Final Endorsements Rollout (October 31)

Update 310:  Final Endorsements Rollout;
Candidates in CT, FL, KY, MN, PA, TX, VA, WA

This week, 20/20 Vision completes its endorsement of U.S. House candidates for the 116th Congress.  Endorsements were based on disparate considerations, but mostly on candidates who are running in flippable districts, campaigning for progressive and forward-thinking economic policies, refusing corporate PAC contributions.

Of our endorsees, 73 percent are women, 68 percent first-time candidates.  Those 40 years old are 30 percent of the group. Almost all of these candidates are in margin-of-error races in districts currently held by the GOP.  We commend them for your consideration for your help, volunteering and, of course, through financial contributions.

Best,

Dana

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Jahana Hayes (CT-05)

  • Cook PVI: D+2
  • 2018 Primary: Hayes 62/Glassman 38
  • Total amount raised in 2018 cycle: Hayes $1.3M/Santos $56K

2016 Teacher of the Year Jahana Hayes is running against former mayor of Meriden, Manny Santos, for one of the small number of seats left open by a Democrat this cycle.  This race is seen as safely Democratic — former incumbent Elizabeth Etsy won the district by 16 points in 2016. Both the Cook Political Report and FiveThirtyEight rate this race as solidly Democratic, and Hayes’ forecasted vote share is double digits ahead of Santos’.

Hayes, still working full-time as a high school history teacher, is running on a platform of social justice. Her key issue is improving public education, as well as promoting common sense gun laws, single-payer healthcare, an immigration system that integrates the DREAM Act, and reducing economic inequality in her district and beyond. She has been endorsed by End Citizens United and EMILY’s List, among others.

Debbie Mucarsel-Powell (FL-26)

  • Cook PVI: D+6
  • 2018 Primary: Mucarsel-Powell 63/Grimes 37
  • Total amount raised in 2018 cycle: Mucarsel-Powell $3.3M/Rep. Curbelo $4.9M

Debbie Mucarsel-Powell is challenging Rep. Carlos Curbelo in FL-26, a district that includes southern parts of Miami-Dade, the Keys, and the Everglades.  FL-26 is the most Democratic district in the country that is represented by a Republican. Because of Curbelo’s popularity, many doubted the viability of flipping this seat, but the race has recently been rated as a toss-up and organizations like EMILY’’s List and Planned Parenthood have pointed it out as one to watch.  Recent polls have Mucarsel-Powell narrowly leading.

An immigrant from Ecuador, Mucarsel-Powell has spent the majority of her career working in a variety of nonprofits.  She helped establish and grow the NeighborhoodHELP program, which brought mobile health clinics to underprivileged communities in South Florida. She also worked with the Coral Restoration Foundation to help slow the impact of climate change on ecosystems — a major issue in South Florida.  Mucarsel-Powell is campaigning heavily on improving access to quality, affordable healthcare. She also supports increasing the minimum wage and expanding job training programs, as well as investing in clean energy and infrastructure.

Amy McGrath (KY-06)

  • Cook PVI: R+9
  • 2018 Primary: McGrath 49/Gray 41
  • Total amount raised in 2018 cycle: McGrath $6.7M/Rep. Barr $4.4M

First-time candidate and retired Marine Lt. Col. Amy McGrath is facing Republican incumbent Andy Barr in KY-06.  Similar to MJ Hegar in TX-31, her campaign message has been focused on her biography as a veteran and mother. McGrath’s comprehensive 32-page strategy to transform the economy of KY-06 details plans for more infrastructure investment, increasing the minimum wage, progressive tax reform, paid parental leave, and improving the ACA.  McGrath has called for stricter oversight of payday lenders and, if elected to Congress, she will be a stellar advocate for consumer protections.

McGrath is facing a barrage of attack ads from Republican groups determined to hold onto this Lexington district, but she is sticking to her guns with a positive message on her policies and credentials.  Recent polls have the race too-close-to-call and well within the margin of error. On election night, this will be one of the key seats to watch if Democrats are to secure a majority in the House.

Dean Phillips (MN-03)

  • Cook PVI: D+1
  • 2018 Primary: Phillips 82/Young 18
  • Total amount raised in 2018 cycle: Phillips $4M/Rep. Paulsen $5.1M

MN-03 is a bellwether race that will determine if Democrats can pass the 23 seat threshold and take back the House.  Business leader Dean Phillips faces the influential Joint Economic Committee Chair Erik Paulsen in the suburbs of Minneapolis-St. Paul.  This congressional district is a prime example of what may fuel the blue wave, as Democrats are becoming more and more viable in suburban districts once dominated by Republicans.  Over the last month, Phillips has begun to pull away in the polls giving him some tailwind heading into next week’s general.

Phillips has brought an anti-corruption message to MN-03 by taking the “Minnesota Way Pledge” to not accept any corporate or special interest PAC money.  Phillips is also campaigning heavily on a progressive economic message, advocating for fiscal and social responsibility through tax reform and protection of programs such as as Medicare, Medicaid, and Social Security.

Scott Wallace (PA-01)

  • Cook PVI: R+1
  • 2018 Primary: Wallace 57/Reddick 35
  • Total amount raised in 2018 cycle: Wallace $9.8M/Rep. Fitzpatrick $2.9M

In PA-01, self-funded Democratic candidate, Scott Wallace, is running against two-term GOP incumbent, Brian Fitzpatrick.  Even before the Pennsylvania Supreme Court ordered it to be redistricted, PA-01 was won by Hillary Clinton in the 2016 election.  For weeks, polling has rated this race as evenly split between the two candidates, and there is still no frontrunner in sight.

Former counsel for the Senate Committee on Veterans Affairs, Wallace is focusing his campaign on Healthcare and Disability Rights—advocating for Medicare for all, expanding Medicaid programs, protecting CHIP, and reigning in prescription drug prices. Additionally, he wants to build sustainable job growth in Pennsylvania through increased government funding of renewable energy resources and raising the minimum wage to $15 an hour.

Susan Wild (PA-07)

  • Cook PVI: D+1
  • 2018 Primary: Wild 33/Morganelli 30
  • Total amount raised in 2018 cycle: Wild $2.4M/Nothstein $851K

Attorney Susan Wild is running against county commissioner Marty Nothstein in PA-07, an open seat. Wild was the first female solicitor of Allentown, PA and is outraising her Republican opponent by more than two-to-one in this Lehigh Valley district that now favors Democrats after redistricting earlier this year.

Wild is tailoring her economic platform around quality jobs and economic prosperity, advocating for strong unions, apprenticeship programs, infrastructure investment, and protecting the Earned Income Tax Credit. She is also committed to protecting health care and retirement benefits through her support of Medicare and Social Security. Recent polls look favorable for Wild and show her well positioned to take the seat.

Lizzie Pannill Fletcher (TX-07)

  • Cook PVI: R+7
  • 2018 Primary: Fletcher 67/Moser 33
  • Total amount raised in 2018 cycle: Fletcher $4.6M/Rep. Culberson $2.8M

In TX-07, a small district in Western Houston, Attorney Lizzie Pannill Fletcher is challenging Rep. John Culberson, a nine-term incumbent. This race has had national attention since the primary and Fletcher has achieved a large fundraising advantage. Clinton won the district in 2016 and Culberson is seen as vulnerable — he has voted with Trump consistently and voted to repeal the ACA. Recent polls all have the race tied within the margin of error.

Fletcher has lived and worked in the district for most of her life. As a lawyer, she gained recognition for her work with the people of Houston, being named as one of the Best Lawyers in America and becoming her law firm’s first ever female partner. Her campaign platform is centered around the economy. She wants to increase infrastructure investment, particularly in light of the effects of Hurricane Harvey. She also wants to increase access to capital for new and existing businesses, as well as expand job-training programs.

Colin Allred (TX-32)

  • Cook PVI: R+5
  • 2018 Primary: Allred 69.5/Salerno 30.5
  • Total amount raised in 2018 cycle: Allred $4.2M/Rep. Sessions $4M

Civil Rights Attorney and former Obama official, Colin Allred, is running to unseat Rep. Pete Sessions in TX-32, a district that serves a suburban area of Dallas. Although the district leans Republican, demographic changes over the last few years have made it more possible for a Democrat to win. Allred has attracted national attention, aided by the endorsement of former President Obama, and eight-term incumbent Sessions is facing his toughest race since he was elected. Allred and Sessions are neck-and-neck in recent polls.

Allred has a very diverse past. He attended Dallas public schools where his mother was a teacher and went on to play in the NFL as a Tennessee Titans linebacker. Allred later became a civil rights attorney and worked for the Obama administration as Special Assistant in the Department of Housing and Urban Development’s Office of General Counsel. His big issues are healthcare and education. Sessions voted to repeal the ACA, while Allred supports Medicare for all Americans. Allred also wants to increase investment in job training programs and infrastructure.

Abigail Spanberger (VA-07)

  • Cook PVI: R+6
  • 2018 Primary: Spanberger 73/Ward 27
  • Total amount raised in 2018 cycle: Spanberger $4.9M/Rep. Brat $2.3M

Abigail Spanberger, a former CIA operative and federal law enforcement officer, is running against economics professor and Trump-endorsee Rep. David Brat in VA-07. In 2014, Brat defeated former House Majority Leader Eric Cantor in this district’s Republican primary, one of the most shocking outcomes of that cycle. This year’s race is among several red-to-blue districts in Virginia with former military or intelligence officer women running as first-time candidates. FiveThirtyEight has moved this race from lean Republican to a toss-up and it is tied within the margin of error.

Spanberger is running on progressive and popular issues, like access to affordable healthcare, gun violence prevention, legalizing marijuana, and protecting social security and Medicare. Catering to the conservative base in the region, she’s also using her background in law enforcement and intelligence to create a moderate platform on national border security and immigration. Finally, she’s taken a strong stance in favor of campaign finance reform and against gerrymandering.

Carolyn Long (WA-03)

  • Cook PVI: R+4
  • 2018 Primary: Beutler 42/Long 35*
  • Total amount raised in 2018 cycle: Long $2.3M/Rep. Beutler $2M

First-time candidate and university professor Carolyn Long is going up against long-time Washington politician and moderate Republican Jaime Herrera Beutler, who flipped WA-03 in 2010. The district includes reliably Democratic Portland suburbs, as well as rural, blue-collar areas that have shifted towards the Republican party in recent years. Healthcare is the dominant issue in the race, with Long campaigning hard as a supporter of the Affordable Care Act and Herrera Beutler struggling to defend her record of voting to repeal the law dozens of times.

Her economic platform highlights issues like campaign finance and tax code reform, as well as job creation and higher wages. Long is also emphasizing her experience in teaching bipartisanship. In counties that went for Trump by more than 30 points in 2016, Long’s ability to connect and speak with rural, blue-collar conservatives and her progressive platform that fights for issues that affect low-income communities are key to winning this race.

Dr. Kim Schrier (WA-08)

  • Cook PVI: EVEN
  • 2018 Primary: Rossi 43/Schrier 19*
  • Total amount raised in 2018 cycle: Schrier $5.3M/Rossi $4.1M

Dr. Kim Schrier is a first-time candidate running against Dino Rossi in an open seat vacated by GOP Rep. David Reichert. WA-08 is one of the districts held by Republicans that Hillary Clinton won in 2016, so there is a good chance to win here in November. Dr. Schrier is rejecting corporate PAC money and has a number of strong endorsements from the likes of End Citizens United, EMILY’s List, Indivisible, and more recently, former President Barack Obama.

Dr. Schrier is advocating for a number of progressive economic issues such as implementing a living wage, boosting infrastructure investment, and growing the number of apprenticeships. As a practicing pediatrician, Dr. Schrier is also campaigning for a Medicare public option which would be offered alongside private insurance plans in the individual and small group markets. The race is looking like a statistical tie, so the outcome in the general will most likely come down to turnout.

*Top-two primary

 

Candidate Endorsements in GA, KS, TN, VA, WA (October 24)

Update 309: Candidate Endorsements in GA, KS, TN, VA, WA

Last month, 20/20 Vision endorsed a first round of candidates for the next Congress.  Almost all of these candidates are in margin-of-error races in districts currently held by Republicans.  Today, we present the second round of endorsees. Endorsements were based on disparate considerations, but mostly on candidates who are:

  • running in flippable districts
  • campaigning for progressive and forward-thinking economic policy
  • refusing corporate PAC contributions
  • female, under 40, and first-time office seekers

This week, we review the 2018 endorsed candidates running for Congress in the states of Georgia, Kansas, Tennessee, Virginia, and Washington.


Best,

Dana

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United States Senate

Sen. Maria Cantwell  •  Washington

Sen. Maria Cantwell, first elected to the Senate in 2000, is running for her fourth term this year. Cantwell is the most senior junior senator and is the ranking member of the Senate Energy and Natural Resource Committee.  She supports universal access to healthcare and believes in strengthening and expanding the ACA. Her independent-mindedness and probing intelligence on even the most technical and difficult issues are an asset not just to the Caucus, but the Senate itself.

Cantwell’s opponent, Susan Hutchinson, is a former state GOP party leader and an outspoken supporter of President Trump. She believes the Trump tax cuts are helping create a more robust economy. When asked what should be done about climate change, Hutchinson suggested people carpool. Cantwell has outraised Hutchinson by almost $11 million and a recent poll has Cantwell up by 14 points.

Phil Bredesen  •  Tennessee

The Volunteer State hasn’t been in the habit of sending Democrats to the U.S. Senate, but the race to replace retiring Sen. Bob Corker is one of the top pickup opportunities for Democrats this cycle.  Phil Bredesen coasted to victory in his Democratic primary and faces Trump-fanatic Rep. Marsha Blackburn in the general.

A former two-term governor of the state, Bredesen boasts a politically moderate and bipartisan record — essentially a prerequisite for winning over moderate-conservative swing voters in ruby-red Tennessee.  Gov. Bredesen had a successful tenure as Governor of the state, creating more than 200,000 new jobs and generating over $34 billion in new business investment over the course of his incumbency.

Bredesen has notably shown some maverick tendencies, including a recent announcement that, if elected, he would not back Sen. Schumer as leader of the party — decrying hyper-partisanship among both parties for the dysfunction in Washington. The race has been tight for months, but a recent Vanderbilt poll has Bredesen narrowly ahead of Blackburn, 44 to 43. Despite this, FiveThirtyEight has Bredesen’s chances of winning at 25 percent, with a forecasted vote share of 46 percent, compared to Blackburn’s forecasted 51 percent.

U.S. House of Representatives

Lucy McBath (GA-06)

  • Cook PVI: R+8
  • 2018 Primary: McBath 36/Abel 31
  • Total amount raised in 2018 cycle:  Rep. Handel $8.2M/McBath $1.3M

Activist Lucy McBath is trying to turn GA-06 blue for the first time since 1979.  McBath is running against Rep. Karen Handel, an ardent Trump supporter. GA-06, which encompasses parts of rural Georgia and some progressive suburbs of Atlanta, was the site of the most expensive House race in history last year when Jon Ossof ran and lost in a runoff against Handel. Despite being out-funded by a factor of eight, McBath has made rapid gains in the past few months and has narrowed polling data to well within the margin of error.  

McBath’s past sheds light on her political ambitions. In 2012, her 17-year-old son, Jordan Davis, was shot and killed outside of a gas station. After the tragedy, she became a national spokeswoman for Moms Demand Action for Gun Sense in America and has been a major proponent of gun reform throughout her campaign. As a two-time breast cancer survivor, she champions protecting the ACA and expanding Medicare programs, as well as raising the minimum wage to match the rising cost of living.  She is a fresh voice for social justice in the Democratic establishment, and is proving an adept first-time candidate, challenging hard-line conservative Handel.

Sharice Davids (KS-03)

  • Cook PVI: R+4
  • 2018 Primary: Davids 37/Welder 33
  • Total amount raised in 2018 cycle:  Rep. Yoder $3.7M/Davids $3.1M

Sharice Davids hopes to be the first Native-American woman to enter the halls of Congress as a member. Davids challenges one of the most vulnerable candidates of the cycle, Rep. Kevin Yoder. Many Democratic pundits were surprised to see KS-03 on the list of main targets for the DCCC to pursue during this cycle. Recent polls have shown Davids ahead by seven to nine points and her lead is only increasing.

Davids is running a strong campaign focused on kitchen table economic issues. She believes the Trump tax cuts were a budget-busting corporate giveaway and wants a true tax cut for the middle class. She is also prioritizing small businesses, advocating for a childcare tax credit, and supporting the expansion of broadband infrastructure to rural areas. While Davids is pushing progressive policy that would benefit middle class Kansans, Rep. Yoder has gone on the offensive, pushing identity politics and taking his campaign decidedly negative. Davids has remained positive and has a good opportunity to flip the Johnson County seat for the first time since 2010.

Elaine Luria (VA-02)

  • Cook PVI: R+3
  • 2018 Primary: Luria 62/Mallard 38
  • Total amount raised in 2018 cycle: Rep. Taylor $3.4M/Luria $3.1M

Elaine Luria is a former nuclear engineer, retired U.S. Navy commander, and a small business owner in Hampton Roads. She joined the Navy at 17 years old and became one of the first woman to attend the U.S. Naval Nuclear Power School. Luria is up against first-term incumbent  and retired Navy SEAL Scott Taylor, who has had a troubling campaign plagued by allegations of election fraud.

Luria is running on expanding access to quality, affordable healthcare, preserving Social Security and Medicare, and improving public education. She is a strong environmental advocate, paying special attention to the Chesapeake Bay, an area upon which much of southeast Virginia’s economy relies. Luria has also railed against the recklessness of the $1.9 trillion national debt increase as a result of the GOP’s 2017 signature tax law. Luria and Taylor are neck-and-neck after a fluctuating cycle, and recent polling has shown that her forecasted vote share has grown by one point in the final stretch of this cycle.

Jennifer Wexton (VA-10)

  • Cook PVI: D+1
  • 2018 Primary: Wexton 42/Friedman 23
  • Total amount raised in 2018 cycle: Wexton $4.5M/Comstock $5M

State Sen. Jennifer Wexton comfortably won her crowded June primary in VA-10. She is up against vulnerable incumbent Rep. Barbara Comstock, who, voting 98 percent of the time with President Trump, has found herself out of step in an increasingly diverse and rapidly changing district. During her time in the state legislature, Wexton voted in favor of a number of progressive economic policies, including raising the minimum wage, closing the gender pay gap, and establishing paid medical leave. If she wins in November, she will look to continue this progressive economic agenda on a federal level.

Recent polls have Wexton ahead of Comstock, with the most recent poll putting Wexton up by seven points. The polls show Democratic enthusiasm in the district, with 75 percent saying they are “very enthusiastic” about November’s election, compared to just 59 percent of Republicans. Clinton carried the district by a ten-point margin in 2016, and Wexton will be hoping for such a result in a district that is one of the best flip opportunities for Democrats in 2018.

FSOC: Prudential off SIFI List (October 19)

Update 308 — FSOC: Prudential off SIFI List;
Too Big to Fail “Solved” in Shadow Markets?

This Wednesday, the Financial Stability Oversight Council (FSOC) did what many have been expecting for a while and voted to de-designate Prudential, the last of the nonbank systemically important financial institutions (SIFIs). Its decision eliminated from this list all financial firms that don’t take customer deposits — from investment banks, to hedge funds, to private equity firms, to asset management firms, insurance companies, etc.

These subsectors, known as the shadow market, are a long list to exclude from the list.  More on this below.

By the way, FSOC’s 66-page Notice and Explanation of the decision is littered with redactions and asterisks providing incomplete justifications for the decision to de-designate.  I’ve never seen anything like it but it is fit subject for speculation for systemic sages over the weekend.

Have a good one,

Dana

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Legislative Intent and Nonbank SIFIs

To understand the ramifications of FSOC’s decision, we have to understand the intent of Congress in mandating the designation of nonbank financial institutions as SIFI’s in the first place.  The express statutory purpose of FSOC in designating nonbank institutions is codified under Section 113(a) of the Dodd-Frank Act (DFA) — bold added for emphasis:

The Council … may determine that a U.S. nonbank financial company shall be supervised by the Board of Governors and shall be subject to prudential standards … if the Council determines that material financial distress at the U.S. nonbank financial company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the U.S. nonbank financial company, could pose a threat to the financial stability of the United States.

It is clear in statute that Congress’s original intent in Dodd-Frank was to grant authority to FSOC to designate nonbanks that fit the description above. The decision by FSOC to remove the last remaining nonbank SIFI label seems questionable because:

  • Prudential has arguably become more systemically risky since SIFI-designated

When it was designated in 2013, Prudential had more than $700 billion assets and around $3.5 trillion in life insurance policies under management. Today, the company has grown to around $830 billion in assets and has $3.7 trillion in life insurance policies under management. In fact, its notional derivatives exposures and repurchase agreements have grown by 30 percent since its designation.

Per Section 113(a), Prudential’s “size and scale” has in fact grown since its original designation. Under the current administration, size does not matter—too big to fail in the shadow markets has been solved. Last month, FSOC announced their intention to draft new plans for new “activities-based” regulation of nonbanks that would put the focus not on entities, but on the riskiness of business practices. This sounds reasonable in practice, but in reality this is likely more “tailoring” (read “deregulation”) talk we have heard from Quarles.  

  • FSOC itself concedes that Prudential’s failure would be DFA-level damaging

Prudential’s activities in securities lending and derivatives could cause big problems for counterparties, which could in turn have spillover effects. Additionally, while Prudential and other life insurers are not at risk of a run on the banks in the same way as banking financial institutions, they could experience early withdrawal, representing a considerable cash surrender value. If this action were to happen while the company was experiencing financial distress, this could further weaken the company’s position and, given its size, greatly affect market stability.

Congress, in Section 113(a) of Dodd-Frank, outlined two criteria for a company to to be subject to prudential standards: material financial stress and the nature, size, scope, etc. of the institution. It is clear that these two standards should be considered equally when it comes to assessing the overall risk to the financial system posed by a nonbank entity. If it is still the case that Prudential “could pose a threat to financial stability,” why is FSOC flouting the rules laid out in Dodd-Frank and shirking its regulatory duty?

Rescission Ramifications

This decision is significant, and it essentially puts an end to a key provision laid out in statute under DFA.  There was a time when regulators thought about expanding the list and bringing other nonbank institutions into the fold, such as Sallie Mae, NY Life, Principal Financial Corp., et al, but that effort to focus on too big to fail nonbank entities seems to be at an end.

Prudential will no longer be subject to enhanced prudential standards, like stronger capital and liquidity requirements, stress testing, and living wills.  The $800 billion company will now be regulated by the New Jersey Department of Banking and Insurance, a regulator that is severely understaffed and underprepared to oversee the operations of such a corporate behemoth.  It is also unclear whether Prudential’s subsidiaries outside of New Jersey and overseas will continue to be regulated to the same degree. Not only will Prudential come under far less scrutiny than before but, if caught in the middle of a financial crisis, the firm would not have access to the same Federal Reserve liquidity facilities, nor will it be held to the same degree of capitalization standards a bank equivalent in size must follow.

Nonbank SIFI designation existed for those few large nonbanks, like Bear Stearns and Lehman Brothers, that proved to be too big not to regulate. Designation was a rare exception, not the rule. Formerly designated nonbank SIFIs like AIG and GE Capital drastically shrunk their operations and de-risked to shed their SIFI label.  MetLife challenged its designation in court. Without changing its business model in any significant way, Prudential has been set free to return to the shadows.

On the Money

In 2017, the finance and insurance sectors combined represented 7.5 percent of U.S. gross domestic product. U.S. banks own over $17 trillion in assets and have a combined net income of over $165 billion. Earnings season is in full swing, and the “big four” U.S. banks posted healthy revenue growth and rising profitability, boosted by the tax cuts.  This sector is large and, despite S. 2155, the too big to fail banks are still subject to enhanced prudential standards and oversight.

Like banks, nonbank institutions such as asset managers and insurers play an equally large part in the financial system: total U.S. retirement assets stand at over $28 trillion. If insurance assets and mutual funds are taken into account, this number rises to an eye-popping $50 trillion total assets under management. We now have a situation where there is a regulatory blind spot when it comes to the key players in this sub-sector. Nonbank too big to fail entities simply no longer exist in the eyes of federal regulators, no matter their potential risk exposures and interconnectedness in the overall financial system.

The Line Between Legislating and Regulating

Last November, the Trump Administration requested the revision and overhaul of the process by which FSOC designates financial institutions as systemically important. This call to action is part of a broader move to “tailor” the financial sector both within the margins of DFA legislation and by changing the legislation itself. As the economy continues to improve, rosy-eyed elected representatives and public servants alike are loosening the rules at both the macro- and microscopic ends, through legislation and regulation, respectively.

Interpreting Dodd-Frank:  What’s Next?

The regulatory heads at FSOC and the Trump Administration are hiding under the cloak of statute interpretation to drive an agenda which has resulted in the disappearance of too big to fail in the nonbank sector.  Now that Prudential has shed its SIFI label, the threshold for nonbank SIFI designation is so high that FSOC’s authority in this regard is essentially rendered moot. The advent of post-too big to fail in the shadow markets is a truly disturbing development and if history repeats itself, it’s a decision that could come back to haunt regulatory decision makers.                  

In the coming months, FSOC plans to publish more substance on the details of its proposed shift from targeting nonbank entities themselves, to an activities-based approach to nonbank supervision. Insiders at the Treasury have suggested these details might yet be released this fall, but with staffing constraints and their annual report due by the end of the year, this might be delayed until the start of 2019.

Endorsements: The Northeast (October 17)

Update 307 — Endorsements: The Northeast

Last month, 20/20 Vision endorsed 29 candidates for the next Congress, the first round of such endorsements.  Almost all of these candidates are in margin-of-error-tight races in districts currently held by Republicans. Candidates were endorsed based on disparate considerations but we mainly focused on candidates who are:

  • running in flippable districts
  • campaigning for progressive and forward-thinking economic policy
  • refusing corporate PAC contributions
  • female, under 40, first-time office seekers

This week, we review the 2018 endorsed candidates running for Congress in the Northeast states of Massachusetts, New Jersey, New York, and Pennsylvania.

Looking ahead to Friday, we will examine the implications of FSOC’s decision to de-designate Prudential, the last nonbank to shed this label, raising the question: are non-banks now a non-issue for systemic risk and Too Big to Fail?  

Best,

Dana

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United States Senate

Sen. Kirsten Gillibrand  •  New York

Sen. Kirsten Gillibrand began her political career in 2007 in the House of Representatives and in 2009 was appointed to fill the Senate seat vacated by Hillary Clinton.  In a 2010 special election, Gillibrand secured her position and in 2012, she was elected to a full six-year term with 72 percent of the vote — a higher percentage of the vote than any other statewide candidate in New York.  From her early days in the Senate, Gillibrand has been increasingly outspoken, taking the lead to address sexual assault in the military and later moving on to a range of progressive economic issues.

She has been legislatively innovative on a surprisingly disparate set of issues, authoring a portion of the STOCK act — passed in 2012 — to address corruption in Congress, introducing the FAMILY Act in 2017 to improve paid family leave, and proposing the Postal Banking Act in 2018 to increase banking services for rural and impoverished areas.  Gillibrand has served the state with distinction and is likely to secure an easy victory next month against her Republican challenger.

Sen. Elizabeth Warren  •  Massachusetts

Sen. Elizabeth Warren has been a leading voice for progressives in Congress since her election to the Senate in 2012.  Warren was a prominent figure in the Obama administration, where she headed the Oversight Council of the Troubled Asset Relief Program (TARP).  She also conceived and led in the establishment of the Consumer Financial Protection Bureau (CFPB).

As a member of the Senate, Warren has continued to address consumer protection issues, especially related to banking.  She, along with Ranking Member of Senate Banking, Sen. Sherrod Brown, led the opposition against the largest roll back of Dodd-Frank to-date, S. 2155.  Sen. Warren has been the progressive gold standard in the Senate on a multitude of issues. Recently, she has taken on President Trump and introduced legislation to curb the corruption that his presidency has brought to Washington.  She has represented the Commonwealth with dedication and energy and deserves re-election.

U.S. House of Representatives

Andy Kim (NJ-03)

  • Cook PVI:  R+2
  • 2018 Primary: Ran unopposed
  • Total amount raised in 2018 cycle:  Kim $4.4 Million/Rep. MacArthur $3.6 Million

Andy Kim will challenge Rep. Tom MacArthur for his seat in NJ-03.  Both candidates ran unopposed in their primaries. Kim and MacArthur are tied neck-and-neck in the polls and Kim has been hitting the campaign trail recently with former Vice President Joe Biden. The district voted for Donald Trump over Hillary Clinton by a margin of about six points, but voted for Obama both in 2008 and 2012. It is rated as a toss-up district and recent polls have the candidates within two points of each other.

Kim is a Rhodes Scholar and worked on national security and counterterrorism in both the State Department and the Obama White House. He is running on a broad swath of issues such as healthcare affordability, middle-class family tax relief, campaign finance reform, and ending gerrymandering. According to Kim, his major reason for running is due to the proposed cuts to the ACA — cuts that his opponent MacArthur would have voted for — which would take away coverage for his parents and unborn son.

Mikie Sherrill (NJ-11)

  • Cook PVI:  R+3
  • 2018 Primary: Sherrill 77/Harris 15
  • Total amount raised in 2018 cycle: Sherrill $7 Million/Webber $1 Million

Mikie Sherrill is a former United States Navy helicopter pilot and federal prosecutor running in NJ-11 for Rep. Rodney Frelinghuysen’s open seat. Sherrill served in the Navy between 1994 and 2003, eventually being promoted to the position of lieutenant. After leaving the Navy, she earned her law degree and later joined the U.S. Attorney’s Office in New Jersey. Her opponent, Jay Webber, serves in the New Jersey Assembly and was previously Chairman of the New Jersey Republican party.

Sherrill is campaigning on reducing the cost of college tuition, living, and healthcare, as well as protecting and expanding Social Security and Medicare. She has criticized the 2017 GOP tax plan, asserting that it does not provide necessary relief to middle-class families. She also advocates for campaign finance reform, such as overturning Citizens United. With three other candidates running for the seat, the race is crowded. Sherrill continues to narrowly lead in the polls by two to four points and has raised and spent more than twice as much as Webber.

Antonio Delgado (NY-19)

  • Cook PVI:  R+2
  • 2018 Primary: Delgado 22/Ryan 18
  • Total amount raised in 2018 cycle: Delgado $6.5 Million/Faso $3.3 Million

Antonio Delgado is running in NY-19, a district seen as one of the best pickup opportunities for Democrats in the country. Delgado is facing off against GOP incumbent, Rep. John Faso. A Rhodes Scholar and Harvard Law graduate, Delgado is running on a progressive agenda, taking the No-Corporate PAC money pledge and campaigning hard on healthcare, advocating for a public option to the ACA. The healthcare angle is particularly effective against Faso, who voted for the disastrous American Health Care Act of 2017 and is incorrigible in his pursuit to destroy the ACA.

Faso and his campaign originally planned to run on tax cuts, but because the messaging is not resonating with voters, they are going for fear and gutter tactics such as ad hominem attacks on Delgado’s stint in the music industry. In September, Delgado received endorsements by both President Obama and former Vice President Joe Biden. An independent Monmouth poll in September has Delgado up 45 to 43 with a lot of room to grow despite the barrage of Republican attack ads. As of September 30, Delgado’s campaign has raised over $6 million, and in the past three months, outraised Faso by nearly $3 million.

Mary Gay Scanlon (PA-05)

  • Cook PVI:  D+13
  • 2018 Primary: Scanlon 28/Lunkenheimer 15
  • Total amount raised in 2018 cycle: Scanlon $1.6 Million/Kim $459K

Mary Gay Scanlon is the Democratic candidate running for the House in PA-05. She will face Pearl Kim, a former assistant District Attorney and a Senior Deputy Attorney General for Pennsylvania. The district was redrawn by the Supreme Court of Pennsylvania in 2018 after a decision that the old district was unconstitutionally gerrymandered; the open seat is now rated by Cook Political Report as a Likely D pick up. Scanlon is out-raising her challenger by a factor of four and is viewed as the likely winner of the general election, but an entrenched county GOP machine and midterm voter turnout make the election more competitive than national polling suggests.

Scanlon is a graduate of the University of Pennsylvania Law school and has been a civil rights attorney for over 35 years. She leads a pro bono program for low-income citizens that received the 2018 Pro Bono Publico Award from the American Bar Association for providing outstanding legal services to the disadvantaged. As a candidate, Scanlon is running on expanding resources for public schools, student loan reform, repairing and expanding the ACA, ending the gender pay gap, and creating new jobs through reinvesting in our nation’s infrastructure programs.

Chrissy Houlahan (PA-06)

  • Cook PVI:  D+2
  • 2018 Primary: Ran Unopposed
  • Total amount raised in 2018 cycle:  Houlahan $3.7 Million/McCauley $240K

Chrissy Houlahan ran unopposed in her primary to become the Democratic candidate for PA-06. Though a political outsider, Houlahan offers a wide array of policy and leadership experience. A Stanford and MIT-educated industrial engineer, she served as COO of AND1 Basketball, where she grew revenue from $4 million to over $250 million. Houlahan is also no stranger to serving her country and community, having spent sixteen years in the U.S. Air Force as Captain and one year teaching chemistry in North Philadelphia as a Teach for America Corps member.

Her policy priorities include increasing access to affordable healthcare, increasing funding for education, and campaign finance reform. Should Houlahan win come November, as polling suggests, she will help end Pennsylvania’s all-male Congressional delegation. At the end of the June, Houlahan had raised an extraordinary $2.8 million compared to Republican tax attorney Greg McCauley’s $174,000.

Millennials in the Midterms (October 15)

Update 306:   Economic Generational Justice Salient Issues for Millennials in the Midterms

The generation of millennials, Americans born between 1983 and 2000, consists of 80 million people and accounts for 25 percent of the population, 35 percent of the workforce.  Millennials receive lower relative wages, take on more debt, face higher housing costs, and pay expensive college tuition, with Trump administration policy aggravating a condition many call a generational injustice.

Millennials’ economic plight affects how they vote, and it is becoming increasingly important to advocate for policies that address these generational imbalances.  Many Democratic candidates are campaigning with progressive social and economic messages that resonate with younger voters — but will millennials turn out en masse at the ballot box next month?

Best,

Dana

——————

Highly Educated, but Perennially in Debt

Millennials are the most educated generation to date. Women age 18 to 33 today are particularly better educated, with 27 percent attaining a bachelor’s degree or higher in 2014, compared to just 14 percent in 1980. This educational attainment comes at a price. Adjusted for inflation, the average cost of an undergraduate degree has risen over 160 percent from 1987 to 2016.

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The increased cost of college has led to an increase in borrowing. The average debt burden of a recent graduate is over $37,000 — $20,000 more than it was over a decade ago.  The average monthly student loan payment has skyrocketed over 70 percent, from $227 in 2005 to $393 in 2016. Rapidly rising tuition and burgeoning debt have stymied millennials’ full participation in the broader economy.

Underpaid and Underemployed

Millennials may be the largest generation in the workforce to date, but they are underpaid and underemployed compared to their Baby Boomer counterparts a generation earlier.  A 2017 Young Invincible’s report found that millennials’ net worth is about half that of the Boomers’ net worth at the same age. Young workers’ wages have also fallen 20 percent since the Boomer era.  

Those born in 1950 had a 79 percent chance of out-earning their parents; that chance has slipped to 50 percent for people born after 1980. Although educational attainment is still the best route to financial security, the report concludes that a market flooded with four-year-degree holders has caused employers to raise hiring standards, even for entry-level positions.

Millennial unemployment is double the national average — about seven percent, while the national average is 3.7 — with 11 percent for African American and 7.5 percent for Latin millennials in 2017.  Though millennial unemployment is a serious issue, millennial underemployment — involuntarily working part time or being overqualified for a position — is widespread, severe, and, for the most part, not talked about.

In 2013, 41 percent of millennials between the ages of 22 and 27 reported underemployment, with the number rising to 51 percent in 2016.  As millennials continue to pursue degrees and low-paying, entry-level jobs require more and more experience, this problem will only get worse.

The Rent is Too Damn High

Millennials are categorically less likely to own a house, preferring instead to rent. A recent report by the Urban Institute showed the millennial homeownership rate at 37 percent in 2015, approximately 8 points lower than that of Gen Xers and Baby Boomers at the same age. There are three main economic factors that contribute to this trend:

  • High rent costs:  Nearly half the people polled spent more than 30% of their income on rent, classifying them as rent-burdened. Those classified rent-burdened are more likely to be in financially precarious situations and less likely to be able to buy a home.

  • Student loan debt:  Student debt delays millennial homeownership for seven years. Many millennials, even older members of the generation, do not feel financially secure enough to buy homes because they are unable to save.

  • The Great Recession:  Memories of the 2008 financial crisis, during which time many millennials entered the workforce or tried to, have had pervasive effects on their ability to achieve financially stability — one Morgan Stanley analyst told Business Insider that the financial crisis left an entire generation with a “significant psychological scar.”

Larger Premiums, Worse Coverage

Although initiatives under the ACA, such as staying on parents’ plans until 26, have reduced the total of uninsured millennials, 16 percent of young adults still went uninsured in 2016. Millennials make up nearly half of all uninsured people in the U.S.  A 2016 poll found that 20 percent of adults aged 18-36 cannot afford routine healthcare expenses, with 26 percent saying that they can, but with difficulty. The most cited reason for delaying treatment was a lack of affordability. Even monthly premiums as low as $200 pose a financial hurdle for many millennials whose budgets are already constrained by mandatory student loan payments and high housing costs.

Not Entitled to Entitlements?

By 2022, Social Security will be paying more out in benefits than it is gaining from revenue, and it is predicted that by 2034, all of its asset reserves will be exhausted.  Generally, the way to increase funding for programs is to increase tax revenues and/or lower the federal debt. Instead, Congress passed a tax bill that will add $1.5 trillion to the federal debt and reduce tax revenue.

The recent tax cuts were a large transfer payment to older, wealthier Americans.  Providing immediate relief for taxpayers now and over the course of the next ten years amounts to fiscal theft from the younger generation.  The added debt and the resulting higher interest payments come at an opportunity cost to investment in entitlements and programs that would otherwise have benefited the millennial generation.

51 percent of millennials don’t expect to receive anything from the program when they retire. Per Bloomberg, “any solution that would rectify [Social Security’s] finances will probably require more taxes and more benefit cuts—all coming out of the pockets of younger workers.”  As things stand, millennials will face a large federal debt burden and will either get less Social Security benefits than their parents, or will have to retire much later than previous generations.

Through the Midterm Lens

For Democrats to win the House this cycle, millennials are going to have to show up as a greater percentage of the vote than they did in the last midterm election.  In 2014, 22 percent of voting-age millennials voted, accounting for 16 percent of the vote — a historic low. The Cook Political Report describes millennials as “volatile” in terms of turnout and, along with Latinx voters, the likeliest to drop out of the electorate.  Democrats are trying to advocate for issues that matter to millennials, such as reducing the cost of higher education, entitlement security, and healthcare, in an effort to turn them out. Many 2018 Democratic House candidates are putting these issues at the forefront of their campaigns.

These efforts appear to be working.  An NBC poll from August found that 55 percent of millennials say they will probably or definitely vote in this year’s midterm election. Republicans haven’t exactly helped their cause with millennials, enacting regressive tax cuts that will harm future generations and attempting to bring down a healthcare system that benefits young workers. Democrats are hoping that by appealing to these young people, they will be able ride the millennial voter wave come November.

Survey of the Sunbelt (October 10)

Update 305 — Survey of the Sunbelt
Candidate Endorsements in AZ, CA, NV, TX

Last month, 20/20 Vision endorsed 29 candidates for the next Congress, the first round of such endorsements.  Almost all of these candidates are in margin-of-error-tight races in districts currently held by Republicans. Candidates were endorsed based on disparate considerations but we mainly focused on candidates who are:

  • running in flippable districts
  • campaigning for progressive and forward-thinking economic policy
  • refusing corporate PAC contributions
  • female, under 40, first-time office seekers

This week, we review the 2018 endorsed candidates running for Congress in the sunbelt states of Arizona, California, Nevada, and Texas.  We will cover candidates in the Northeast next week.

Best,

Dana

—————————

United States Senate

Rep. Kyrsten Sinema  •  Arizona

Rep. Kyrsten Sinema is vacating her seat in the Arizona 09 House district to run for the Senate seat left open by retiring Sen. Jeff Flake.  Arizona hasn’t elected a Democratic Senator since 1988. Drawing on her own background of hardship, namely housing insecurity, Sinema’s priorities include protecting the social safety net by providing quality, affordable healthcare, supporting veterans, and opposing cuts to Medicare and Social Security. She has also put forward a common sense economic platform which includes job creation for residents of Arizona.

Sinema is running on bread-and-butter issues with messaging that is diametrically opposed to her Republican contender, Rep. Martha McSally.  McSally ran hard to the right in order to prevail in the primary election, but that kind of rhetoric may have limited appeal to voters in a state that Trump won by just three percentage points.  Recent polls put Sinema ahead of McSally, but still within the margin of error.

Rep. Jacky Rosen  •  Nevada

Rep. Jacky Rosen, a first-term House member representing NV-03, is challenging Sen. Dean Heller in November.  If she wins, Nevada will be represented by two Democratic women in the Senate. Rosen has campaigned on protecting Social Security and Medicare, as well as improving the affordability of healthcare for all Americans — consistent with her professional background in healthcare management.  In Congress, Rosen has introduced and co-sponsored legislation aimed at curtailing President Trump’s attempts to undermine the ACA. She also emphasizes the importance of improving public education as a way of increasing job attainment and supports developing renewable energy to grow our economy and create jobs.

Heller is the only Republican incumbent running in a state that Donald Trump lost in 2016 and is in trouble for inconsistency on healthcare votes. Rosen has outraised Heller every quarter since July 2017.  As of September 30, Rosen had raised $16.4 million with $2.6 million cash on hand. Sen. Heller has not released his third quarter totals, but as of June 30, Heller had raised $8.3 million with about $5.8 million cash on hand. There are many Democratic incumbent Senate races going on across the country, but many are saying Rosen provides the best chance at flipping a Senate seat in 2018.

U.S. House of Representatives

Jessica Morse (CA-04)

  • Cook PVI:  R+10
  • 2018 Primary:  McClintock 52/Morse
  • Total amount raised 1H 2018*:  Morse $1.15M/ Rep. McClintock $450

Jessica Morse is running in CA-04 to unseat Tom McClintock, one of the most conservative representatives in California. McClintock has held the seat since 2009 with no serious challenger. A traditional Republican stronghold, CA-04 is now deep purple. Morse, 35, brings a background in national security and sharp analytic skills to the race. Morse has outraised McClintock in every quarter with over ten thousand individual contributors and no corporate PAC support.

Morse holds a Master’s Degree in nuclear non-proliferation from Princeton University and spent over a year in Baghdad as a civilian with USAID at the height of the Iraq War.  Morse’s campaign platform is winning support across the district by focusing on local issues like vocational job training, fire prevention, and access to healthcare. She has been endorsed by EMILY’s List, League of Conservation Voters, and Senators Kamala Harris and Elizabeth Warren, along with many other local and national figures.

Katie Hill (CA-25)

  • Cook PVI:  Even
  • 2018 Primary:  Knight 52/Hill 20
  • Total amount raised 1H 2018*:  Hill$1.85M/Knight $935

Katie Hill is running in her home district, the last Republican congressional district in Los Angeles county, against Rep. Steve Knight. Hill’s campaign has focused on issues important to her community, including rebuilding the middle class, ensuring access to affordable health care for all, and campaignfinance reform.  The daughter of an emergency room nurse and a police officer, Hill worked as the Deputy CEO and executive director of PATH (People Assisting the Homeless), which she grew into the largest non-profit provider of housing for the homeless in California.

Despite being a first-time candidate, Hill’s role in PATH gave her critical policy experience that she will take with her to Washington. She managed a budget of nearly $50 million for PATH and spearheaded two ballot measures that passed in 2016, raising over a billion dollars for permanent housing for the homeless in Los Angeles.  The campaign is clearly resonating with residents of CA-25, as recent polls show the race in a dead heat.

Katie Porter (CA-45)

  • Cook PVI:  R+3
  • 2018 Democratic Primary:  Rep. Walters 53/Porter 20
  • Total amount raised 1H 2018*:  Porter $1.56M/ Rep. Walters $1.58M

Law Professor Katie Porter from the University of California, Irvine, Law School has had substantial national support since she declared her candidacy last year.  She was the first 2018 House candidate endorsed by Emily’s List. In the general election, she will face Rep. Mimi Walters, one of seven California Republicans running for re-election in districts that backed Hillary Clinton in 2016.

Porter is being heralded by the progressive community for her stances on financial regulation, Medicare-for-All, and campaign finance reform. Before becoming a law professor, Porter practiced as a consumer interest attorney and fought against predatory lending and corruption in Wall Street banks, an effort she hopes to continue in Congress.  Last week, she led a group of over 100 House candidates that sent a letter to Congress demanding that campaign finance reform be the first issue addressed in 2019. Along with close to 150 other progressive House candidates this cycle, Porter is refusing corporate PAC money.

Susie Lee (NV-03)

  • Cook PVI:  R+2
  • 2018 Democratic Primary:  Lee 67/Weiss 8
  • Total amount raised 1H 2018*:  Lee $2.19M/ Tarkanian $705K

In NV-03, education advocate Susie Lee is running to fill Rep. Jacky Rosen’s seat.  She faces Danny Tarkanian, a businessman who’s perennially run and lost in a variety of races in Nevada. Since 2010, Lee has served as President of Communities In Schools of Nevada (CIS), a leading dropout-prevention organization. Under her leadership, CIS has grown to serve over 64,000 students in 63 Nevada schools. Lee has been consistently ahead in the polls and has eclipsed Tarkanian in fundraising by more than $1 million.

Lee has campaigned on protecting and strengthening the ACA to increase affordability of healthcare.  She also supports middle class tax relief and job training programs for those with or without a four-year degree. Unsurprisingly, one of her biggest priorities is education. She seeks to increase investment in public education and expand programs to make college more affordable and reduce the burden of student loan debt.

Gina Ortiz Jones (TX-23)

  • Cook PVI:  R+1
  • 2018 Democratic Primary:  Ortiz Jones 42/Trevino 18
  • Total amount raised 1H 2018*:  $2.17M/ $1.80M

Gina Ortiz Jones is an Iraq War veteran, intelligence officer, and the first-generation American daughter of a single mother. She faces Rep. Will Hurd in what some call the only true swing district in Texas.  Although Hurd might be considered a moderate in Texas, he has voted with President Trump 95 percent of the time. Jones earned a four-year college scholarship through Air Force ROTC and went on to serve in the US Air Force, reaching the rank of Captain.  Following her service, she worked in the Defense Intelligence Agency and the Office of the U.S. Trade Representative.

Jones’ platform issues include education, job creation, affordable healthcare, veteran protection, and entitlement preservation for seniors. Forced to keep her sexual orientation a secret under the U.S. military’s “Don’t Ask, Don’t Tell” policy, another key platform issue for Jones is the protection of civil rights and liberties for all Americans, regardless of sexual orientation.

MJ Hegar (TX-31)

  • Cook PVI:  R+10
  • 2018 Democratic Primary:  Hegar 67/Mann 38
  • Total amount raised 1H 2018*:  Hegar $1.26M/ Rep. Carter $447K

MJ Hegar is an Air Force veteran, a businesswomen, and a teacher.  She was born and raised in TX-31, a district that has been represented by eight-term incumbent Rep. John Carter since 2002. Hegar decided to run because she believes Rep. Carter is more beholden to special interests than the constituents of TX-31. Although originally classified by Cook as a Solid R district, it has now moved to Lean R.

Hegar supports lowering prescription drug prices and making healthcare more affordable. She wants to get money out of politics and has refused corporate PAC money during her race. As a veteran herself, she has campaigned on protecting and supporting veterans.

*Total campaign receipts compiled according to FEC Data from Jan. 1, 2018-Jun. 30, 2018

Fed Developments – How Trump is Shaping Financial Regulations (October 9)

Update 304: Fed Developments – Nominations and Rules;
How Trump is Shaping Financial Regulations

On September 26, far away from the Kavanaugh maw, the Federal Open Market Committee (FOMC) voted to raise the target range for the federal funds rate from 2 to 2.25 percent. The market expects one more rate hike this year, three increases in 2019, and one in 2020. During the press conference after the interest rate announcement last week, Federal Reserve Chair Jerome Powell remarked on the record low unemployment, robust economic growth, low and stable inflation, and modest wage growth as the backdrop to the FOMC decision to raise rates.

While the Fed’s monetary policy updates may be predictable at this juncture, other developments at the Fed, including some notable nominations and concerning rulemaking proposals are detailed below.  

Best,

Dana

——————————————————

Board Nominations

Republican obstructionism during President Obama’s tenure gave President Trump the opportunity to appoint six of the seven Fed Governor seats, all of whom serve 14-year terms. The administration is targeting the Dodd-Frank framework, so these nominees and their ideological positions are crucial in charting the Fed’s deregulatory agenda. There are three remaining Board seats to be filled with Fed Chair Jerome Powell and Vice Chairmans Randal Quarles and Richard Clarida appointed under the current administration.

  • Richard Clarida

Richard Clarida was sworn in last month as Vice Chairman and member of the Fed Board of Governors after a 69-26 vote in the Senate. During his Senate Banking Committee confirmation hearing, Sens. Warren and Cortez-Masto both expressed concerns about his views on regulation, specifically capital and liquidity requirements. Clarida responded by expressing his support for tailoring — the new euphemism for deregulating — post-crisis banking rules in order to make the financial system more “efficient” without increasing systemic risk.

  • Marvin Goodfriend

Conservative economist Marvin Goodfriend was nominated to the Federal Board of Governors in November 2017 and has had a halting confirmation process. Backed by establishment conservatives but disliked by libertarian-leaning Republicans and Democrats, Goodfriend is an inflation hawk and critic of monetary policy instruments, such as quantitative easing. During his confirmation hearing, Goodfriend was narrowly approved by Senate Banking in a 13-12 party-line vote. Many believe that this nomination will not go forward.

  • Michelle Bowman

In April 2018, former Kansas Bank Commissioner Michelle Bowman was nominated to the Fed and was approved by Senate Banking in June, 18-7, with five Committee Democrats voting in favor. With her background in community banking, a component required by Congress of at least one Board member, Bowman is viewed as a reasonable and responsible, if conservative, choice. The seat has been empty since 2015, when Obama’s nominee, Allan Landon, was blocked by Senate Republicans. The fifth-generation banker will likely be approved by the Senate in the coming months.

  • Nellie Liang

Last month, President Trump nominated former Fed economist, Nellie Liang, to the Fed’s Board. Under former Fed Chair Ben Bernanke, Liang was director of the Office of Financial Stability Policy and Research at the Federal Reserve Board, tasked with identifying weaknesses in the financial system. Liang, a senior fellow at the Brookings Institution since 2017, argued for a preemptive and proactive approach to identifying risk in the financial system in a paper just last week. She would likely bring this view to the Board if confirmed.

Liang’s nomination is curious. Her background in identifying risks in the financial system seems at odds with the ideological views of some of Trump’s other Board picks. Incidentally, Liang is a registered Democrat. There is a history of pairing Fed Board nominations to appoint one member from each party but, so far, Liang’s nomination has not been tied to another candidate. It remains fairly likely that this is the administration’s goal with Liang, so it’s worth watching for additional nominees.

2155 Legislative Intent and Fed Discretion

When Congress passed S. 2155 in May, many members voted to free community banks from prudential standards they considered unnecessary to smaller firms. What some in the GOP wanted, expressed in a letter written by Sen. David Perdue to Quarles on August 17 of this year, was to redefine the entire supervisory regime. They wanted to liberate big banks from the enhanced prudential standards, such as supervisory stress testing, that were enacted to keep too-big-to-fail banks in check.

The stress testing framework in Dodd-Frank was adopted to test the resiliency of financial institutions under hypothetical macroeconomic stress conditions. Even before S. 2155, the Fed had begun proposing rule changes in the name of transparency, which included releasing the modeled loss rates on different groupings of loans and the estimated loss rates on hypothetical portfolios of loans. These changes may encourage firms to tailor their balance sheets to fit in with the stress tests, effectively allowing them to circumvent the supervisory exams entirely.

De Novo Deregulation

The Fed is planning its own de novo rule changes that would loosen regulation on some of the biggest banks. The rules would change how the Fed defines a big bank and what asset sizes require increased regulation. Quarles has called the asset sizes out of date, stating that “it is clear that there is more that can and should be done to align the nature of our regulations with the nature of the firms being regulated.”

The two rule changes, both raising the asset threshold for heightened regulatory oversight to $250 billion and loosening regulations for those that meet it, are focused on:

  • Liquidity Coverage Ratio (LCR): Established by Dodd-Frank after the Great Recession, the LCR rule requires enough cash or easy-to-sell assets to cover one month of liabilities.
  • “Advanced Approaches” Rule: Established before the financial crisis, these rules outline how to calculate a bank’s capital position.

Designation: Sparingly?

During the Q&A portion of Powell’s FOMC press conference last week, Greg Robb of MarketWatch asked about Powell’s confidence in the stability of the financial system given the lack of FSOC oversight of nonbanks. Powell acknowledged the potential risks in the nonbank sector and noted that, “another Lehman Brothers [could] come up out of the ground… which could be capable of creating systemic risk.”

Despite this admission, Powell said that FSOC authority over systemically important nonbank financial firms should be used “sparingly.” Powell’s remarks were disappointingly consistent with the deregulatory agenda of the administration and out of line with the goals of Dodd-Frank — the $50 billion threshold was chosen for a reason and that was not for designation to be used sparingly.

While its monetary policy agenda seems to be on track, the Fed is quietly pursuing a “tailoring” agenda, helping big banks shed some of the regulatory burden of Dodd-Frank.  Whether or not these changes will precipitate another crisis is yet to be seen, but the Fed should fully consider their implications on systemic risk and financial stability.