THE BIG PICTURE
On Tuesday the long anticipated midterm elections were held, resulting in the Democrats retaking the majority in the House of Representatives by netting nearly 40 seats. In the Senate, Republicans expanded their majority by defeating Democratic incumbents in North Dakota, Missouri, and Indiana, which offset a loss in Nevada. Democrat and progressive rising star Beto O’Rourke fell short of unseating Republican Senator Ted Cruz in Texas, but the race was closer than expected, and he provided a boost to down-ballot candidates. Votes continued to be tabulated throughout the week as mail-in and provisional ballots were canvassed, and the process bled into the weekend. This resulted in controversy as the races for Senate and Governor in Florida continued to tighten, and some on the right questioned the legitimacy of the process. With close margins, both Florida races are now headed for a mandated recount. The race for Senate in Arizona between Republican Martha McSally and Democrat Kyrsten Sinema remains too close to call as mail-in ballots continue to be counted, but Sinema maintains a lead.
Tuesday also resulted in strong Democratic gains in local and state elections, where Democrats gained over 300 seats in state legislatures, and were victorious in several key governors races including in Wisconsin, Michigan and Kansas. These victories could have significant consequences for both the 2020 election and future redistricting efforts. Voters in Idaho, Nebraska and Utah voted yes on ballot initiatives to expand Medicaid, a move which will provide an estimated 330,000 low-income individuals with access to healthcare. In Florida, voters passed Amendment 4, which will restore voting rights to an estimated 1.4M felons who have served their time.
The election is set to have far reaching consequences for the President’s agenda, as Democrats prepare to take back the gavel and chairmanship of several key House Committees, and have already voiced their plan to use the subpoena powers that go along with it. There will likely be an immediate focus on obtaining the President’s tax returns, which are traditionally released by candidates, but which President Trump has claimed have been under “continuous” audit and therefore unavailable. Rep. Adam Schiff (D-CA) who will take over the House Intelligence Committee has discussed reopening the panel’s Russia investigation, while Rep. Maxine Waters (D-CA), who will lead the House Financial Services Committee, has vowed more aggressive oversight of the President’s financial dealings.
In the Senate, the loss of red state Democrats Joe Donnelly (IN) and Heidi Heitkamp (ND) who sat on the Senate Banking Committee will decrease the likelihood of bipartisan compromise on financial services bills. The Senate Finance Committee will likely be chaired by either Sen. Chuck Grassley (R-IA), who is reportedly considering whether to switch from his current post in the Judiciary Committee, or, if he declines, by Sen. Mike Crapo (R-ID), who currently chairs the Banking Committee. Sen. Sherrod Brown (D-OH) will keep his post as Ranking Member on the Banking Committee.
On Wednesday, Attorney General Jeff Sessions resigned at the request of President Trump, ending a contentious relationship in which the President had frequently criticized Mr. Sessions’ decision to recuse himself from the Russia investigation. The President appointed Sessions’ chief-of-staff Matt Whitaker, a former U.S. attorney from Iowa to replace him on an acting basis. Mr. Whitaker is set to take over supervision of special counsel Robert Mueller’s investigation from Rod Rosenstein. The appointment was criticized by some as inappropriate, who pointed to Mr. Whitaker’s recent media interviews which detailed his opposition to the Mueller investigation, as well as his involvement with a company that was shut down by the FTC following allegations of fraud. There is widespread speculation as to who could be nominated to replace Mr. Sessions on a permanent basis, with names such as Chris Christie and Kris Kobach being floated.
Other highlights of last week include:
- The President signed a 90 day ban on asylum claims from immigrants who enter the country illegally, restricting the right to seek asylum to those who cross at official ports of entry. The ACLU quickly challenged the directive in court.
- Rep. Kevin McCarthy (R-CA) announced his bid for Minority Leader, claiming on Friday that he had already locked up the necessary votes. Rep. Jim Jordan (R-OH) plans to challenge McCarthy for the role.
- Rep. Cathy McMorris Rodgers who serves as House Republican Conference Chair does not plan to seek another term, instead focusing on a potential role as Ranking Member in Committee. Rep. Liz Cheney (R-WY) put her name in contention for the post, along with Rep. Mark Walker (R-NC).
- Supreme Court Justice Ruth Bader Ginsburg was hospitalized on Thursday after falling in her office on Wednesday evening, and fracturing three ribs.
LAST WEEK ON THE HILL
Congress remained in recess, but reconvenes this Tuesday, November 13th.
THIS WEEK ON THE HILL
Tuesday, November 13
Senate Judiciary Committee Hearing Entitled “Big Bank Bankruptcy: 10 Years After Lehman Brothers”: 2:00 p.m. in 226 Dirksen Senate Office Building.
Wednesday, November 14
House Financial Services Committee Hearing Entitled “Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System”: 10:00 a.m. in 2128 Rayburn House Office Building.
Thursday, November 15
Senate Banking Committee Hearing entitled “The Semiannual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System”: 10:00 a.m. in 538 Dirksen Senate Office Building.
CFTC Considering Rule Proposal on Swap Execution Facilities: On, Monday, the CFTC voted 4-1 to propose a rule which would amend existing requirements and propose new requirements pertaining to swap execution facilities (SEFs) and the trade execution requirement, as set forth in the Commodity Exchange Act (CEA). Chairman Giancarlo sought to preempt criticism of the proposed rule, saying the “proposal will invariably be slammed by opponents of change as a rollback of Dodd-Frank. It is not a rollback, but a policy improvement.” Democratic Commissioner Rostin Behnam voted for the proposal, but expressed concern that the current draft “undermine[s] some of the key successes of the existing SEF regulatory regime.”
CFTC Unanimously Votes to De Minimis Exception to the Swap Dealer Definition: On Monday, the CFTC voted unanimously to approve a rule which makes permanent the US$8B threshold that determine which swap dealers are required to register with the agency, declining to endorse a previous plan which would have lowered the threshold. Commissioner Rostin Behnam, who had previously opposed a prior proposal, but was satisfied that the final version was “narrowly focused purely on the numerical setting [of swaps calculation]” said the vote would “put an end to undue and prolonged uncertainty” over the de minimis threshold, following two years of delays while market research was conducted.
CFPB and FHFA Release National Survey of Mortgage Originations Dataset for Public Use: The CFPB and FHFA on Thursday released for public use a new loan-level dataset collected through the National Survey of Mortgage Originations (NSMO) that provides insights into borrowers’ experiences in getting a residential mortgage. “The NSMO data should be very helpful to policymakers, the mortgage industry and researchers in understanding consumer behavior and borrowers’ experiences obtaining a mortgage,” said FHFA Deputy Director Sandra Thompson. “The goal of the survey is to obtain information to help improve lending practices and the mortgage process for future borrowers.”
Federal Reserve Maintains Interest Rates: The Federal Reserve announced on Thursday that the Federal Open Market Committee had decided to maintain the target range for federal funds at a rate of 2 to 2-1/4 percent, explaining that information received since September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate.
Federal Reserve Issues Industry Oversight Report: The Federal Reserve issued a report on Friday on banking supervision and regulation, which examines trends dating back to the 2008 financial crisis. The report detailed increased concern over foreign banks which operate within the United States, and noted continued weakness in anti-money laundering programs.
Federal Reserve Reveals Stress Test Plans, Including Delays: On Friday, Randal Quarles, who serves as the Fed’s vice chairman for supervision, revealed that an overhaul of the annual stress test will not be finalized until 2020 at the earliest. He also discussed reforms that he hopes to implement, to increase transparency and certainty regarding capital requirements, news which is certain to please Wall Street. Mr. Quarles noted that his proposed changes “are not intended to alter materially the overall level of capital in the system or the stringency of the regime.”
Agencies Issue Proposal to Streamline Regulatory Reporting for Qualifying Small Institutions: The Federal Reserve, FDIC and OCC invited public comment on a proposal to reduce regulatory reporting burden on small institutions by expanding the number of regulated institutions eligible for streamlined reporting. The proposal would permit insured depository institutions with total assets of less than US$5B that do not engage in certain complex or international activities to file the most streamlined version of the Call Report, the FFIEC 051 Call Report. The agencies also are proposing to reduce by approximately 37 percent the number of existing data items reportable in the FFIEC 051 Call Reports for the first and third calendar quarters.
SEC Announces Agenda, Panelists for Staff Roundtable on the Proxy Process: The SEC on Thursday announced the agenda and panelists for the staff roundtable on the proxy process to be held on November 15, 2018. The first panel will focus on the current proxy voting and solicitation process for shareholder meetings and recent concerns raised about this process. The second will focus on shareholder engagement through the shareholder proposal process. The panelists will discuss, among other things, their experiences with shareholder proposals and the related benefits and costs involved for the company and shareholders. The Third will focus on the role of proxy advisory firms and their involvement in the proxy process.
SEC to Release “Plain English” Cryptocurrency Guide While Treasury Develops Regulatory Framework: According to William Hinman, who leads the SEC’s Division of Corporation Finance, the SEC is planning to release a “plain English” guide to assist entrepreneurs in determining whether their cryptocurrency products qualify as securities. Meanwhile, over at Treasury, a report on cryptocurrency regulation and a legislative framework is in the works, according to Craig Phillips, who serves as a counselor to Secretary Steven Mnuchin. Mr. Phillips noted that “we aren't anxious to have more legislation and regulation, but probably having parameters of what it should address if there is legislation is important,” adding that the framework should be forthcoming in the next year.
IRS Does Not Plan to Start Voluntary Disclosure Program for Cryptocurrencies: Daniel Price of the IRS Office of Chief Counsel, said at a symposium in Texas that the agency has no plans to establish a voluntary disclosure program for virtual currencies, similar to those used by taxpayers with foreign accounts. He explained that the idea was just “a rumor” caused by a comment that was “inappropriately attributed to [a] government official.”
COMINGS AND GOINGS AT THE AGENCIES
Anthony Kelly, Co-Chief of Asset Management Unit, to Leave SEC: On Monday, the SEC announced that Anthony S. Kelly, Co-Chief of the Enforcement Division’s Asset Management Unit, will be leaving the agency this month after more than 18 years of service. Mr. Kelly joined the SEC in July 2000 and has served in various roles, including compliance examiner in the broker-dealer group of SEC’s Office of Compliance Inspections and Examinations while attending law school and Special Counsel in the Division of Trading and Markets.
CFTC Announces Staff Appointments: CFTC Commissioner Dawn Stump announced that Dan Bucsa will serve as Chief of Staff and Senior Policy Advisor and Elizabeth Mastrogiacomo will serve as Senior Counsel. Dan Bucsa joins Commissioner Stump’s office from the CFTC’s Division of Market Oversight (DMO), where he most recently served as Deputy Director of the Data and Reporting branch. Elizabeth (Libby) Mastrogiacomo joins Commissioner Stump’s office from a D.C. area law firm where she was a senior associate in the derivatives practice group.
Ninth Circuit Upholds DACA: On Thursday, the Ninth Circuit ruled against the Trump administration’s efforts to end the DACA program, and upheld a lower court’s temporary injunction, saying that the plan to phase-out the program would cause irreparable harm to the Dreamers. The effort has been on hold since Judge Alsup’s January ruling. Earlier in the week, the Justice Department petitioned the Supreme Court to take over multiple cases involving their efforts to end DACA, circumventing the normal process of waiting for an appellate court ruling, arguing that “an immediate grant of certiorari is necessary to obtain an appropriately prompt resolution of this important dispute.”
Cryptocurrency Fund Criticizes SEC in Enforcement Suit: Crypto fund Blockvest LLC argued that evidence submitted by the SEC was based upon hearsay and “self-serving out-of-court statements” that are “masquerade[ing] as foundational evidence” and therefore should not be considered in the agency’s effort to block their initial coin offering.
Judge Grants Delay in Payday Rule Implementation: Judge Lee Yeakel ruled that the CFPB’s request to delay the implementation date for the payday lending rule was justified, given the agency’s plan to release a revised rule in January. The decision marked a reversal of a June opinion, where Judge Yeakel had rejected the agency’s request for stay of the August 2019 date.
OTHER NOTEWORTHY ITEMS
Senate Democrats Call for Release of Information Regarding Commerce Secretary Ross: A group of Senate Democrats have written to the Commerce Department’s chief ethics official, demanding information regarding Secretary Ross’ meetings with industry officials in which he had personal stakes, and his compliance with ethics guidelines. The letter argued that, “Secretary Ross's decisions to meet with senior  officials while maintaining his investments in those companies raises questions about his compliance with federal conflict of interest criminal statutes.”