Golden Apple JUNE 15, 2018

THE GOLDEN APPLE: Your report on the latest discord from The Eris Group

June 15, 2018

You won’t have this problem with bacon — Throw that box of Kellogg’s Honey Smacks away if you bought it in the last year, the Center for Disease Control says; it’s been linked to salmonella outbreaks in 31 states. Kellogg’s has voluntarily recalled the cereal, and says that its other products are not affected. We had an English muffin today, just to be safe.


FHFA proposes capital rule for Fannie and Freddie — On Tuesday, the Federal Housing Finance Agency (FHFA) published its long-anticipated proposal for new capital requirements for government-sponsored enterprises Fannie Mae and Freddie Mac. FHFA Director Mel Watt said that although the GSEs are still in conservatorship, the proposal is important to set forth the FHFA’s views on appropriate capital requirements and start “a healthy discussion” about the amount of capital necessary to shield taxpayers. The proposal would continue to align capital guidelines for the two enterprises, and builds on the Conservatorship Capital Framework implemented in 2017. It seeks comment on two proposed alternatives for setting a minimum leverage ratio: one would require the GSEs to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees, without distinguishing among risk characteristics of assets or guarantees. The other would require capital equal to 1.5% of trust assets and 4% of non-trust assets. Comments are due to the FHFA within 60 days of publication in the Federal Register, or sometime in mid-August.


Fed approves final rule on counterparty credit risk — As required by Dodd-Frank, yesterday the Federal Reserve board approved a final rule yesterday to prevent over-concentrations of risk between large banking organizations and their counterparties. The rule applies only to global systemically important bank holding companies (GSIBs) and bank holding companies with at least $250 billion in total consolidated assets, a limit set by last month’s Economic Growth, Regulatory Reform, and Consumer Protection Act. It limits credit exposure to another systemically important financial firm to no more than 15 percent of a GSIB’s organization’s tier 1 capital, and to no more than 25 percent of tier 1 capital for foreign banks and bank holding companies with assets of $250 billion or more. The compliance deadline is January 1, 2020 for GSIBs, and July 1, 2020 for all other firms.


Proposed CRA rules coming soon, says Otting — in appearances before the House Financial Services Committee and the Senate Banking Committee this week, Comptroller of the Currency Joseph Otting said that the agency has had an advance notice of proposed rulemaking to implement Treasury’s recommended changes to Community Reinvestment Act enforcement ready to go since March. The OCC continues to work with the other federal banking agencies in hopes of publishing a joint notice, but will publish one way or another in the next few weeks. The proposal will apparently not include any fair lending elements, and Otting said that he personally had never seen any instances of discrimination, though he believed those who told him it existed. Otting also said that he won’t make a decision on whether to issue special-purpose fintech charters until July, but he believes fintech companies are more interested in partnerships or vendor relationships with banks than in charters. He wants to see national banks getting back into the small-dollar loan business, he said, and he reported that a growing number of national banks are expressing interest in divesting their holding company structures.


Senate Banking approves Fed nominations — The Senate Banking Committee voted Tuesday to approve the nominations of Richard Clarida to be a member and Vice Chairman of the Federal Reserve Board and Michelle Bowman to be a member of the Federal Reserve Board. The vote for Clarida was 20-5, with Senators Brown (D-OH), Cortez-Masto (D-NC), Menendez (D-NJ), Schatz (D-HI), and Warren (D-MA) opposed. The vote for Bowman was 18-7, with Senators Reed (D-RI) and Van Hollen (D-MD) joining the five other “no” votes. The Federal Reserve Board currently has only three confirmed members.


House Financial Services sends four more bills to the floor — The House Financial Services Committee voted out four bills yesterday, bringing the Committee’s total to 112 for this Congress. Three bills passed unanimously: H.R. 5749, the Options Market Stability Act introduced by Rep. Randy Hultgren (R-IL), which would require the federal banking agencies to implement a risk-adjusted approach in valuing centrally-cleared options for capital requirements; H.R. 5953, the BUILD Act introduced by Rep. Barry Loudermilk (R-GA), which would exempt certain charitable mortgage transactions from TILA-RESPA disclosure requirements; and H.R. 6069, the FIND Trafficking Act introduced by Rep. Juan Vargas (D-CA), which requires a Comptroller General study of how virtual currencies and online marketplaces are used in drug and sex trafficking. H.R. 6035, the Streamlining Communications for Investors Act introduced by Rep. Ted Budd (R-NC), passed on a party-line vote of 31-23; it would allow a well-known seasoned issuer (WKSI) to authorize an underwriter or dealer to act as its agent or representative in communicating about offerings before filings.


FINRA announces overhaul of registration and disclosure programs — FINRA announced yesterday that it will begin a multi-phase effort to transform its registration and disclosure programs, including the Central Registration Depository (CRD) on June 30. The first phase will be a new WebCRD interface that highlights important information or action items. Additional phases of the project will continue until 2021; the goal is to make registration and disclosure easier and more useful for all stakeholders, and less expensive for firms.


House subcommittee discusses bills to clarify securities regulation, end “litigation by press release” — At a hearing on Wednesday afternoon, members of he House Financial Services Subcommittee on Capital Markets, Securities, and Investment heard testimony about whether and how Congress should address the SEC’s use of administrative law courts, the statute of limitations for disgorgements, and the interaction of state and federal securities laws. Alabama Securities Commissioner Joseph Borg, testifying on behalf of the North American Securities Administrators Association, told the panel that H.R. 5037, the Securities Fraud Act of 2018 introduced by Rep. Tom MacArthur (R-NJ), would effectively preempt all state law over both civil and criminal securities fraud. MacArthur said this was not his intention; instead, his bill seeks to curtail what he calls “litigation by press release” by the New York Attorney General’s Office through the state’s Martin Act.


Next Week in Washington:


June 19           Senate Appropriations Subcommittee on Financial Services and General Government marks up its appropriations bill for FY 2019. 11:00 a.m., SD-138 Dirksen Senate Office Building.


June 20           House Committee on Financial Services holds a hearing on “Empowering a Pro-Growth Economy by Cutting Taxes and Regulatory Red Tape.” 10:00 a.m., 2128 Rayburn House Office Building.


June 20           House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Illicit Use of Virtual Currency and the Law Enforcement Response.” 2:00 p.m., 2128 Rayburn House Office Building.


June 20           Senate Banking Subcommittee on National Security and International Trade and Finance holds a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: How Criminal Organizations Launder Money and Innovative Techniques for Fighting Them.” Witnesses are Dennis Lormel, President and CEO of DML Associates; Tracy Woodrow, Senior Vice President and BSA Officer, M&T Bank; and Chip Poncy, President and Co-Founder, Financial Integrity Network. 2:30 p.m., SD-538 Dirksen Senate Office Building.


June 21           House Committee on Financial Services holds a hearing on “Oversight of the U.S. Securities and Exchange Commission.” SEC Chairman Jay Clayton will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.


June 21           House Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions holds a hearing on “Growth, Opportunity, and Change in the U.S. Labor Market and the American Workforce: A Review of Current Developments, Trends, and Statistics.” 10:00 a.m., 2175 Rayburn House Office Building.


The Ellis Insight. Jim Ellis reports on political news:



Florida:  A new Politico/AARP survey (Morning Consult; 5/29-30; 1,199 FL registered voters; 676 FL voters over 50 years of age) finds Gov. Rick Scott (R) again taking a small lead over veteran Sen. Bill Nelson (D) as the two prepare for the November general election. Overall, Gov. Scott’s edge is 40-39%, but the margin expands to nine points, 44-35%, when the pollsters segment only those 50 years of age and older. Cherry Communications, polling for the Florida Chamber of Commerce (5/25-6/4; 605 FL likely voters), also released their latest results. They confirm Scott’s small lead, projecting him to a 48-45% advantage. Both results are within the polling margin of error. The Florida Senate race promises to attract national attention all the way to Election Day.

Ohio:  With Sen. Sherrod Brown (D) and Rep. Jim Renacci (R-Wadsworth) both winning their Democratic and Republican primaries on May 8th, several pollsters just conducted new general election surveys. Fallon Research (5/21-25; 800 OH likely voters) finds the incumbent holding a comfortable 48-34% lead over Rep. Renacci. Suffolk (6/6-11; 500 OH likely voters) and Quinnipiac Universities (6/7-12; 1,082 OH registered voters) also see Sen. Brown in command, 53-37% and 51-34%, respectively.

Pennsylvania:  Lancaster, PA-based Franklin & Marshall College just released their new survey of the Pennsylvania statewide races (6/4-10; 472 PA registered voters; 224 Democrats, 185 Republicans, 63 Independents) and Sen. Bob Casey Jr. (D), seeking his third term since his original election in 2006, leads Rep. Lou Barletta (R-Hazelton) by a sizable 44-27% count. This is similar to the 43-25% projection derived from their March survey. Sen. Casey’s combined personal favorability is 44:23% positive to negative.


CA-48:  The Golden State’s 48th Congressional District primary election is still unresolved as ballots from the June 5th vote are still being counted. Rep. Dana Rohrabacher (R-Costa Mesa) is safe in first place with 30% against 15 opponents. But the identity of Mr. Rohrabacher’s general election opponent is still unknown. The latest count finds biomedical company CEO Hans Keirstead (D) holding a small 329-vote lead over businessman Harley Rouda (D). It is unclear when this race will finally be decided. On election night Mr. Rouda held a small edge, but Mr. Keirstead surpassed him when the post-election votes began to be counted.

CA-49:  Another contest that appeared close enough to turn around when the post-votes are all counted was in the 49thDistrict. With Rep. Darrell Issa (R-Vista) retiring, the open seat contest to replace him also drew 16 candidates. The clear first place finisher was Republican Diane Harkey, who captured 25.6% of the vote. The individual now definitively advancing with her into the general election is attorney Mike Levin (D) who raised well over $1.7 million. It has become clear that Mr. Levin’s two full percentage point advantage over his closest competitor, former State Department official Sara Jacobs (D), will hold and he will clinch second place.

KS-4:  Many incumbent House members are facing primary opponents this year, but none have Kansas Rep. Ron Estes’ (R-Wichita) problem. Mr. Estes’ lone Republican nomination foe actually shares his name. To mitigate the confusion, election authorities announced this week that they are allowing Congressman Estes to appear on the August 7th primary ballot as “Rep. Ron Estes.”  The secondary Mr. Estes will be listed as “Ron M. Estes.”

MI-1:  Last week, the Michigan Secretary of State rejected retired Marine Corps Lt. Col. Matt Morgan’s (D) ballot petition to challenge freshman Rep. Jack Bergman (R-Watersmeet/Upper Peninsula) because he used a P.O. Box instead of a street address to register his campaign. Michigan law requires a street address. Yesterday, the state Appeals Court upheld the lower court decision that the administrative ruling is correct, and Mr. Morgan remains disqualified.

The retired military officer responded by saying he would not offer any further legal challenges, but would instead run a write-in campaign for the Democratic nomination. Considering no other Democrat filed for the race, Mr. Morgan’s chances of winning a write-in nomination are extremely high.

OH-12:  Monmouth University conducted a new poll of the Ohio special congressional election to be decided on August 7th. The survey (6/7-10; 501 OH-12 likely special election voters) finds state Sen. Troy Balderson (R-Zanesville) leading Franklin County Recorder Danny O’Conner (D), 43-33% with the Green Party candidate drawing 1%, and 21% saying they are still undecided.

SC-1:  With President Trump as the focal point of the primary campaign, state Rep. Katie Arrington (R-Summerville) defeated Rep. Mark Sanford (R-Charleston) in Tuesday’s South Carolina primary election, with a 50.5 to 46.6% vote margin. The percentage is important because exceeding the 50% mark means Ms. Arrington wins the nomination without advancing to a secondary June 26th run-off election.

Mr. Sanford becomes the second incumbent House member to be denied re-nomination in the 2018 primary season. In early May, North Carolina Rep. Bob Pittenger (R-Charlotte) fell to Baptist former pastor Mark Harris in the 9th District Republican primary. In the Charleston area, Ms. Arrington is now expected to defeat Democratic primary winner Joe Cunningham in the November general election.


Colorado:  Another new Democratic gubernatorial poll shows US Rep. Jared Polis (D-Boulder) to be leading state Treasurer Cary Kennedy, the endorsed Democratic Party candidate, as the candidates turn toward the June 26th Colorado primary. As reported here last week, Magellan Strategies survey (5/30-31; 503 CO Democratic likely primary voters) projects Rep. Polis to a 31-18% lead over Ms. Kennedy, with all other candidates, including Lt. Gov. Donna Lynne (D), registering less than 10% support.

This week, Strategies 360, polling for the Service Employees International Union (5/29-6/6; 500 CO general election voters; 387 CO likely Democratic primary voters with an over-sample of an additional 200 “Democratic-leaning midterm drop-off voters”), posts Rep. Polis (D-Boulder) to a 34-23-12% advantage over Ms. Kennedy and ex-state Sen. Mike Johnston. Strategies 360 also tested Rep. Polis and Ms. Kennedy against state Treasurer Walker Stephenson (R) in a proposed general election campaign. The results are virtually identical. Polis would lead Stapleton, 42-37%, while Kennedy’s edge would be 43-38%.

Florida:  A new SEA Polling & Strategic Design survey (6/3-7; 600 FL registered Democratic voters) finds Miami Beach Mayor Philip Levine expanding his Democratic primary lead to 32-16-11-6-4% over former US Rep. Gwen Graham (D-Tallahassee), Mayor Andrew Gillum (D-Tallahassee), businessman Chris King, and billionaire Jeff Greene, who just entered the race last week.

Maine:  Tuesday’s Democratic gubernatorial primary ended with appointed Attorney General Janet Mills outpacing businessman Adam Cote 33-28%, but the race is far from over. In years past, Ms. Mills would have been declared the primary winner, but now the instant run-off system takes effect because no one obtained majority support.

Under the procedure, in use for the first time, the last place finisher’s votes among the eight candidates will be distributed to the other seven candidates. In the primary, voters ranked their preferences from one to eight among the contenders. A last place finisher’s votes are then distributed to the others in the order that the last place finisher’s voters chose. Once those are distributed, the new last place finisher’s votes are then distributed according to stated preference, and so forth until a winner is decided. The distribution will begin Friday, meaning it is likely we won’t have a new Democratic nominee until sometime next week.

On the Republican side, businessman Shawn Moody won the party nomination outright, so he automatically advances into the general election.

Maryland:  The University of Baltimore, polling for the Baltimore Sun newspaper (5/29-6/6; 500 MD likely Democratic primary voters), finds a tie at the top of the Democratic gubernatorial contenders list. The fact that the candidates are locked in a dead heat is not particularly surprisingly, but the low number of committed voters as the campaigns begin the final drive toward the June 26th Maryland primary is unusual and might question the poll’s accuracy. According to the Sun poll, former NAACP president Ben Jealous and Prince Georges County Executive Rushern Baker (D) are tied for the Democratic gubernatorial nomination with just 16% support apiece. No other candidate tops 5% support in this poll.

After spending much time trying to secure her own ballot position after gubernatorial candidate Kevin Kamenetz (D) passed away, former Montgomery County Councilwoman Valerie Ervin (D) announced this week that she will no longer campaign for Governor. Because Mr. Kamenetz died in the middle of the campaign and Ms. Ervin was his running mate, she had the option, which she exercised, of assuming the top position on the Kamenetz-Ervin ticket. But, state election authorities ruled that they would not change the ballots, meaning primary participants would still be instructed to vote for the late Mr. Kamenetz for the tallies to count for Ms. Ervin.

Despite Ms. Ervin’s exit and endorsement for Prince Georges County Executive Rushern Baker (D), Mr. Kamenetz’s name will remain on the ballot.

New York:  New York’s Siena College again tested the impending Democratic gubernatorial primary between two-term incumbent Andrew Cuomo and actress Cynthia Nixon. According to the Siena data, the Governor now leads his opponent, 61-26%, which is up a net four points from their previous 58-27% projection released in April. The latest Siena scoring is much better for the Governor than the May Quinnipiac University poll, however. In that latter survey, Gov. Cuomo’s lead was only 50-28% over Ms. Nixon.

Ohio:  A new small-sample Suffolk University poll conducted for the Cincinnati Enquirer newspaper (6/6-11; 500 OH likely voters) projects a change in the state’s open Governor’s race. This new survey suggests that former Attorney General Richard Cordray (D) has opened up a 43-36% lead over Attorney General and former US Senator Mike DeWine (R). But, among the 16% who responded “undecided”, the overwhelming majority, a 2:1 ratio, are Republican voters. The Suffolk data contradicts other polling that posts Mr. DeWine to a similar lead.

As reported above (see Ohio Senate), Fallon Research also conducted a post-primary survey of the statewide campaigns. According to the Fallon data, AG DeWine is staked to a 40-34% advantage over Mr. Cordray. Yet, the latest Quinnipiac University survey (6/7-12; 1,082 OH registered voters), like Suffolk, also finds Mr. Cordray with a slight advantage, 42-40%. This race is expected to be as close as the 2010 state Attorney General’s race when Mr. DeWine unseated Mr. Cordray, 47-46%. The race is open because Gov. John Kasich (R) is ineligible to seek a third term.

Pennsylvania:  As reported above (see Pennsylvania Senate) Franklin & Marshall College also asked respondents questions about the gubernatorial race in their new statewide poll. Similar to the Senate responses, Gov. Tom Wolf (D) leads former state Sen. Scott Wagner (R) 48-29%. In March, Mr. Wolf led 38-21%, meaning both candidates have gained support. But, the March polling segment was significantly smaller than in the current poll. Gov. Wolf’s combined personal favorability registered 49:33% positive to negative.

South Carolina:  As previous polling correctly predicted, Gov. Henry McMaster (R) was forced into a two-week run-off campaign because his opponents held him under 50% support in Tuesday’s primary. At the end of this week, two of his challengers, former Nikki Haley Administration cabinet official Catherine Templeton and Lt. Gov. Kevin Bryant, both endorsed the second-place finisher John Warren, a Greenville mortgage company executive and former Iraq War veteran. The endorsements were of little surprise because both individuals were also challenging the new incumbent Governor.

Mr. McMaster became Governor when then-incumbent Haley (R) resigned to become US Ambassador to the United Nations. He was elected as Lt. Governor in 2014 with 59% of the vote.