Update Archive

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.  




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.

Candidates for Congress in the Midwest (October 3)

Update 303: Congressional Endorsements 2018;
Candidates for Congress in the Midwest

Last week, 20/20 Vision endorsed 29 candidates for Congress this year, the first round of such endorsements.  Almost all of these candidates are in margin-of-error-tight races in districts currently held by Republicans. Not only are they terrific candidates, but they have potential to be future leaders in the House and Democratic Party.

This week we review the 2018 endorsed candidates running for Congress in the Midwest region.  We will be covering the other regions of the country weekly over the course of this month.




United States Senate

Senator Sherrod Brown (Ohio)

Senator Sherrod Brown recalls the late Sen. Paul Wellstone in style and substance as a full-throated progressive populist and defender of working people in his state and nationally.  Sen. Brown, as Ranking Member of Senate Banking, led the opposition to S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. Throughout the process and as bill manager in opposition, Sen. Brown kept a majority of the caucus together and focused on the larger issues of systemic risk and the damage that the bill does to the American consumer.  As a member of Senate Finance, Sen. Brown was also one of the primary voices of opposition against the “Tax Cuts and Jobs Act” (TCJA), a catastrophe of inequity.

Sen. Brown is in a tough reelection campaign.  The two-term Senator is going up against Trump sycophant, Rep. Jim Renacci.  Sen. Brown is currently enjoying a double-digit lead in polling but has said that the number of Trump voters that turn out in Ohio will dictate the way the race breaks. President Trump currently has a 45 percent approval rating in Ohio, above his national average.

Senator Tammy Baldwin (Wisconsin)

Senator Tammy Baldwin has been a beacon of leadership and creativity in championing progressive economic legislation since her election to the Senate in 2012.  She has taken on the big banks, voting against S. 2155. She has also been a fierce advocate against special interests by introducing amendments and bills to tackle corporate greed and political corruption.  Sen. Baldwin’s commitment to accessible, affordable healthcare is signature. Her leadership on the Health, Education, Labor, and Pensions (HELP) and Appropriations committees has put her at the forefront of the fight against the junk health plans created by the Trump administration to destroy the Affordable Care Act (ACA).

Wisconsin has not had a statewide Democrat elected in a midterm election since Sen. Herb Kohl in 2006.  President Trump turned the state red in 2016 and the state GOP has deep pockets and a strong organization, Sen. Baldwin has been the main target of the Koch and Uheline networks, who have spent more in her race for State Senator Leah Vukmir than any other in the country.  But with healthcare the top issue on voters’ minds here, Tammy’s service and dedication should be rewarded.

U.S. House of Representatives

Abby Finkenauer (IA-01)

  • Cook PVI: D+1
  • 2018 Democratic Primary: Finkenauer 67/Heckroth 19
  • Total amount raised 1H 2018*: Rep. Blum $855K/Finkenauer $469K

Abby Finkenauer is a skilled first-time candidate who dominated her primary, securing over two-thirds of the vote.  Her fairly humble background gives her experience of the plight of families struggling to get by. Finkenauer’s father was a union pipefitter and welder who went through periods of precarious employment.  During her time in the state legislature, Finkenauer fought to make high-quality healthcare available for all Iowans and supported affordable education for students.

On the campaign trail, Finkenauer has argued for progressive economic policies, such as infrastructure reform and raising the minimum wage, and has been a vocal critic of the 2017 GOP tax plan which she views as giveaway to the richest Americans.  On Monday, President Obama endorsed Finkenauer and a recent September Emerson College poll has her ahead of her challenger, Rod “Clerical Error” Blum, by 5 points.

Cindy Axne (IA-03)

  • Cook PVI: R+1
  • 2018 Democratic Primary: Axne 58/Mauro 26
  • Total amount raised 1H 2018*: Rep. Young $1.13M/Axne $263K

Another Iowan and first-time candidate, Cindy Axne, had an impressive primary.  A small business owner and former state official, Axne is focused on a number of progressive economic policies, including healthcare for all, equal pay, protecting Social Security and Medicare, and campaign finance reform. GOP Super PACs, such as Paul Ryan’s Congressional Leadership Fund (CLF), are spending big on TV ads in the district, leaving Axne at a fundraising disadvantage compared to her rival, Rep. David Young.  Axne was also endorsed on Monday by President Obama. Should both candidates win in November, they will be the first Democratic female members of Congress from Iowa and would shift the state’s delegation from 3-1 R to 3-1 D.

Liz Watson (IN-09)

  • Cook PVI: R+13
  • 2018 Democratic Primary: Watson 66/Canon 31
  • Total amount raised 1H 2018*: Watson $794K/Rep. Hollingsworth $444K

Despite its recent red trend, Indiana’s 9th is a purple district and has flipped back and forth between parties since its inception. Rep. Trey Hollingsworth is the incumbent in a seat that was vacated by now-Senator Todd Young in 2014. Hollingsworth, who will face Liz Watson in November, is seen as a vulnerable candidate. A multi-millionaire business owner, he moved to Indiana just one year before he was elected in 2016.

Liz Watson is a fifth-generation Hoosier who was raised in Bloomington, the biggest city in her district. As a former Labor Policy Director for congressional Democrats, Watson is a staunch pro-labor candidate who is advocating for a $15 minimum wage and the right to organize. She also supports specific infrastructure revitalization programs, raising the low income housing tax credit, and expanding Medicare to all Americans. Watson does not accept corporate PAC money and has advocated for campaign finance reform to combat Citizens United and congresspeople with special interests like Hollingsworth. IN-09 is the type of working class, Trumpian-toned district that Democrats need to win back in order to take the majority in 2018.

Elissa Slotkin (MI-08)

  • Cook PVI: R+4
  • 2018 Democratic Primary: Slotkin 71/Smith 29
  • Total amount raised 1H 2018*: Slotkin $2.85M/Rep. Bishop $1.02M

Elissa Slotkin is a first-time candidate who cruised through her primary with over 70 percent of the Democratic vote.  She is facing incumbent Rep. Mike Bishop, who won over 90 percent of the Republican vote in his primary. Slotkin and Bishop are going head-to-head in Michigan’s 8th District, with FiveThirtyEight predicting Bishop marginally ahead at this point in the race.

Slotkin is a born-and-bred Michigander who has federal-level experience in national security and intelligence initiatives and has worked under both Republican and Democratic leadership.  She is strongly committed to bipartisanship and what she calls a “straightforward, commonsense” approach to crafting policy. She supports an efficient and responsible budget, and has come out against the TCJA. In a similar vein, Slotkin wants to overturn Citizens United and has pledged not to accept corporate PAC money during her campaign.

Haley Stevens (MI-11)

  • Cook PVI: R+4
  • 2018 Democratic Primary: Stevens 27/Greimel 22
  • Total amount raised 1H 2018*: Stevens $526K/Epstein $275K

Former Obama Administration official and leader in advanced manufacturing, Haley Stevens is running in MI-11 for a seat left open by Republican incumbent David Trott. MI-11 is an overwhelmingly suburban district located northwest of Detroit that narrowly voted for Trump and Romney in 2016 and 2012, but voted for Obama in 2008. Stevens’ opponent, Republican Lena Epstein, is a businesswoman and self-funder who has largely tied herself to President Trump.

Stevens has emerged as one of the star candidates this election cycle, having won a crowded primary against four other competitive candidates.  She served as chief of staff for the Treasury Department’s Auto Task Force under President Obama, which is reported to have saved 200,000 Michigan jobs.  Haley played a key role in managing the Recovery for Automotive Communities and Workers initiate in the Obama White House Office of Manufacturing Policy. Her work helped save General Motors and Chrysler in 2009 by assisting with the arrangements for financing and creating a structured bankruptcy plan.  Stevens has also campaigned hard on reducing healthcare costs in her district, primarily by strengthening the ACA. Pundits are calling this race a “toss-up” or leans Democratic.

Angie Craig (MN-02)

  • Cook PVI: R+2
  • 2018 Democratic Primary: Uncontested
  • Total amount raised 1H 2018*: Craig $2.43M/Rep. Lewis $896K

Minnesota business leader Angie Craig faces a rematch with Rep. Jason Lewis in November. Craig, whose first run at this seat in 2016 ended in defeat, is poised to change the dynamic in MN-02 this time around. Rep. Lewis has defined himself as an unapologetic Trump Republican, who some in Minnesota have called “Trump before Trump.”  In a district largely located in the suburbs of the Twin Cities, who narrowly voted in favor of the President in 2016, voters seem poised to reject Rep. Lewis, and Craig looks set to overcome her 2016 defeat. Craig’s business background is well-suited for suburban voters in MN-02, and she is running on kitchen table economic issues, such as investing in small business entrepreneurship and fighting to make fixes to the Affordable Care Act.

Kara Eastman (NE-02)

  • Cook PVI: R+4
  • 2018 Democratic Primary: Eastman 52/Ashford 48
  • Total amount raised 1H 2018*: Rep. Bacon $1.05M/Eastman $370K

Nebraska, a reliably Republican state in presidential elections, is now on the forefront of the Democratic Party’s ambitions in the 2018 midterms. NE-02 lies on the periphery of the Omaha Metropolitan area and is currently represented by Rep. Don Bacon, who was elected in 2016. He is now facing stiff resistance in the general election from the insurgent Democratic candidate, Kara Eastman.
Eastman was born and raised in the Midwest with her mom and grandparents. She started her career in public service earnestly through her own start-up.  Her non-profit, Omaha Healthy Kids Alliance, is a nationally-recognized, award-winning organization, and has raised over $13 million to support healthy housing in Omaha.  The non-profit serves over 4,000 Nebraskan families and has created dozens of jobs for the local community. Eastman wants to take her service experience to the next stage and make healthcare-for-all a reality, end irresponsible gun legislation, and ensure that incoming generations of students can attend college affordably.

Aftab Pureval (OH-01)

  • Cook PVI: R+5
  • 2018 Democratic Primary: Uncontested
  • Total amount raised 1H 2018*: Pureval $2.03M/Rep. Chabot $507K

A first-round Obama endorsee and current Hamilton County Clerk of Courts, Aftab Pureval is running to unseat longtime incumbent Rep. Steve Chabot. While Pureval faces a tight race against Rep. Chabot, he has experience playing the underdog in Ohio. His unexpected county clerk victory in 2016 landed the Democrats a seat that they had not controlled for over a century. Cincinnati Mayor John Cranley called Pureval the Democrats’ best chance to reclaim OH-01, a seat controlled by Republicans for the past decade. Sen. Brown also called the race one of the best opportunities Democrats have to flip a seat in all of Ohio.The mainly rural district makes up a large section of Cincinnati, which is a part of the district Pureval will have to work hard to turn out.  Pureval is running his campaign with a progressive economic policy focus — vociferously opposing the GOP tax cuts, arguing for the protection of Social Security and Medicare, implementing a $15 federal minimum wage, and supporting the rights of workers to collectively bargain with their employers.

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

Senate Banking Hearing Tomorrow — Why is Implementation So Slow? (October 1)

Update 302: Senate Banking Hearing Tomorrow
on S. 2155 — Why is Implementation So Slow?

When the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) was signed into law four months ago, we saw risk, not a reason to rush implementation. Industry apparently sees otherwise and so Senate Banking will ask why it’s been so slow.

Per a recent survey of registered voters by Better Markets and The Harris Poll, 58 percent either wanted a return to the protections put in place after the financial crisis or additional regulation on banks with over $50 billion in assets. 70 percent of Democrats, 53 percent of independents, and 49 percent of Republicans agreed.  

A majority of voters disagree with S. 2155’s deregulatory agenda. Policy aside (or see below), just five weeks out from the midterms, is this the time for lawmakers to showcase support for, let alone demand rapid implementation of, the biggest rollback of Dodd-Frank yet?




Industry Interest

The supervisory regulatory relief to community banks, the provision at the center of S. 2155’s advertising, is not extensive.  In raising the Federal Reserve’s Small Bank Holding Company Policy Statement from $1 billion to $3 billion, small banks that qualify may apply for a longer supervisory examination cycle of up to 18 months. Should they meet the appropriate criteria, banks with under $5 billion in assets will enjoy relaxed reporting requirements in the first and third quarters. For community banks holding over $5 billion in assets, this supervisory relief applies less, focusing on modest changes in capital requirements and mortgage regulations, and exemption from the Volcker rule.

The ratcheting up of the SIFI designation threshold from $50 billion in consolidated assets to $250 billion, which has almost no direct impact on community banks, was the number one legislative goal of the ABA much of this decade. . Title IV of S. 2155 does precisely that, and why the banking sector wants the title implemented yesterday is not a mystery.

Not everyone is enthused.  Sheila Bair, the FDIC chair during the financial crisis, says that S. 2155 sets “a dangerous global precedent [and] now some in [Congress] have decided to side with self-interested bankers.  They argue our stronger capital rules put US banks at a competitive disadvantage, even though they have come to dominate global finance.”  Industry has already expressed its gratitude to Democratic members of the Banking Committee in tight re-election races in red states like Indiana, Montana, North Dakota, the leading recipients of commercial banking largess.  Democrats trying to present S.2155 as a small-bank bill have some ground to stand on, but also run a serious political risk.

Two Steps Forward, One Leap Back

As we have moved farther away from the Great Recession, much of the public has forgotten what precipitated the crisis. S. 2155’s deregulatory measures take us closer to pre-recession conditions rather than farther by undermining a fundamental pillar of the post-2008 regulatory regime.  Although the bill’s messaging is centered around helping community banks, the real winners are the midsize to large regional banks.

Section 401 loosens regulations on 25 of the top 40 largest banks by increasing the asset threshold for the automatic application of post-crisis safeguards, known as enhanced prudential standards, from $50 billion to $250 billion.  These 25 banks together hold $3.5 trillion in assets and collected a total of $47 billion in Troubled Asset Relief Program (TARP) funds during the financial crisis.

401 also provides the biggest rollback thus far of DFA, which was put in place to strengthen regulation after the Recession.  Although the bill gives the Fed discretion to re-apply enhanced prudential standards to those banks with assets between $100 and $250 billion,  President Trump’s appointees, which include Vice Chair of Supervision Randal Quarles, are unlikely to do so. In addition to these already risky changes, the bill also complicates the stress testing system and loosens requirements for the liquidity coverage ratio.  The result? A less-insulated financial system with far greater systemic risk.

Questions Remain

As we head into tomorrow’s hearing, important questions remain on the implementation and interpretation of S.2155 by the various agencies involved:

  • Given the fact that Lehman Brothers had $150 billion in assets when it collapsed during the financial crisis, isn’t the Fed’s newfound discretionary designation power still critically important?
  • What methodologies and procedures will the Fed use to make a determination on whether a bank between $100 billion and $250 billion in assets should face enhanced prudential standards?

Fed Chair Jerome Powell suggested in his most recent press conference last week that post-crisis designation powers on nonbanks, while important, should be used “sparingly.” This seemingly innocuous comment comes as other agency chiefs are considering weakening other discretionary powers in the wake of S. 2155.  The American people (and voters) may not forgive nor forget a future financial crisis conceived in the legislative details of a lobbyist’s bill in Washington.

Your Need-to-Know on the Budget (September 27)

Update 301:  Your Need-to-Know on the Budget
GOP Takes What Could be Final Fiscal Bites

In what could be its fiscal swan song, the GOP congressional majority has, as of this writing, approved about 75 percent of discretionary spending for FY 19, which starts on October 1.  

Will the bill(s) be enacted and a shutdown averted with nary a whimpering about a wall?  Or will that wait until December 7, when the agreements all but struck this week expire? See below.  




The GOP has been busy trying to keep the governent funded by combining separate spending bills into the following “minibus” packages:

  • Minibus I — $147 billion

On September 21, President Trump signed into law the first FY19 spending package (H.R. 5895) covering military construction and veterans affairs, the legislative branch, and energy and water. The funding bill passed the Senate 92-5 and the House 377-20.

  • Minibus II — $854 billion

On September 24, the Senate approved a comprehensive spending bill 93-7 funding the departments of Defense, Health and Human Services, and Labor and Education. The House version (H.R.6157) passed yesterday 361-61 and it will now make its way to the President’s desk. Importantly, it includes a Continuing Resolution (CR) to fund all other agencies through December 7. Assuming the legislation is signed by the President, this takes the heat off the more contentious negotiations currently under way on the third minibus package containing Financial Services and General Government (FSGG).

  • Minibus III — $58.7 billion

The third package of bills (H.R.6147) includes funding for Interior, Environment & Agriculture, Rural Development, FDA, Transportation-HUD, and FSGG, and is currently in conference between the House and the Senate. The House version passed narrowly 217-199 and along mostly party lines. The House Republicans have placed dangerous policy riders in their version of the package while the Senate has a clean version, evident by their much less partisan 92-6 vote. There has also been disagreement over a Republican-introduced $585 million savings account within the House bill that is only to be accessible when the federal deficit is eliminated— ironic given the GOP’s recent deficit-busting tax cuts.

The latest out of the conference committee suggests that House Republicans have been pushing hard on a number of the policy riders so a deal is unlikely. If the conferees cannot reach a deal this week, then the CR passed in Minibus II will fund operations until December 7. There is a small possibility that the President decides to refuse to sign the bill, so as always, watch this space… a press conference President Trump is delivering at 5PM today might offer insight into his decision one way or the other.

FSGG Spending Toplines

Here are the most recent topline appropriations levels in the House and Senate bills for the relevant agencies, which have generally been noncontroversial and subjected to limited partisan debate:

Internal Revenue Service

  • House: $11.3 billion
  • Senate: $11.3 billion

This topline figure is over $100 million less than FY 2018 and much lower than the $12.1 billion budget approved before the GOP took back control of the House in 2011.

Securities and Exchanges Commission

  • House: $1.7 billion
  • Senate: $1.7 billion

This is actually over the 3.5 percent increase requested by the agency and the additional money will go toward 100 new jobs, including 13 in investment-adviser and investment-company examinations.

Small Business Administration

  • House: $730.6 million
  • Senate: $699.3 million

The House version of the bill includes a $31.3 million “Disaster Loans Program Account”. Much of the SBA volatility comes as a result of this disaster assistance, which varies year to year. For example, fiscal years following disasters like Hurricanes Katrina, Sandy, and Irma all had increased funding to the SBA.

Commodity Futures Trading Commission

  • House: $281.5 million
  • Senate: $281.5 million

This is equal to their budget request for FY19. For years, the CFTC has argued its budget is not enough for it to fulfil its mission as the derivatives market regulator, so this funding match would be good news for the agency.

Pernicious Policy Riders

Unlike these appropriations, there are a number of contentious policy riders in the House bill, including unnecessary changes to capital markets and provisions that increase systemic risk. The eight FSGG policy riders are bills included in the S.488 JOBS 3.0 package, which incidentally now looks stalled in the Senate. These riders absolutely need to be stripped from the final bill. Rep. Lowey insisted during the September 13 conference deliberations that if these riders are not removed, Dems would “keep these bills in a holding pattern.”

December Shutdown?

For the first time in 10 years, an interior appropriations bill and a financial services appropriations bill were debated on the Senate floor. Despite that, Minibus III will likely be passed as a CR that will expire on December 7, with most of the riders stripped out. Because funding for President Trump’s wall has been left out of legislation and December 7 is after the midterms, a government shutdown then is much more likely. Republicans are already facing a potentially huge loss of seats in the House, so shutting down the government before the election would be reckless at best and destructive at worst.

Review of the Banking Sector (September 21)

Update 300: Review of the Banking Sector; the Irony of Records Being Set Amid Deregulation

Today we go back to basics with a quarterly review of the health of the financial sector and the disparate sub-sectors comprising it. Industry has fostered misrepresentations of the state of the sector claiming to be hamstrung by regulation and suffering consolidation. Its reason is because Dodd-Frank is working all too well and yet still beset by Too Big To Fail because it isn’t working.   

In fact, never have revenues been higher, margins bigger, market caps bigger, salaries and bonuses bigger… and competition keener.  We’ll take the issue up again on October 2 when Senate Banking holds a hearing on the “Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act,” where the panel will re-examine whether bank deregulation makes sense given the current cyclical condition of the sector.  

Good reading and good weekends all…




The Banking Sector’s Big Boom

  • Credit Unions

Prior to the passage of S.2155, credit unions were profiting significantly through market consolidation as they continued to gain more market share in areas underserved by community banks. In fact, they have increased their overall market share from around 6 percent at the start of the financial crisis to 7.4 percent in 2017. In other words, credit unions were doing better than ever and were not in need of further deregulation. Despite this, credit unions claimed a large victory in the deregulatory policies of S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. Credit unions, along with community banks, received some deregulatory benefits in the bill, but the lion’s share of the benefits in S.2155 still went to the Wall Street elite firms.

  • Community Banks

Since the financial crisis, the condition of community banks has improved considerably. Community banks range from institutions with less than $1 billion in aggregate assets up to institutions with under $10 billion.  One of S.2155’s most notable changes raised the total asset threshold for submission to annual Federal Reserve stress testing from $50 billion to $250 billion, ostensibly not affecting community banks. This increased threshold does give more leeway to small banks looking to grow their asset size, because banks would have to hold over $250 billion in assets before being subjected to enhanced prudential standards.  However, the Fed could use its discretion to apply these standards to banks with between $100 and $250 billion in assets.

  • Midsize Regional Banks

Ten years out from the financial crisis, midsize regional banks also continue to improve.  Some of these banks, buoyed by the 2017 tax law, higher interest rates, and rising commercial bank loans, have almost doubled in size since 1Q 2017. Midsize regional banks gained the most by far from S.2155. Loosening regulatory scrutiny, including automatic enhanced prudential standards, on banks with assets up to $250 billion, hugely benefited the 24 mid-sized regional banks. These banks include household names like PNC, Capital One, SunTrust, and BB&T — not small, community-oriented banks. Rather, precisely these kinds of banks — institutions on their way to becoming banking giants and providing services and loans to the average American — need federal oversight.

  • Wall Street Elite Firms

In the years since the financial crisis, the nation’s elite banks have grown exponentially. The top 15 largest banks, including the likes of J.P. Morgan, Morgan Stanley, and Goldman Sachs, now hold a combined total of over $13 trillion in assets. The top six banks have also experienced record profit growth in recent years, seeing double-digit increases in just the last year from 2Q 2017 to 2Q 2018.

Source: Wall Street Journal

Republicans in Congress, and some Democrats, are deregulating under the guise of helping the little guys — community banks and credit unions — while many of the benefits are actually going to the top 100 financial institutions. Big banks continue to push for deregulatory measures, all the while continuing to benefit from the windfalls of S.2155 and the Tax Cuts and Jobs Act (TCJA).

Underfunded, Understaffed, Undermined

While financial institutions are basking in the golden age of banking, federal agencies are under attack. Crucial regulatory and oversight agencies are undergoing severe budget and staffing cuts, and the Trump Administration and the GOP Congress remain hellbent on weakening protections under DFA.

  • FSOC/Fed: Last week, the Financial Stability Oversight Council (FSOC) used its discretion to remove the systemically important financial institution (SIFI) status of Zions Bank, which was the first time that FSOC has used its powers to de-designate a bank’s systemic risk label. It may be a sign of things to come, as the Fed now has the discretion to apply whatever prudential standards it deems necessary to banks under the new $250 billion threshold. During the same meeting last week, FSOC also reviewed insurance giant Prudential’s status as the one remaining non-bank SIFI. The council did not reach a decision, but the consensus among experts close to the matter is that Prudential’s status as a nonbank SIFI is in jeopardy. Ten years after the financial crisis and the dramatic collapse of American International Group (AIG), FSOC is on the verge of rendering one of the key DFA protections defunct. 
  • OFR: The research arm of FSOC, the Office of Financial Research (OFR), which is charged with seeking out problems in the financial system and raising them with regulators, is being decimated under the current administration. In January, the administration signaled that it was looking to cut OFR’s budget by 25 percent, to around $76 million; in August this year, around 40 staff members were laid off, as the agency’s headcount target is down 65 percent from its peak. The current nominee to head the office, Jeb Hensarling’s chief economist Dino Falaschetti, is a curious choice given Hensarling’s complete disdain for the agency and its mission. 
  • OCC/FDIC: In April of this year, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve issued a joint notice of proposed rulemaking (NPR) to make changes to the Enhanced Supplementary Leverage Capital Ratio (eSLR). This change would reduce capital requirements for the eight global-systemically important banks (G-SIBs) at their insured depository institutions by $121 billion, equivalent to a 20 percent reduction in capital. Current FDIC Chair Martin Gruenberg and two former FDIC chairs, Sheila Bair and Thomas Hoenig, have all spoken out against the NPR, arguing that the proposed changes are unnecessary and threaten financial stability.

Banks Turn to Lobbying

In an attempt to strengthen their image and weaken regulation, banks have turned more aggressively towards lobbying efforts.  Formed from a recent merger, the Bank Policy Institute (BPI) represents over 48 of the largest banks of the United States, whose combined lending accounts for 72 percent of all loans issued in the country. It is staffed by analysts, researchers, and attorneys, and is overseen by a Board of Directors consisting of some the largest names in the banking sector including the CEOs of Bank of America, Citigroup, and JP Morgan Chase.

BPI’s agenda is unsurprisingly aimed at further deregulation of the banking industry in an attempt to whittle down the regulatory regime that was established after the 2008 financial crisis. The Institute announced this week that it was hiring two top lobbyists to push for its legislative agenda. Some of their goals include lowering reserve requirement ratios and repealing self-funding requirements on lending.

Was S.2155 Worth It?

The aforementioned issues will come to a head on October 2, during the upcoming Senate Banking Committee hearing on the implementation of S.2155. There, we are likely to get a fair hearing on why risky deregulation should go forward when the sector is so flush. Fortunately for supporters of S.2155, costs of regulation are examined much more closely than costs of deregulation, a long-standing norm that makes it easier to deregulate and harder to regulate.  The SBC hearing in October will offer an excellent, hopefully balanced, picture of the benefits and the costs of S.2155, as well as a key platform for exploring the irony of deregulating this flush, prosperous, growing, systemically significant sector.

Healthcare Weighs in at #1 Midterm Issue (September 18)

Update 299:  Still Unrepealed and Undefeated,
Healthcare Weighs in at #1 Midterm Issue

Plus ça change.  For the umpteenth cycle, healthcare is back on top among voting issues in the country.  No surprise. The stakes are high and are faced practically universally. But anxiety and a sense of chaos surrounding basic protections and health-related economic issues have perhaps never been higher.  

Today, we look at how healthcare is playing out on the campaign trail and offer an example of how the substantial and growing Democratic advantage on this central issue can be leveraged in the campaign context.  




It’s the ACA, Stupid

Healthcare has been a hotly-debated area of policy among the American public long before the passage of the Affordable Care Act (ACA) in 2010.  Despite initial hesitations, the majority of Americans now support the ACA and are worried about the prospect of it being repealed.

There are three main consequences of weakening and/or repealing the ACA that voters fear the most:

  • Pre-existing condition protection loss: 133 mil. Americans under 65 have a pre-existing condition.  Before the ACA, insurers could deny these people coverage or charge them exorbitant rates.  Nearly three quarters of Americans want Congress to preserve the pre-existing condition protections codified in the ACA. Still, 20 states have signed a lawsuit against the federal government that, if successful, would render this provision and the ACA at large, unconstitutional.  Some in the GOP realize they may be on the wrong side of the debate. In late August, Sen. Thom Tillis, with nine other red-state Senators, proposed a bill to protect the pre-existing conditions provision even if the ACA is repealed (S.3388, Ensuring Coverage for Patients with Pre-Existing Conditions Act).
  • Skyrocketing premiums:  When it comes to the ACA, many Republicans are in full sabotage mode.  Last year, the October announcement by the Trump administration to end cost-sharing subsidies to insurers increased mid-tier “Silver Plan” premiums by between 7 and 38 percent. Last December, the individual mandate penalty was eliminated following the Tax Cuts and Jobs Act, taking healthy people out of the marketplace.  This year, the Trump Administration expanded short-term, non-ACA compliant “junk” plans, originally designed to be transitory coverage. The individual mandate repeal and the short-term plan rule change are predicted to raise premiums an average of 16 percent in 2019.

  • Higher out-of-pocket costs:  Before the ACA, there were no limits to out-of-pocket expenses, leaving many Americans at-risk of financial ruin if they had a serious accident or illness. With the passage of the act, “even high-deductible plans must limit out-of-pocket expenses to $14,300 for a family or $7,150 for an individual.” Since the introduction of the ACA limits, out-of-pocket healthcare expenses have fallen as a share of total health spending. If the Texas lawsuit is successful and the ACA is deemed unconstitutional, Americans are rightly concerned that it might spell the return of out-of-control out-of-pocket expenses.

A Gallup poll earlier this year reported that Americans have listed the availability and affordability of healthcare as their number one concern for the past five years — above crime and the national debt.  A once-unpopular law, recognition of the positive effects of the ACA and endless threat of repeal by the GOP have altered the political tide.

A Midterm Malady for Republicans

Republican attacks on key ACA provisions, such as pre-existing condition protections, have proven to be increasingly unpopular with Americans:

Screen Shot 2018-10-03 at 3.13.48 PM.png

Source: Washington Post

Republicans face electorates who are angered by the slew of sabotaging measures enacted by the Trump Administration and GOP Congress over the course of the past two years. Democrats across the country are campaigning on an antithetical message to Republicans as they vow to protect Americans’ healthcare. In fact, over half of political ads for pro-Democrat candidates have focused on their healthcare message, compared to just 20 percent for pro-Republican candidates. Candidates are tailoring their messaging according to their regional zeitgeist, but whether it is Medicare-for-all or protecting the vital provisions in the ACA, their difference from the GOP on this issue is stark.

Since 2013, Americans’ views of the ACA have shifted steadily from unfavorable or unsure, to supportive. In February 2013, 36 percent of Americans supported the law, 42 percent did not, and 23 percent were unsure. This compares to a poll in August of this year where 50 percent of Americans said they supported the ACA, 40 percent did not, and just 10 percent were unsure. In the past five years, as the number of unsure Americans has halved, a majority of those uncertain individuals have come to view the 2010 reform bill favorably. Among Democrats, ACA support remains high at 77 percent of individuals polled. Slowly but surely, the public consensus on healthcare is rising and Republicans are increasingly finding themselves on the wrong side of the issue.

Democrats United Against the GOP

The common thread among Democratic candidates and incumbents is clear: protect healthcare. The way candidates are getting to that core message varies by district. Sen. Sanders’ campaign in 2016 brought Medicare-for-all into the mainstream. A policy idea once thought of as too radical for America, single-payer healthcare has become a more salient concept in unexpected parts of the country. In NE-02 and CA-45, both R-leaning districts, Kara Eastman and Katie Porter won their primaries running with healthcare, specifically Medicare-for-all, at the forefront of their campaigns. However, running on Medicare-for-all seems to be an exception rather than the rule.

In the majority of districts across the country, constituents are concerned with protecting the status quo and lowering costs rather than transforming the whole system. In MI-11 and TX-23, another two R-leaning districts, Haley Stevens and Gina Ortiz-Jones are running on an affordable healthcare message with the intention of defending and strengthening the ACA as opposed to replacing it with Medicare-for-all.

The Dakota Experience

In July, a local healthcare advocacy group, Dakotans for Health, deployed a strategy in North Dakota to drive home a pro-ACA message. Using a local report on the impact of ACA repeal and focusing specifically on the implications of taking away the pre-existing condition protections, Dakotans for Health created a buzz in the local media. Prominent figures such as former Congressman Earl Pomeroy, and former Sec. Mary Wakefield, Secretary of HHS during the ACA implementation years, took to the airwaves with the pro-ACA message.

Over the course of 10 hours, Earl and Mary gave around 15 interviews to local news and radio stations. After this 24 hour earned media drive, the initiative created a cascade effect, bringing the healthcare issue to the fore and creating a strong platform for Democratic candidates in the state to positively discuss the issue with the electorate. This same kind of model is not just marketable in the Dakotas. The Dakotans for Healthcare media blitz is replicable in smaller, more-rural districts all over the country. The model helps to amplify Democratic messaging on an issue that is proving popular with voters — a Pew Foundation poll in June found that voters trust Democrats over Republicans on the issue by a 16-point margin.

Don’t Forget Healthcare

During this election cycle, healthcare is playing out on center stage as an economic issue.  Household budgets are being squeezed by rising premiums and any wage gains are being negated by the rising cost of healthcare under the Trump Administration and a GOP-led Congress. Regarding healthcare this cycle, Democrats are light years ahead of Republicans in the polls and policy.  Candidates should double-down on their healthcare messaging ahead of November in the race to win back the House.

Capuano All Shook Up by Pressley (September 14)

Update 298: Capuano All Shook Up by Pressley;
Round-up of Primary Season

It’s a wrap folks — the 2018 primary season is over, the final races done, and a vision of the next Congress increasing in color and clarity.  Below we re-cap the final three primaries and reflect briefly on what we’ve learned about Americans’ chief political concerns and preferred candidates.  

Good weekends all…




MA-07: Ayanna Pressley (MF)

  • 2016 Pres. Election: Clinton 84/Trump 12
  • 2012 Pres. Election: Obama 83/Romney 16
  • 2016 House: Capuano (D) 99/Write-in (N/A) 1
  • Cook PVI: D+34

Last week, in a Crowley defeat 2.0, Boston City Councilor Ayanna Pressley unseated 10-term Rep. Michael Capuano in MA-07 with 59 percent of the vote.  She will not face a general election opponent in November and is guaranteed her seat in Congress in January. Capuano’s loss to an insurgent progressive candidate was surprising considering his all but perfectly progressive voting record, notably his important opposition to bank deregulation. Pressley did not argue that her opponent was too moderate, rather that “Change Can’t Wait” and more bold action is required to push an activist agenda in congress.

Campaign finance reform emerged as a clear winner for Pressley.  As with other successful challengers this primary season, Pressley rejected corporate PAC money— whereas Capuano raised nearly $400,000 from business PACs.  Pressley coupled her anti-corruption agenda with an economic platform focused on inequality, citing the extremely high income inequality levels in the district as a rallying cry for change.  Pressley supports a $15 an hour minimum wage, an expansion of the Earned Income Tax Credit, gender pay equity, and statutory paid family leave. She strongly opposes the GOP tax cuts and any cuts to social benefit programs, instead arguing for Social Security and Medicare expansion.

NH-01: Edwards vs. Pappas

  • 2016 Pres. Election: Trump 48/Clinton 47
  • 2012 Pres. Election: Obama 50/Romney 49
  • 2016 House: Shea-Porter (D) 44/Guinta (R) 43
  • Cook PVI: R+2

Next Congress will mark the end of the all-female Congressional delegation from New Hampshire — the first time that has ever happened. In November, Executive Councilor Chris Pappas (D) will face former South Hampton police chief Eddie Edwards (R) in NH-01.  Pappas emerged victorious after one of the most competitive primaries of the cycle. The establishment-backed Pappas defeated progressive challenger, Maura Sullivan, a former Obama administration official, 42 to 30 percent.

The district has seen tight House elections the last three cycles, but Pappas brings assurance of durability for Democrats here. Proclaimed by Sen. Maggie Hassan as a superstar, Pappas will try to address one of the most pressing issues for New Hampshirites — labor development.  Just as in a majority of the state, in NH-01, there is not enough skilled labor to fill the number of job vacancies. Pappas will try to address that problem as well as an issue that we have seen played-out time and again this cycle — healthcare. Pappas believes in maintaining the Affordable Care Act and creating a public option for the exchanges. He has pledged not to take corporate PAC money and supports Rep. Sarbanes “Government by the People Act” which seeks to incentivize small dollar donations.

New York: Marquee AG, Gubernatorial races

Gov. Andrew Cuomo pulled ahead of actress and activist Cynthia Nixon to secure the Democratic nomination by a comfortable 66 to 34 margin. Nixon had hoped to differentiate herself from Cuomo with a progressive platform highlighting economic and social justice but was ultimately defeated. Cuomo will face Dutchess County executive Marc Molinaro in November, with Cuomo expected to easily hold onto the office.

Letitia James beat out three other candidates to emerge as the Democratic candidate for New York Attorney General. James currently serves as the Public Advocate for the City of New York, one of only three citywide officeholders.  James will face off against Republican Keith Wofford, a New York City lawyer, in the general. Whichever candidate emerges in November will have already made history — Wofford is the first African-American candidate to receive a GOP nomination for state AG and James would be the first African-American woman elected statewide in New York.

A Look Back

We have seen many similar themes play out in Democratic primaries this season:

  • Women and minority candidates: This primary season, Democrats have nominated 180 female candidates in house primaries; the previous record was 120. Not only are Democrats electing women at record rates, they have also nominated 133 people of color and 158 first-time candidates. One thing is clear — Democrats want Congress to look a lot different after the general this November.

  • Healthcare: Healthcare protection and reform in all shapes and sizes has proven to be a crucial platform issue for Democrats this primary season. Messaging has varied widely based on district —  what works in New York city, may not work in a rural district of Florida. Democratic candidates in more urban and D-leaning districts have been focusing on Medicare-for-all, whereas in more rural and R-leaning districts, Democratic candidates instead use phrases like “affordable healthcare” and “protecting the ACA,” letting their constituents know that they care about protecting healthcare but are not planning to introduce radical change. In places like the Midwest, this toned-down rhetoric is resonating with people who don’t believe in a complete change of the system, but just want to pay less for basic healthcare needs.

  • Establishment vs. Progressive: Despite victories like Ocasio-Cortez and Pressley, progressives haven’t taken over the Democratic party, but they have taken a much larger piece of it. This year, more progressives ran and won than ever before. As of July, Vox reports, 280 non-incumbents in House primaries self-identified as progressive compared to 60 in 2014. As of August, non-incumbent progressives had won 24 percent of the time in House primaries versus 32 percent for establishment candidates, according to Brookings. Although the establishment still has a slight hold, it is clear that the progressive wing is strengthening. The progressive message is resonating with more and more democrats and it is quite likely that the entire party will shift left as a result.

A Look Ahead

With the primary season over, the focus is now squarely on the midterms. With 53 days left, the likelihood of Democrats taking back the House is extraordinarily high — the latest predictions by Nate Silver of FiveThirtyEight give Democrats a 5 in 6 or an 83 percent chance of taking back control.

We are seeing pickup opportunities all across the country. Out west, the Golden State offers an opportunity to pick up upwards of nine seats. In the midwest, voters seem primed to reject Trump, as those states could give Democrats up to 17 seats. On the east coast, Pennsylvania alone offers up the opportunity to flip between four and six seats. And finally, in Texas and Florida, there are 11 possible flips between the two states. Democrats are strongly marching towards the magic number of 23 pickups to take back the House.