchinson unlikely to qualify.

SENATE

Michigan: Politico reports that retired Detroit Police Chief James Craig (R) will announce his US Senate candidacy at the beginning of October. Mr. Craig had filed to run for Governor in 2022 but failed to return the proper number of valid petition signatures, thus disqualifying him. 

Assuming this report is true, Mr. Craig will enter an August 6 Republican primary against the favorite for the nomination, former Congressman Mike Rogers, and Michigan Board of Education member Nikki Snyder who was the first candidate to announce. The winner will then likely challenge Rep. Elissa Slotkin (D-Lansing) who is favored to win the Democratic nomination.

Pennsylvania: David McCormick, the former CEO of the Bridgewater Associates hedge fund who lost to Dr. Mehmet Oz by just 950 votes in the 2022 Pennsylvania US Senate race, announced this week that he is returning next year to challenge Sen. Bob Casey, Jr. (D). Though an uphill battle, Mr. McCormick’s presence gives the Republicans a credible candidate with whom to challenge the three-term incumbent. 

While Pennsylvania decidedly leans Democratic, it is one of the top targeted states in the presidential election. This means more focus on former President Donald Trump throughout the general election campaign, but also suggests that Mr. McCormick will be the beneficiary of more party resources being spent on organization and voter turnout operations. At this point, Sen. Casey must be rated a clear favorite for re-election, but this contest is now a race to watch.

HOUSE

CA-16, 18: Former San Jose Mayor Sam Liccardo (D) who said earlier in the year he was deciding whether to challenge Rep. Anna Eshoo (D-Atherton) or Rep. Zoe Lofgren (D-San Jose) in California’s March all-party jungle primary will not run against anybody. Instead, he has accepted a position with a legislative advocacy firm. Both Reps. Eshoo and Lofgren appear as prohibitive favorites to win another term in the House irrespective of who might be their Democratic primary and general election opponents.

CO-4: Rep. Ken Buck (R-Windsor), who has been critical of the House Republican leadership for moving to an impeachment inquiry of President Biden, may resign his seat. Apparently, he is talking to both MSNBC and CNN about developing a contractual relationship. 

Additionally, as a direct result of his latest Republican-on-Republican attacks, Rep. Buck may have drawn a potential GOP primary challenger. State Rep. Richard Holtorf (R-Akron) filed a congressional exploratory committee to assess his chances against Rep. Buck in the expansive eastern Colorado district. The 4th District is safely Republican (R+26 according to the FiveThirtyEight data organization) and encompasses most of the Colorado territory north and east of the Denver metropolitan area.

MI-13: Freshman Michigan Rep. Shri Thanedar (D-Detroit), who won a crowded open Democratic primary in 2022 with just 28% of the vote, will face at least two of the same opponents in his renomination fight next year. Former state Sen. Adam Hollier and John Conyers III, whose father held this same seat for 52 years, appear to be sure bets to return for another electoral battle. Once again, however, a crowded field will help Mr. Thanedar because his opposition vote will be split. The Democratic primary will determine who represents the district. The FiveThirtyEight data organization rates MI-13 as D+46.

NM-2: One of the closest 2022 campaigns occurred in southern New Mexico where then-Las Cruces City Councilman Gabe Vasquez (D) defeated freshman Rep. Yvette Herrell (R) by a scant 50.3 - 49.6% victory margin in a gerrymandered district designed to elect a Democrat. Survey USA was just in the field testing the 2024 re-match campaign. Again, the polling results suggest a toss-up finish. 

The S-USA study (9/6-12; 541 NM-2 likely voters; live interview & online) sees Ms. Herrell clinging to a slight one point edge over Rep. Vasquez, 46-45%. If the Republicans are to hold their slim House majority, they must win tight districts such as this one to neutralize the Democrats’ apparent advantage in the second round of redistricting.

PA-10: Veteran news anchorwoman Janelle Stelson (D) has resigned her position with WGAL-TV in Lancaster, PA, ostensibly to soon declare her candidacy opposite US Rep. Scott Perry (R-Dillsburg/Harrisburg). While Ms. Stelson is well known in the Lancaster area, which media market touches York County, the bulk of the 10th District population lies in the Harrisburg/Dauphin County region. Therefore, she does not command districtwide name identification. 

The FiveThirtyEight data organization rates the 10th District as R+9, which suggests a competitive race but one that a Republican should typically win. Rep. Perry was originally elected in 2012. He begins this race as a clear favorite for re-election.

VA-7: Iraq War veteran and attorney Derrick Anderson (R) who ran for the 7th District seat in the last election but failed to win the Republican primary, announced that he will return in 2024. Four other Republicans have already declared their candidacies for the politically marginal seat. 

Rep. Abigail Spanberger (D-Glen Allen) is reportedly studying a 2025 run for Governor, and if she ultimately moves in that direction would not seek re-election to the House in 2024. Therefore, this race would move up the competitive scale. The FiveThirtyEight data organization rates the VA-7 seat as D+2. The Daily Kos Elections statisticians rank the 7th as the 14th most vulnerable seat in the 213-member Democratic conference.

VA-10: Three-term Virginia US Rep. Jennifer Wexton (D-Leesburg) announced during the week that she will not run for a fourth term next year due to a tragic health diagnosis.

"I've always believed that honesty is the most important value in public service, so I want to be honest with you now — this new diagnosis is a tough one. There is no 'getting better' with PSP (Progressive Supranuclear Palsy).”

Virginia’s 10th Congressional District is anchored in Loudoun County and contains Fauquier and Rappahannock counties along with parts of Prince William and Fairfax counties. The cities of Manassas and Manassas Park are also included. 

The FiveThirtyEight data organization rates the seat as D+8, while Dave’s Redistricting App calculates the partisan lean at 55.2D – 43.0R. President Biden carried this district with a substantial 58.3 – 40.2% margin.  We can expect a competitive open campaign to develop here, but the eventual Democratic nominee will have a clear advantage in the general election.

GOVERNOR

Florida: Earlier this year, Rep. Matt Gaetz (R-Ft. Walton Beach) indicated interest in running for what will be an open Governor’s office when incumbent Ron DeSantis (R) will be ineligible to seek a third term. Now, he is saying that such talk is premature. On the other hand, Rep. Byron Donalds (R-Naples) confirmed yesterday that he would consider such a run. Though it is years away, this open Governor’s race will be highly competitive in both party primaries and the general election.

If Gov. DeSantis were to win his current campaign, he of course would resign as Governor before assuming the Presidency. Such would mean Lt. Governor Jeanette Nunez (R) ascending to the Governor’s position. She would not be barred from running in 2026 for a full term in her own right.

Louisiana: The October 14 open Louisiana primary is nearing, and a new Mason-Dixon Polling & Strategy survey for Gray Television (9/12-15; 625 LA registered voters; live interview) projects Attorney General and former Congressman Jeff Landry (R) leading Democratic ex-Transportation Department Secretary Shawn Wilson and previous gubernatorial chief of staff and business leader Stephen Waguespack (R) by a 40-24-9% margin. 

All candidates are placed on the same ballot for the October 14 election. If no candidate receives majority support, which is a likely result, the top two finishers would advance to a November 18 runoff election. 

Mr. Landry looks to be in good shape against his potential runoff opponents. Opposite Mr. Wilson, the Landry advantage is 52-39%. If Mr. Waguespack were to qualify for the second runoff position, the Attorney General’s lead is an even greater 52-27%. Incumbent Gov. John Bel Edwards (D), who has endorsed Mr. Wilson as his successor, is ineligible to run for a third term.

North Carolina: Progressive left pollster Change Research sampled the Tar Heel State electorate (9/1-5; 914 NC likely 2024 general election voters; online) and found Lt. Gov. Mark Robinson (R) leading Attorney General Josh Stein (D) by a 42-38% count in the open Governor’s race. The four-point Republican margin is the same as CR found in the presidential contest, as former President Donald Trump held a 46-42% edge over President Biden. Both Messrs. Robinson and Stein are heavy favorites to win their respective party’s gubernatorial nomination. 
 
Utah: Former Congressman and Fox News contributor Jason Chaffetz (R) this week ruled out challenging Gov. Spencer Cox in next year’s Republican primary and also said, while not closing the door on running for Sen. Mitt Romney’s (R) open seat, that the Senate race is “not something I’m actively pursuing.”  The political move he finds most attractive at present is entering the open 2028 gubernatorial campaign when Gov. Cox will be ineligible to seek re-election.

STATES

Pennsylvania:  Late this week, the Pennsylvania Senate on a lopsided 45-2 vote endorsed legislation that would move the state’s primary, including nomination votes for all 2024 offices, from April 23 to March 19. The move would place the state in a more influential position for the presidential nomination process. 

If the state House of Representatives and Governor Josh Shapiro (D) agree, the change in date will place the Keystone State vote on the same day as primaries in Arizona, Florida, Illinois, Kansas, and Ohio. All March 19th primaries except for Illinois and Ohio feature stand-alone presidential primaries for both parties. 

LOCALITIES

Houston: Gov. Greg Abbott (R) this week indicated that he would select December 9 as the runoff election date for any contest that is not decided in the coming November 7 election.

Under Texas law, a runoff is not officially scheduled until it is certain that one would be required. The open Houston mayoral contest largely between US Rep. Sheila Jackson Lee (D-Houston) and state Sen. John Whitmire (D-Houston) is likely the premier electoral contest that will require a secondary vote. The Abbott comments give the candidates a better idea as to how much time they will have for runoff campaigning.

Nashville, TN: The open mayoral runoff election was held on Tennessee’s unique Thursday election day at the end of last week, and the progressive left candidate, Freddie O’Connell who is an elected member of the Davidson County Metro Council, recorded the victory. He easily defeated GOP strategist Alice Rolli on a 63-36% count. Mr. O’Connell will succeed Mayor John Cooper, brother of former Congressman Jim Cooper (D). The Mayor did not seek re-election.