Lummis, Gillibrand offer bipartisan framework for crypto regulation

Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced legislation this week that would create a comprehensive framework for registration, regulation, and supervision of digital assets. S. 4365, the Responsible Financial Innovation Act, would clarify the tax treatment of these assets. It would distinguish between digital assets that function as securities, which would be regulated by the SEC, and those that function as commodities, which would be regulated by the CFTC. It would set disclosure requirements for customer agreements.

Title VI of the bill addresses minimum requirements for stablecoin issuers, and would create a process for insurance financial institutions to issue payment stablecoins. It would require the federal government to set security standards for the use of the digital yuan on US government devices. It would explicitly authorize a limited-purpose national bank charter for stablecoin issuers, and would create an Innovation Laboratory within Treasury’s Financial Crimes Enforcement Network (FinCEN).

Title VII directs the Federal Reserve to study the use of distributed ledger technology (DLT) to reduce risk in the banking system, suggesting that DLT might reduce operational risk enough to affect capital requirements. It reiterates that federal law requires the Fed to make its services available to any depository institution that holds a state or federal charter. It would require the Federal Financial Institutions Examination Council (FFIEC) to adopt examination standards relating to digital assets.

Title VIII would standardize fintech laws without explicitly preempting state laws, by allowing businesses operating in one state’s fintech “sandbox” to use those powers in other states, and by requiring states to adopt uniform standards for the treatment of digital assets within two years.

In a conversation hosted by The Washington Post on Wednesday, Senator Lummis said they were seeking feedback on this legislation from all stakeholders, and that she expects at least four Senate committees to review it: Agriculture, Banking, Intelligence, and Finance. Senator Gillibrand said that the bill was necessary to replace the status quo, which she described as “a complete failure.”

Senate, House panels discuss use of crypto in ransomware, terrorism financing
The Senate Committee on Homeland Security and Governmental Affairs (HSGAC) may also want to assert jurisdiction over S. 4365, as it held a hearing Tuesday on the increasing use of cryptocurrency in ransomware attacks. Members heard recommendations from the Institute for Science and Technology’s Ransomware Task Force, which called for closer public-private collaboration and information sharing, and closer international regulation of the cryptocurrency sector. Later in the week, the House Homeland Security Subcommittee on Intelligence & Counterterrorism held its own hearing on the use of cryptocurrency by terrorists and other international crime organizations. Witnesses from The Blockchain Association, Chainalysis, and Coinbase told legislators that the blockchain made these transactions easier to trace than cash payments, but that traceability didn’t necessarily mean that law enforcement could recover or stop those payments.

Yellen makes Hill appearances, stresses need for more IRS funding
Secretary of the Treasury Janet Yellen appeared before the Senate Finance Committee and the House Committee on Ways and Means this week for two long, partisan, occasionally contentious hearings to discuss President Biden’s FY 2023 budget proposal. She acknowledged that inflation rates are too high—and this was before today’s announcement that inflation had risen by yet another percentage point—and likely to persist into next year. The Administration is focused on measures to bring prices down, she said, particularly for prescription medication and childcare.

The President’s budget calls for tax increases on the wealthiest Americans, and Secretary Yellen said she was keen to move forward with an international agreement on a global minimum tax, as developed by the member nations of the Organization for Economic Cooperation and Development (OECD). Republicans on the Senate Finance Committee said that this would need the two-thirds majority required to approve international treaties. In both appearances, Yellen highlighted the request for $80 billion to modernize and boost staffing levels at the Internal Revenue Service, as the agency currently lacks resources to pursue high-income tax cheats or make meaningful reductions in a tax gap estimated at $600 billion.

Treasury announces first ARP broadband grants
Louisiana, New Hampshire, Virginia, and West Virginia will be the first states to receive grants for broadband infrastructure from the American Rescue Plan’s Coronavirus Capital Projects Fund (CPF), the Treasury Department announced this week. The CPF is a $10 billion initiative to support critical state, territorial, and tribal programs that enable work, education, and health monitoring; affordable broadband and digital connectivity are priorities within the statute. The grants approved this week should provide broadband access to more than 200,000 households and businesses, mainly in rural and remote areas. Treasury will continue to accept funding plans from state governments until September 24.

Fed promises new tool to help with CECL implementation
The Federal Reserve said this week that it will release a new tool, the Expected Losses Estimator (ELE), to help banks calculate allowances for the Current Expected Credit Losses (CECL) accounting standard. The new tool joins the Fed’s Scaled CECL Allowance for Losses Estimator (SCALE), which it issued last July. The Fed will explain the new tool at an “Ask The Fed” online session for community banks scheduled for next Thursday, June 16.

Confirmations, Nominations, Departures

Rep. David Kustoff (R-TN) moved from the House Financial Services Committee to the House Committee on Ways & Means, replacing Rep. Tom Reed (R-NY). He will serve on the Subcommittees on Social Security, Oversight, and Worker & Family Support.

Rep. Ralph Norman (R-SC) has been chosen to fill the vacancy on the House Financial Services Committee.

California’s 22nd Congressional district elected Connie Conway to the House of Representatives, filling a seat vacated by the resignation of Devin Nunes.

The Week Ahead

June 14 at 10:00 am House Committee on Financial Services marks up various measures.

June 14 at 10:00 am Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “Considering the Index Fund Voting Process.”

June 14 at 10:30 am House Energy & Commerce Subcommittee on Consumer Protection and Commerce holds a hearing on “Protecting America’s Consumers: Bipartisan Legislation to Strengthen Data Privacy and Security.”

June 14 at 2:30 pm Senate Appropriations Subcommittee on Financial Services and General Government holds a hearing on FY2023 budget estimates for Treasury’s Office of Terrorism and Financial Intelligence and the Financial Crimes Enforcement Network (FinCEN).

June 15 at 3:00 pm Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness holds a hearing on “Supply Chain Resiliency: Alleviating Backlogs and Strengthening Long-Term Security.”

June 16 at 9:00 am House Foreign Affairs Subcommittee on Europe, Energy, the Environment and Cyber holds a hearing on “U.S. Efforts to Support European Energy Security.”

The Ellis Insight - Jim Ellis on political updates

PRIMARIES

California: Former state Assemblywoman Connie Conway won the special congressional election in the 22nd District and will assume office immediately after race certification to fill the unexpired portion of resigned Rep. Devin Nunes’s final congressional term.

Additionally, Rep. Mike Garcia (R-Santa Clarita), in a district that was made more Democratic, finished substantially ahead, 50-35%, of former state Assemblywoman Christy Smith (D), the opponent he has twice beaten including a 333 vote win in 2020. An estimated quarter of the vote remains to be added, so these numbers will change at least to a degree, but the pair will again advance into the general election.

In Orange County, incumbent Reps. Young Kim (R-La Habra) and Michelle Steel (R-Orange County) qualified for their respective general elections against physician Asif Mahood and Community College Trustee Jay Chen (D), as expected. Former state Assemblyman Scott Baugh, who was thought to be a strong Republican challenger to Rep. Katie Porter (D-Irvine) in the coastal Orange County seat, saw the incumbent top 50%, some 20 points ahead of him, meaning this race may not be as competitive in November as once predicted.

Iowa: Early in the election cycle, it appeared that former US Rep. Abby Finkenauer had the inside track to the Democratic US Senate nomination, but such was not to be as retired Navy Admiral Michael Franken easily defeated her by a 55-40% count to become the party standard bearer. He will face Sen. Chuck Grassley (R), who won a landslide re-nomination for what would be an eighth six-year term.

The Governor and House races, most of which were unopposed, all went as predicted. Gov. Kim Reynolds (R) runs for a second full term and will square off against marketing consultant Deidre DeJear. As expected, state Sen. Zach Nunn (R-Altoona) was an easy Republican primary winner in the state’s 3rd District. He will now oppose two-term Rep. Cindy Axne (D-Des Moines) who has yet to reach 50% in any of her campaigns.

Freshmen Reps. Mariannette Miller-Meeks (R-Ottumwa) and Ashley Hinson (R-Marion/Cedar Rapids) will both defend their competitive seats each against a pair of sitting state legislators, state Rep. Christina Bohannan (D-Iowa City) and state Sen. Liz Mathis (D-Hiawatha), respectively.

Mississippi: Two Mississippi GOP congressional incumbents, Reps. Michael Guest (R-Brandon) and Steve Palazzo (R-Biloxi), will have to run in a secondary election to win re-nomination, an ominous sign for any southern incumbent. Because a majority of the voters chose a candidate other than the incumbent, a runoff vote will occur on June 28 between the top two finishers. Therefore, both Reps. Guest and Palazzo face difficult re-nomination prospects at the end of this month.

Montana: In a surprisingly tight congressional race for Montana’s new western congressional district, a seat the state gained because of its strong population growth in national reapportionment, former US Interior Secretary and ex-Congressman Ryan Zinke appears to be returning to the House, but in a very close margin.

At this writing, Mr. Zinke leads former state Senator and frequent statewide candidate Al Olsewski by just about a percentage point as the final votes are being tabulated. The small margin will probably hold, meaning that Mr. Zinke will become the new 1st District’s official Republican standard bearer. The final primary result should pave the wave for him to complete his political comeback attempt this November.

New Jersey: Without a statewide race on the ballot in 2022, New Jersey appears politically quiet this year. The top race in the state is a 7th District re-match between Rep. Tom Malinowski (D-Rocky Hill) and former state Sen. Tom Kean, Jr. (R). The two battled to a 51-49% finish two years ago. Mr. Kean easily defeated a crowded Republican field to earn another shot at Mr. Malinowski who faces his Republican opponent in a less Democratic district post-redistricting. The seat now trends Republican, thus making this one of the GOP’s top conversion opportunities in the nation.

New Mexico: Former Albuquerque TV weatherman Mark Ronchetti, who held Sen. Ben Ray Lujan (D) to a closer-than-expected 52-46% win in 2020, romped to a win in the Republican Governor’s primary, topping the 58% mark after failing to qualify for the ballot through the Republican nominating convention. The Ronchetti win sets up a competitive battle with Gov. Michelle Lujan Grisham (D) in the Autumn.

In the gerrymandered southern 2nd District, freshman Rep. Yvette Herrell (R-Alamogordo) will face Las Cruces City Councilman Gabe Vasquez (D) in a district that now leans Democratic with the inclusion of part of Albuquerque. This will be a highly competitive general election campaign and a must-win for Republicans if they are to capture the House majority as many predict.

South Dakota: In an unsurprising result, both Sen. John Thune (R) and Gov. Kristi Noem (R) scored landslide Republican primary victories with each topping the 70% mark in voter support. In the state’s at-large congressional primary, second-term Rep. Dusty Johnson (R-Mitchell) defeated Rapid City state Rep. Taffy Howard with a 59-41% spread to win re-nomination for a third two-year term. All three of the statewide GOP incumbents now become prohibitive favorites for re-election in November.

SENATE

Arizona: A new Data Orbital poll (6/1-3; 550 AZ likely Republican primary voters) again finds a three-way virtual tie for the party’s US Senate nomination that will be decided on August 2. In the last ten published polls, all three top candidates, Attorney General Mark Brnovich and businessmen Blake Masters, who now has former President Trump’s endorsement, and Jim Lamon have led in at least two polls apiece.

The latest Data Orbital results also suggest that any of the three can win the primary. In their ballot test results, Mr. Lamon leads AG Brnovich and Mr. Masters, 20-18-15%. The eventual winner will challenge Sen. Mark Kelly (D) in what promises to be a competitive general election campaign.

Washington: Public Policy Polling, conducting another in a series of their polls for the Northwest Progressive Institute (6/1-2; 1,039 WA registered voters; live interview & text), again finds Sen. Patty Murray (D) leading the 2022 general election contest over Republican Tiffany Smiley but without her usual overwhelming majority. The new results post the Senator to a 50-41% lead, which is consistent with their previous polls conducted earlier in the year. Sen. Murray is the clear favorite to win a sixth term, but we can expect to see an unusually hot general election in one of the Democrats’ most reliable political states.

HOUSE

FL-2: In another indication that the congressional redistricting map Gov. Ron DeSantis (R) drove through the legislature will be the plan at least for the 2022 election despite its legal challenges, Rep. Al Lawson (D-Tallahassee), whose 5th District was collapsed in the draw, announced his re-election intentions. He will challenge GOP Rep. Neal Dunn (R-Panama City) in the new 2nd District. Former President Trump would have carried this new district 55-44% in the 2020 election. Looking at these ratings and numbers suggests that Rep. Lawson has a difficult road ahead of him if he is to return to the House next year.

MO-1: A new internal campaign poll suggests that controversial freshman Missouri Rep. Cori Bush (D-St. Louis) has a competitive race on her hands as the candidates look ahead to the August 2 state primary. State Sen. Steve Roberts (D-St. Louis) released a Lincoln Park Strategies poll (5/24-29; 500 MO-1 registered voters; live interview) that finds the Congresswoman leading by only a 36-19% spread over the poll sponsor, and that obviously places the incumbent far below the 50% threshold. Three other Democrats are also on the ballot, suggesting that the winner can claim the party nomination with only a plurality margin.

NY-23: Rep. Chris Jacobs (R-Orchard Park), who was just elected to his first full term in 2020, announced that he is now abandoning plans to run in the new post-redistricting 23rd District largely due to fallout over his position on the gun control issue and related impending legislation. This opens a safely Republican and vacant 23rd District and completely changes both the regular election primary and the upcoming special election both concurrently scheduled for August 23.

Gov. Kathy Hochul (D) scheduled the special concurrent with the regular congressional primary on August 23. Republican county chairmen who comprise the current 23rd have selected New York Republican Party chairman Nick Langworthy as the special election nominee. Democrats chose retired Air Force Colonel Max Della Pia. We can expect both Messrs. Langworthy and Della Pia to win their respective regular election primaries, so we can count on seeing the two battle not only on 8/23 but also in the general election.

SC-7: With the South Carolina primary fast approaching on June 14, the Trafalgar Group released a new survey of the Palmetto State’s 7th District that features Republican incumbent Tom Rice (R-Myrtle Beach) who is fighting for re-nomination after being one of the ten House Republicans to support the second attempt to impeach former President Trump.

According to the Trafalgar data (5/26-29; 572 SC-7 likely Republican primary voters; mixed data collection elements), Rep. Rice trails state Rep. Russell Fry (R-Murrell’s Inlet), Mr. Trump’s endorsed candidate, by a substantial 42-25% clip within the field of seven Republican candidates. If no one receives majority support, which appears likely according to this poll, the top two will advance into a two-week runoff campaign that will be decided June 28.

Texas: Though recounts are likely to be called, the canvassing process for the state’s two unresolved May 24 runoff elections has concluded. At the end of the counting, both leaders heading into the canvass gained strength. In Rep. Henry Cuellar’s (D-Laredo) 28th CD, the Congressman increased his lead from a small spread of 177 votes in the unofficial count to 281 votes. In the open McAllen anchored 15th CD, businesswoman Michelle Vallejo (D) increased her tiny lead from 23 votes to 30. In the latter race, attorney and Iraq War veteran Ruben Ramirez is asking for the ballots to be counted again citing the razor-thin difference between the two competitors.

WY-AL: A new survey that the Fabrizio Lee & Associates firm conducted for the Wyoming Values PAC (6/1-2; 400 WY likely Republican primary voters; live interview and text of a repeat universe from the December 14-15 poll) reveals a brewing landslide for challenger Harriet Hageman in her August 16 Republican primary contest with at-large US Rep. Liz Cheney (R-Wilson/Jackson).

The poll shows just how upset the Wyoming Republican voter base is with Rep. Cheney, as her personal favorability of 26:73% favorable to unfavorable is even worse than her atrocious job approval rating of 27:70%. On the ballot test, Ms. Hageman leads the Congresswoman 56-28%, with state Sen. Anthony Bouchard (R-Laramie) trailing badly at the 8% support level.

REDISTRICTING

Louisiana: A federal judge has struck down the Louisiana legislature’s 2022 congressional map under the argument that another minority seat can be drawn in the state. The current map and the new plan features a 5R-1D delegation split with the lone Democratic seat, which is 58.6% black and 70.2% minority, stretching from New Orleans to Baton Rouge. The judge ruled that such a plan violates the Voting Rights Act. Expect the Republicans to appeal to the 5th Circuit Court of Appeals.