Don’t you just hate a slow news week?
Several things happened this week that we are unqualified to comment upon, so we’ll just say we are glad Congress is out of town for the next two weeks. We trust nothing newsworthy will happen between now and April 17.
An icon passes
He said he had 535 writers: “One hundred in the Senate and 435 in the House of Representatives.” Piano-playing comedian Mark Russell started commenting in song on the quirks of political Washington before most of us were born. He died this week at the age of 90. You can watch one of his last performances, a riff on the 2016 presidential nominees, here.
Changes are coming to bank regulation and supervision
We can’t tell you what they are, just that they’re coming. FDIC Chairman Martin Gruenberg, Federal Reserve Vice Chair of Supervision Michael Barr, and Undersecretary of the Treasury for Domestic Finance Nellie Liang spent a total of more than eight hours before the Senate Banking Committee and House Financial Services Committee this week, going over the timeline of events leading up to and following the failures of Silicon Valley Bank (SVB) and Signature Bank earlier this month. If you want details of these hearings, ask and we can provide them, but these were the highlights:
Both the Federal Reserve and the FDIC are conducting reviews of the supervisory decisions that preceded these failures, with reports to be published on May 1. The Fed’s report will include details of SVB’s examination reports.
The FDIC’s report will include recommendations for changes in the deposit insurance system, including and not limited to coverage levels and assessment structures.
The FDIC will also publish in May a notice for comment about the special assessment to cover any losses to the Deposit Insurance Fund. While Chairman Gruenberg made no promises, he said the law gives him discretion to limit increases for banks in certain categories, or even exempt them altogether.
All the regulators said that the financial system is fundamentally strong and resilient, but that more stringent regulations may need to be imposed or reinstated on banks larger than $100 million.
Legislators and regulators agreed that SVB had failed because of egregious mismanagement, but both Democrats and Republicans on both sides of the Hill said that the bank supervisors had not acted aggressively enough to curb SVB’s risky behavior. Republicans made the point that the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (better known to most of us as S. 2155) specifically authorized the Federal Reserve System to tailor regulations to institutions’ risk profiles regardless of size, and that the Fed had not done this in response to SVB’s unique business model and structure. Republicans also blamed the Biden administration’s “reckless spending” for inflation that led to the higher interest rates that aggravated SVB’s interest rate risk.
Republicans also asked about reports that the FDIC had “waved off” potential buyers for Silicon Valley Bank before or immediately after SVB’s failure on March 10, creating the circumstances under which the regulators had to insure all depositors, and delaying the eventual sale of SVB by almost two weeks. FDIC Chairman Gruenberg said the agency had received only one legitimate bid for SVB immediately after its failure, and had determined that the bid would cost more than liquidating the bank.
Yesterday President Biden called for a series of reforms to strengthen bank regulation and supervision, including rolling back the changes made by S. 2155. He also said the federal regulators should “move forward expeditiously” in extending long-term debt requirements to a wider range of banks, and recommended that the FDIC (an independent agency) use its authority to exempt community banks from the Deposit Insurance Fund special assessment.
May 1 is a Monday. It’s safe to assume we’ll see Chairman Gruenberg and Vice Chair Barr back before these committees later that week.
Permitting, inflation challenge infrastructure action
Builders and a state transportation official told the House Transportation & Infrastructure Subcommittee on Highways and Transit this week about the hurdles they’re facing as they work to use funding authorized by the Infrastructure Investment and Jobs Act (IIJA) for transportation infrastructure projects. Many of these projects are already underway, but inflation has driven up costs by 30% or more in some parts of the country. Witnesses also said they weren’t yet seeing the benefit of the “one federal decision” requirements of the IIJA, and were struggling with the new Waters of the United States (WOTUS). They said the Administration’s Buy America rules needed to be clearer, and needed “realistic goals and waivers” to keep projects on budget and on schedule.
CFPB finalizes small business data collection rule
The Consumer Financial Protection Bureau (CFPB) published its final rule requiring lenders to collect data about their loans to small businesses yesterday, ending more than 12 years of work required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule applies not just to depository institutions but to all types of lenders, including community development financial institutions, government agencies, and nonprofit organizations. A “small business” is any privately owned or publicly traded for-profit concern with gross annual revenue of less than $5 million. The data collected must include the type of credit applied for, its purpose and amount, the applicant’s census tract, the type of business, the number of employees, the length of time in business, and the number of the applicant’s principal owners. Lenders must also ask applicants to provide their business status as minority-owned, women-owned, or LGBTQI+-owned and their principal owners’ ethnicity, race, and sex. Applicants are not required to provide that information, but if they do, the lenders must report it.
Compliance dates are tiered according to a lender’s number of originations in 2022 and 2023; the largest lenders must start reporting on October 1, 2024, and the smallest need not comply until January 1, 2026. An information sheet detailing the compliance dates and data points is here.
Lee introduces bipartisan legislation to break up online advertising
Senator Mike Lee (R-UT) and a bipartisan group of ten Senators introduced a bill this week that would prohibit ad companies from owning multiple parts of the digital ad ecosystem if they have more than $20 billion in online advertising revenue. If enacted, the Advertising Middlemen Endangering Rigorous Internet Competition Accountability (AMERICA) Act would likely require Google and Facebook to divest big portions of their advertising businesses, and would affect efforts by Amazon, Apple, and other tech competitors to break into the market. Google’s advertising business is facing three separate antitrust lawsuits from the Department of Justice and state attorneys general, one in northern Virginia and two in New York. GR’s Blair Hancock is tracking this issue for anyone who’d like more information.
Commenters ask FHFA for clear guidance on use of fintech in housing finance
This week the Federal Housing Finance Agency (FHFA) published a summary of responses to its request for comment on the role of technology in housing finance, issued last year as part of the establishment of its Office of Financial Technology. “Important themes emerged,” the agency said, including a generally positive view of fintech’s opportunities “to automate and streamline existing housing finance processes, improve data standards, facilitate the use of alternative data, and use technology to better serve underserved communities.” Commenters asked the FHFA to encourage responsible innovation by providing clear regulatory guidance, collaborating with other regulators and industry stakeholders to promote consistency, and creating regulatory sandboxes for testing fintech ideas and products. They also saw opportunities to use technology to improve and streamline regulatory compliance. You can read all sixty comments at this link; choose “2022 Fintech in Housing Finance RFI.”
Fed explains denial of crypto bank’s membership
Last Friday the Federal Reserve System published its order denying Custodia Bank’s application for membership, explaining the decision it announced earlier this year. Custodia Bank, based in Cheyenne, Wyoming, is a state-chartered special purpose depository institution (SPDI) that describes itself as “a software platform with a bank charter, built to connect digital assets with the traditional financial system.” It is not FDIC-insured. The Fed’s order said it found that Custodia’s “risk management and controls for its core banking activities were insufficient, particularly with respect to overall risk management; compliance with the Bank Secrecy Act (“BSA”) and U.S. sanctions; information technology (“IT”); internal audit; financial projections; and liquidity risk management practices.”
The Week Ahead
Both the House and the Senate are in district work sessions until Monday, April 17. Unless something cataclysmic happens next week, The Golden Apple will take a break until April 14. We wish you all a happy Passover and a happy Easter.
The Ellis Insight - Jim Ellis on political news
PRESIDENT
Chris Christie: Former New Jersey Governor Chris Christie (R) is making appearances in New Hampshire and telling Republicans that they “need him” on the debate dais in order to “stop Trump.” It is unlikely that such a strategy will bear much political fruit, but it is certainly possible that Mr. Christie will enter the presidential race.
New Prospects: A pair of new Republican potential presidential candidates appear to be exploring the national campaign hustings. Reportedly, Sen. Thom Tillis (R-NC) and North Dakota Gov. Doug Burgum (R) are beginning to test the political waters with appearances in the early primary states.
Should they move forward, former President Trump will likely be the big winner. The greater number of individuals who have little chance of winning the nomination but still become candidates makes it easier for Mr. Trump to score plurality victories and secure the highest number of delegates.
SENATE
California: California US Rep. Ro Khanna (D-Fremont) announced that he is ending consideration of entering the state’s open US Senate race and, instead, will back his San Francisco Bay Area colleague, Rep. Barbara Lee (D-Oakland), in her statewide campaign. Rep. Khanna says he plans to seek re-election to the House in 2024, which he claims is the best place for him to serve.
The Khanna move further crystallizes an open all-party March 5th primary race among Reps. Lee, Katie Porter (D-Irvine) and Adam Schiff (D-Burbank). A credible Republican candidate has not yet come forward. Sen. Dianne Feinstein, the Senate’s top senior Democrat, is retiring.
Maryland: Republican leaders are again trying to recruit former Gov. Larry Hogan (R) into the Maryland US Senate race. It appears, however, they will not have any better luck convincing him to challenge veteran incumbent Ben Cardin (D) in the 2024 campaign than they did in recruiting him against Sen. Chris Van Hollen (D) last year.
Mr. Hogan reiterated that he has no interest in running for the Senate, and that includes an open seat scenario. Sen. Cardin, who will be 80 years old at the time of the next election, is a retirement prospect.
Michigan: This week, Secretary of State Jocelyn Benson (D), who had not previously closed the door on entering the open Senate race, said that she would not run. The move strengthens Rep. Elissa Slotkin (D-Lansing) who, at this point, is the only announced Democratic candidate. Michigan Education Board President Pamela Pugh and actor and author Hill Harper are the remaining noteworthy potential candidates.
For the Republicans, state Education Board member Nikki Snyder is the only declared candidate, but Rep. Bill Huizenga (R-Holland), and ex-Reps. Fred Upton and Peter Meijer are potential entrants. Sen. Debbie Stabenow (D) is not seeking re-election to a fifth term. Rep. Slotkin is the clear early favorite for the Democratic nomination and to win the general election in November of 2024.
West Virginia: Reports are coming from West Virginia, and even quoting Sen. Shelley Moore Capito (R) as a source, that Gov. Jim Justice (R), who is ineligible to seek a third term in 2024, is moving closer to entering the US Senate contest. Apparently, the Governor held a meeting with the National Republican Senatorial Committee leadership and has been communicating directly with Senate GOP Leader Mitch McConnell (R-KY) about the next campaign.
Earlier, it was reported that Mr. Justice would not announce for the Senate until he had shepherded his major tax cut proposal through the legislature. Now that the revenue bill has passed, it appears the Governor will soon declare his federal candidacy.
In order to challenge Sen. Joe Manchin (D) in the general election, he must initially move past US Rep. Alex Mooney (R-Charles Town). The Congressman, who declared for the Senate right after the November election and has support from the Club for Growth political action organization, will be a formidable opponent. Gov. Justice, however, has universal name identification and a favorable image throughout the state. He is the obvious favorite.
Mr. Manchin appears to be the most vulnerable of the Democratic Senators standing for re-election, and the West Virginia race is becoming a must-win for the Republicans if they are to take advantage of a favorable 2024 Senate map that forces them to defend only 11 of 34 in-cycle seats next year.
HOUSE
KY-5: Eastern Kentucky US Representative Hal Rogers (R-Somerset) is the Dean of the House of Representatives, having been first elected in 1980. He has rarely been challenged since, though already we see four Republican opponents lining up to challenge the veteran incumbent next year.
In 2022, physician Rich Van Dam challenged the Congressman along with three others, and together the group held Rep. Rogers to an 82% landslide victory. With the Congressman turning 86 years of age before the next election, it appears these challengers are anticipating a potential retirement announcement, since it is unlikely they will have much success at the ballot box.
OH-9: Ohio US Rep. Marcy Kaptur (D-Toledo) is one of only five Democrats who represent seats that former President Donald Trump carried in 2020. Post-redistricting, Rep. Kaptur found herself placed in a seat that is strongly Republican, but was fortunate in drawing GOP candidate J.R. Majewski who was part of the January 6th raid on the Capitol. She easily dispensed with her opponent, 57-43%, despite the district’s R+6 partisan lean.
A new contender has come to the forefront, which will likely make the 2024 race much more competitive. In what is expected to be the first of several Republican candidates to announce, former Walbridge Mayor Dan Wilczynski yesterday made his declaration. State Representative Derek Merrin (R-Waterville), who is the chairman of the Ohio House Ways & Means Committee, is another potential candidate.
Rep. Kaptur is the Dean of House Democrats. She was first elected in 1982, thus serving her 21st two-year term.
RI-1: Despite Rhode Island Rep. David Cicilline (D-Providence) not resigning his seat until June 1st, the list of impending special election candidates continues to grow. Woonsocket Mayor Lisa Baldelli-Hunt (D) is adding her name to the list of those either announcing for the seat or considering entering the campaign. Her addition expands the candidate and potential candidate list to nine Democrats. At a D+32 rating, Rep. Cicilline’s successor will be determined in the special Democratic primary.
Ms. Baldelli-Hunt is the aunt of Rocco Baldelli, who is the manager of the Minnesota Twins Major League Baseball club. Gov. Dan McKee (D) will officially issue the special election calendar as soon as Rep. Cicilline officially resigns. He has indicated, however, that the special primary will be September 5th, and the subsequent special general election concurrent with the regular election scheduled for November 7th.
GOVERNOR
North Carolina: Tar Heel State Lt. Gov. Mark Robinson (R) has received the preponderance of early attention regarding the 2024 open Republican gubernatorial nomination, but another individual has jumped ahead of him to become the first official GOP candidate. State Treasurer Dale Folwell declared his gubernatorial candidacy this week, thus setting up a tough primary battle with Mr. Robinson. The latter man is set to announce his bid officially soon.
The lone Democrat in the race, Attorney General Josh Stein, is well on his way to becoming a consensus party candidate. Gov. Roy Cooper (D) is ineligible to seek a third term. As with all North Carolina statewide races, the 2024 battle will yield a tight final result.
Ohio: This week, Lt. Gov. John Husted (R) launched his campaign for Governor even though the election is still almost four years away. Gov. Mike DeWine (R) was elected to a second term in November, but is ineligible to seek a third.
The Lt. Governor is not the only candidate getting a head start. Previously announcing that they would run for Governor in the election after next are former Department of Homeland Security official and conservative think tank president Matt Mayer (R) and Iraq War veteran Jeremiah Workman (R).
LOCALITIES
Chicago: Two positive occurrences happened this week for Chicago mayoral candidate Paul Vallas, now just days away from the April 4th runoff election day. First, Emerson College released their new survey conducted for the WGN Television in Chicago and The Hill newspaper in Washington, DC. The study (3/23-25; 1,000 Chicago likely voters; multiple sampling techniques) posts Mr. Vallas to a 46-41% lead over Cook County Commissioner Brandon Johnson. The polls have seesawed throughout the runoff period.
Secondly, Senate Majority Whip Dick Durbin (D-IL) announced his public support of Mr. Vallas, thus bringing him more key Illinois Democratic establishment support.
Northwestern University’s Center for Diversity and Democracy and several Black and Latino non-profit organizations contracted with the BSP survey research firm (3/15-23; 1,500 Chicago registered voters; live interview, email, and online panel) and produced data that finds the two candidates locked in a 44-44% dead heat, thus countering the Emerson results.
It appears we are guaranteed a tight finish between Messrs. Vallas and Johnson. In the February qualifying election where Vallas and Johnson earned the right to advance, incumbent Lori Lightfoot (D) was defeated.
Houston: As has been anticipated for several months, Texas US Rep. Sheila Jackson Lee (D-Houston) announced during the week that she will enter the 2023 open Houston Mayor’s race. The Congresswoman will not have to risk her US House seat to run for the post, but must resign if elected. If this occurs, a special election will then be scheduled to fill the unexpired portion of the congressional term. Already, a field of eleven individuals have announced their mayoral candidacies even though candidate filing doesn’t conclude until August 21st.
The major candidates, in addition to Rep. Jackson Lee who was first elected to Congress in 1994, include state Senator John Whitmire (D-Houston), former city Councilwoman and ex-US Senate candidate Amanda Edwards, Houston Metro Board member and ex-Texas Democratic Party Vice Chairman Chris Hollins, and attorney Lee Kaplan.
Incumbent Mayor Sylvester Turner is ineligible to seek a third term. He is reportedly surveying his prospects against Sen. Ted Cruz (R) in a 2024 statewide race. It is likely, however, that should Ms. Jackson Lee win the mayoral election, Mr. Turner will quickly enter the special congressional succession election.