Below is a lightly edited transcript of the podcast:
BRENDAN PEDERSEN: Hey.
JOHN HELTMAN: Hey.
PEDERSEN: You still wanna talk midterms?
HELTMAN: For the podcast, yeah?
PEDERSEN: Let’s do it.
HELTMAN: Great. So. What’s up?
PEDERSEN: They’re… still happening!
HELTMAN: OK.
PEDERSEN: Sorry, I’m just trying to figure out where we’re going to put the Bankshot tagline with this intro.
[THEME SONG]
HELTMAN: You mean the “From American Banker, I’m John Heltman and this is Bankshot, a podcast about banks, finance, and the world we live in” tagline?
PEDERSEN: That’s the one! I’m Brendan Pedersen, and with that, we can get down to business. Welcome to Bankshot’s midterm election preview bonanza.
PEDERSEN: We’re recording this episode in the last week of July, which means the 2022 midterm elections are just about 100 days away, on November 8. There are a total of 469 seats up for grabs in this cycle, which includes all 435 members of the House of Representatives plus 34 senators. Today, Democrats are more or less in control of the entire elected government. Democrats have controlled the House since 2018 and an evenly-split Senate since 2020, thanks in part to President Joe Biden’s residency in the White House and Vice President Kamala Harris’s deciding vote in the chamber.
PEDERSEN: Now, I’ve been talking to folks over the last several weeks about the stakes of the 2022 election and their expectations for how it’s going to shake out. But I want to start with you: what’s your midterm vibe?
HELTMAN: My midterm vibe?
PEDERSEN: Your midterm vibe! What’s your baseline expectation?
HELTMAN: Well I know that history has generally been not super kind to the president’s party after their first couple of years in office, and we usually see that shoe drop in the first midterm election.
PEDERSEN: That is correct! Basically all historical trends in political science point to Democrats writ large having a pretty bad time in the upcoming election.
KYLE KONDIK: Look, midterm elections are often difficult for the party that holds the White House.
PEDERSEN: This is Kyle Kondik.
KONDIK: I’m Kyle Kondik, managing editor of Sabato's Crystal Ball at the University of Virginia Center for Politics.
HELTMAN: And our go-to elections guy.
PEDERSEN: That’s right. He agreed with just about every other analyst I spoke to for this episode: At this point in the cycle, Republicans are favored to win a lot of seats in Congress, especially in the House.
KONDIK: If you go back to the Civil War, there have been 40 midterms. The president's party has lost ground in the House in 37 of them. And some of those, a lot of those elections have been a big blowout. The average seat loss is a little over 30. If you go back just to the end of World War II, same dynamic — average seat loss is in the mid to high 20s.
PEDERSEN: John, can you tell me the two cycles in our lifetimes that have bucked that trend?
HELTMAN: I believe Republicans held a lot of seats in 2002 under Bush, right? And then there was a midterm during the Clinton administration that wasn’t terrible for Democrats?
PEDERSEN: Yep, and both of those were extremely unusual elections.
KONDIK: If the president's party is going to do well in a midterm, there probably has to be some sort of extraordinary circumstance — like, after 9/11, George W. Bush and Republicans did well in the 2002 midterm. Democrats did okay, in the 1998 midterm in part because the economy was good, Bill Clinton was popular, and with impeachment, Republicans may have overreached on that to some degree. But more often, you have ordinary circumstances, and there's some sort of problem in the country, or the president's unpopular etc. I would say the circumstances we have now are set up for more of like an ordinary kind of midterm, in that you'd expect Republicans to do well in the House, possibly the Senate too, probably more likely than not.
HELTMAN: OK, so we’re pretty much looking at a red wave?
PEDERSEN: Pretty much, but there is a ‘but.’ Democrats are going to be on the defensive in this election, but that doesn’t mean it’s automatically going to be a complete and total bloodbath.
IAN KATZ: I'm in agreement with the general consensus that the Republicans will win the House. Now, they may not get the big, big sweeping wins that they were hoping for.
PEDERSEN: This is Ian Katz.
KATZ: I'm Ian Katz, financial policy analyst and managing director at Capital Alpha Partners in Washington. Capital Alpha is an independent research firm.
PEDERSEN: And he says that while Republican voters will be plenty energized for this midterm, Democrats have their own issues that will fire up significant parts of the base.
KATZ: The Roe v. Wade issue will probably drive up some participation on the Democratic side and animate that side. So that may limit the losses. But I think we're still almost certainly looking at a Republican win in the House.
PEDERSEN: When I spoke to Kyle Kondik, he echoed that sentiment. Democratic voters are not super happy with President Biden’s job performance in general, to say nothing of Republicans, but when you look at generic congressional ballots — which is a type of survey that just asks folks which party they’re most likely to support in an upcoming election instead than individual candidates — the number aren’t as terrible as you might expect.
KONDIK: The numbers right now, at least in the Senate polling and the House generic ballot — they're not, like, horrible for Democrats. Now what sometimes happens is, for whatever reason, the House generic ballot polling usually has a Democratic bias to it. Even in Republican-leaning years, it can take a little while for it to get fully baked. And so that's what I'm looking for. But we get to September and October, and the numbers look like they do now, then maybe it's more of an opportunity for Democrats to salvage things — keep it closer in the House and maybe hold the whole Senate. … If the Democrats can limit the Republican net gains to like 20, as opposed to like 30 or 35, then that would set the Democrats up in 2024 to have a real shot to flip the House back. So the margin will matter.
PEDERSEN: With 400-plus races to keep track of, it’s kind of hard not to generalize about the House swinging from one political direction to the other. But looking at congressional district competitiveness, we can zoom in a bit: According to the Cook Political Report, there are 34 seats with races that are basically tossups. The problem for left-leaning voters is that of those 34 races, 26 are seats currently held by Democrats.
HELTMAN: Ouch.
PEDERSEN: Yeah. Not great. But the Senate is a different story. Here’s Ian Katz again.
KATZ: For the Senate, it's very close — it really comes down to six, eight, ten races that are all pretty specific and particular to the personalities in the state. So that's much harder to call. I do think that either way, you're going to be in this range of say, 52 seats being the max, probably, for the winner.
PEDERSEN: Weirdly, a lot of key, close races for the Senate revolve around members of the Senate Banking Committee. You’ve got Democratic Sen. Raphael Warnock of Georgia fighting to keep his seat versus Hershel Walker, a college football icon in the state. Another Senate Banking member, Sen. Catherine Cortez Masto, is looking at a tight general election fight in Nevada. But in a way, the biggest shakeup on the committee is already set, and it doesn’t have much to do with the election itself.
KATZ: Regardless of whether you agree with him or disagree with him on issues, and you're a Republican or a Democrat, you have to concede that he's somebody who is really into these issues; he gets into the weeds on some of them. He has his views, but he's somebody who cares about financial services issues.
PEDERSEN: Katz is of course talking about Sen. Pat Toomey, the Pennsylvania Republican who
KATZ: You don't see many people in Congress who, when questioning the nominee for the Fed’s vice chair for supervision who’ll get into the weeds of issues like single point of entry, living wills, on going back to some of the more say, obscure elements in Dodd Frank, and he does that. So you're gonna miss somebody with a lot of passion, interest and knowledge in the area. Again, regardless of whether you agree or disagree, that is probably, for the institution, a loss in some way.
PEDERSEN: The race to replace him will be between Pennsylvania Lieutenant Governor John Fetterman, a long-time local, and TV doctor Mehmet Oz, a Trump-backed Republican who is from New Jersey. I bring that up because Fetterman himself brings it up — a lot — and despite suffering a mild stroke just a few weeks before we recorded this episode, Fetterman appears to be solidly in the lead at this point in this race. I’m going to send you a political ad of sorts that Fetterman ran against Oz earlier in July. Are you familiar with the celebrity-greeting-recording app Cameo?
HELTMAN: Kind of?
HELTMAN: That’s brutal.
PEDERSEN: Yeah. Would not recommend messing around with John Fetterman’s communication team. We’ll be right back with more election chatter right after this short break.
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PEDERSEN: Alright, let me bring this back to the big question for Democrats at the moment. What’s the best way for Democrats to sandbag their existing seats and limit their losses? The answer may surprise you.
TODD PHILLIPS: I don't think that Democrats will do well, unless the Fed introduces a countercyclical capital buffer. I think that's the only way to win in November. The message to reach the masses: countercyclical capital buffers, my friend. That's where it's at. No, I kid.
HELTMAN: Is he joking?
PEDERSEN: He is joking. This is Todd Phillips.
PHILLIPS: I’m Todd Phillips. I'm director of financial regulation and corporate governance at the Center for American Progress. And I lead our finreg team and efforts here at CAP.
PEDERSEN: And jokes aside, Todd basically agrees that the map doesn’t look great for Democrats at this point. But he also says that the party and the Biden administration does have some real, tangible accomplishments that lawmakers can tout in the coming weeks.
PHILLIPS: I think there have been a bunch of potholes along the way. But let me say: this administration started off with passing the American Rescue Plan, passed the bipartisan infrastructure law. The economy really is booming. More people have jobs. I think that's overall positive. There is, of course, inflation that is causing everyone headaches. There's no sugarcoating that. But I'm hopeful that Democrats will eke out a win and be able to keep control of the House and Senate.
PEDERSEN: Phillips is hopeful in part because he knows the alternative will mean a lot of trouble for the Biden administration in the years ahead. Obviously, the Biden administration itself is not going anywhere until at least 2024, and that extends to the administration’s control of the financial regulators. But if Republicans hold the House or Senate, there is a lot that lawmakers on the banking-focused committees can do to make the regulators’ lives more difficult.
PHILLIPS: Republicans take one or both chambers, there are two particular things they can do. The first is using budget authority, and they can put in appropriations bills saying none of this money can be used to put in place specific policies.
PEDERSEN: That budgetary authority extends mainly to the Securities and Exchange Commission and the Commodities Futures Trading Commission — two regulators that have been trying to introduce new guardrails for the crypto sector as well as ways for financial institutions and public companies to better assess climate risk.
HELTMAN: If there’s anything that Republicans love to hate, it’s climate risk assessment and regulation.
PEDERSEN: Right, at least coming from the regulators themselves. Republicans would probably tell you that they want Congress to be calling the shots here to avoid the unseemly spectacle of regulatory overreach.
NORBERT MICHEL: Should the Republicans take both the Senate and the House, then it would be great to see some sort of legislative effort to push back against the SEC and what Gensler is doing.
PEDERSEN: This is Norbert Michel.
MICHEL: I'm Norbert Michel. I'm the Vice President at Cato and the director for our Center for Monetary and Financial Alternatives.
PEDERSEN: Norbert told me he’s keeping his expectations relatively low even in the event that Republicans manage to control the House and Senate in 2023, especially on legislative efforts.
MICHEL: I don't see a whole lot of big change coming, no matter what. I think that if you see both the House and the Senate go or stay Republican or go Republican, best hope for me, basically, would be to see how things might set up for the next administration. And if that one is Republican, and there is again unified government in that sense, I think it's still going to be a heavy lift to get any big reforms done.
PEDERSEN: But progressives say that Republican congressional committees can make life for all the financial regulators pretty hellish, from the SEC and CFTC to the Federal Deposit Insurance Corp., Federal Reserve, Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau.
PHILLIPS: The other thing they can do is they can do oversight hearings and investigations, and that can eat up a lot of the administration's time and resources. 5:21
PEDERSEN: Under the current Congress, Republicans have written plenty of angry letters and made plenty of angry speeches during committee hearings about what the Biden administration is trying to accomplish in financial regulation. But from the minority, they don’t really have any concrete investigative powers. That changes when your team holds the gavel, though, and constant congressional investigations can eat up a lot of time. Here’s Ian Katz again.
KATZ: One of the things that's worth noting is that a lot of these agencies are actually pretty thin. There's a public perception that government is bloated, and it has a lot or too many workers. Whether or not that's true, at the very top level of these agencies, there's a relatively small number of people who make a lot of the decisions, and particularly when it comes to testimony or answering sensitive issues, like appearing before Congress and answering the letters and requests of lawmakers. That goes through a small number of people. A lot of stuff will go through the General Counsel's Office, and the General Counsel's Office can only handle so many things at one time. So it does have an effect of slowing things down.
PEDERSEN: There’s only so many hours in a day, and responding to even simple congressional inquiries can take up a ton of time.
PHILLIPS: Having to transfer some resources from active policymaking and oversight of the industry to responding to congressional inquiries is going to be a big change. Of course, you know, congressional oversight is very important. I myself worked for the House Oversight Committee in the House for a couple of years. But I think this could be different. This could be just really not trying to do legitimate oversight, but could tend towards what one might even consider harassment of agencies they're not particularly fond of.
HELTMAN: OK, so we should expect a lot of congressional hearings. What about legislation? Biden likes to talk about his relationships with Republicans, and he thinks of himself as a dealmaker. Are we going to see any deals with GOP control of Congress?
PEDERSEN: That’s a great question. Most of the analysts I spoke to didn’t have strong feelings either way, but there are certainly some areas of lawmaking where we have bipartisan interest in doing, I don’t know, something. In crypto regulation, for instance, we’ve been hearing chatter about a bipartisan bill to introduce federal safeguards for stablecoins from the House Financial Services Committee. Most people are skeptical that something like that would get passed in the current session of Congress, but of course, the conversations that folks are having today are going to influence discussions down the line. Here’s Norbert Michel again.
MICHEL: If the House does work on a good bipartisan bill, then that puts a little bit of pressure — depending on what's in there — that could put a little bit of pressure on the Senate. And if they can reach a compromise, then maybe there's something that Biden could get behind, and the Biden administration could get behind. But it's really difficult to say what that looks like right now.
PEDERSEN: But there’s also an argument to be made that these kinds of big-picture legislative conversations really revolve around the priorities of congressional leadership, which are going to be very different under GOP rule. Like, sure, Senate Democrats picked up Republican votes for the bipartisan gun control bill earlier this summer. But would that have even come to a vote under a hypothetical Majority Leader Mitch McConnell? It’s tough to say. But again, Republicans are not known for enthusiastically promoting new regulatory regimes.
PHILLIPS: I don't expect a wholesale rewrite of the financial laws or the creation of a new crypto regulatory agency or anything like that. I imagine there could be some tinkering with the SEC's authority over crypto assets. I could see them trying to do some things with stablecoins. Depending on politics, they might be able to insert something into a must-pass bill, in which case the president might sign it because he has to, but I don't see any really big pieces of crypto legislation being enacted anytime soon.