The Washington PostDemocracy Dies in Darkness
The Early 202

An essential morning newsletter briefing for leaders in the nation’s capital.

The political fallout from the Silicon Valley Bank mess

The Early 202

An essential morning newsletter briefing for leaders in the nation’s capital.

Good morning, Early Birds. Start your week off right by watching (or re-watching) Ke Huy Quan’s Oscar acceptance speech. Tips: for waking up with us.

Reading this online? Sign up for The Early 202 to get scoops and sharp political analysis in your inbox each morning.

In today’s edition … Inside the truce between McCarthy and Jeffries … Republicans tell McCormick they’ll unify if he runs for Senate … New report on competitiveness of House seats in midterms … but first …

The political fallout from the Silicon Valley Bank mess

Silicon Valley Bank customers will wake up today with access to their money. 

That may avert turmoil in financial markets today, but scrutiny of the high-stakes weekend drama is likely just beginning in Washington.

On Sunday night, the Biden administration announced an extraordinary intervention aimed at averting a banking crisis by reassuring SVB customers that all of their deposits would be protected, not just the $250,000 covered by the FDIC, our colleagues Jeff Stein, David J. Lynch, Tony Romm and Tyler Pager report

But it’s not just SVB that needed the help. Per our colleagues: 

  • Authorities said they were also extending protection to depositors of a second bank, Signature Bank of New York, which state regulators closed on Sunday as unease in the financial sector appeared to spread. 
  • Separately, the Federal Reserve announced it was creating a new lending facility for the nation’s banks, designed to buttress them against financial risks caused by Friday’s collapse of SVB.

The move comes after an uncertain weekend full of briefings for members of Congress and congressional staff about the collapse of SVB. There will be another briefing for lawmakers this morning. 

While many lawmakers — mostly Democrats — were pleased with the administration and the Fed’s actions, debate in Congress is most likely just beginning. This is what we’re watching: 

  • Will there be a review of a 2018 law that eased Dodd-Frank capital requirements for midsize and small banks, which some critics have blamed for SVB’s troubles? Republicans led the effort to pass the law, which President Donald Trump signed, but 33 House Democrats and 17 Senate Democrats also voted for it.

Earlier this month, Sen. Tim Scott (S.C.), the ranking Republican on the Senate Banking Committee, sent a letter to Federal Reserve Chair Jerome H. Powell urging him to adhere to the 2018 law and not increase capital requirements — which dictate how much of a buffer banks should hold to guard against losses — for midsize banks. 

“There can be negative impacts for consumers by increasing capital requirements and requiring banks to sequester funds they could otherwise use to provide financial services offerings,” he wrote. 

Scott’s office stood by the letter.

“What’s happening with Silicon Valley Bank highlights why we cannot have a one-size-fits-all approach,” a Scott spokesperson said. 

  • What sort of pressure will Powell come under? 

The Federal Reserve’s interest rate increases caused the government securities held by some banks to lose value, which also played a role in SVB’s problems. Powell has already been scrutinized by lawmakers on both sides of the aisle for the rise of interest rates because of its effect on consumers. This adds another angle to that.

  • Which way will the populist wind blow?

The populist wings in both parties were angered and energized by the 2008 bank bailouts that saved Wall Street giants. How will they view the government’s — much, much smaller — intervention in this case? 

Federal officials said the money being used to aid depositors will come from an insurance fund that banks, rather than taxpayers, pay into. That’s a key difference from the 2008 bank bailouts. (Those bailouts ultimately made money for taxpayers.)

But criticism is already afoot.

“Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank,” Sen. Bernie Sanders (I-Vt.) said in a statement, per our colleague Tony. “If there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street and large financial institutions. We cannot continue down the road of more socialism for the rich and rugged individualism for everyone else.”

Another potential flash point: SVB serves plenty of tech companies that are unpopular with both parties, and they are likely to benefit from the government’s maneuver, as will some wealthy Californians.

The Fed lending program may also draw criticism.

  • Will this have any impact on the debt ceiling debate?

The troubles of one midsize bank in California spurred federal authorities to make an extraordinary move to avoid a financial panic. A government debt default would probably cause far more chaos.

Will the turmoil of the past few days increase a sense of urgency to lift the debt limit?

On the Hill

Inside the truce between McCarthy and Jeffries

There was a subtle shift inside the Capitol earlier this year. The top two leaders in the House, Speaker Kevin McCarthy (R-Calif.) and Rep. Hakeem Jeffries (D-N.Y.), started communicating with each other. 

Leigh Ann and Marianna Sotomayor took a close look at the McCarthy-Jeffries relationship and found there is an interest in working together to make the institution run more smoothly, even if they will rarely agree on policy. 

McCarthy’s POV:

  • It shouldn’t really be newsworthy, but it is, in part because the relationship between McCarthy as House minority leader and then-House Speaker Nancy Pelosi (D-Calif.) was nonexistent, and also because we live in a polarizing time when partisanship is rewarded.
  • “What I decided was, I’m going to treat [Jeffries] the way I wanted to be treated,” McCarthy said in a recent interview. 

Jeffries’s POV: 

  • Jeffries, whom aides and lawmakers have said is moving forward cautiously, sees few downsides in having an open line of communication with the speaker, ensuring he has input in key decisions.
  • Some Democrats believe McCarthy’s overtures are a political play as he barrels toward budget battles, where he may need Democratic votes, before facing an electorate in 2024 that has largely rejected right-wing extremism.

The challenge ahead:

  • Their relationship will be tested by the imminent — and already partisan — fight over the debt ceiling and government funding later this year. 
  • Both men have foreshadowed the clash, with Jeffries criticizing “the irresponsible effort by extreme MAGA Republicans” to hold the economy hostage and McCarthy blaming Democrats for exploding the debt and refusing to negotiate.
  • Regaining full trust between the parties may be difficult with the cloud of the Jan. 6, 2021, attack on the Capitol still hanging over the House. That mistrust is likely to rebound since McCarthy gave Fox News host Tucker Carlson exclusive access to all the security-camera footage from that day. Carlson later broadcast some of that footage in a way that severely downplayed the day’s deadly violence

Areas of coordination: 

  • McCarthy first reached out to Jeffries shortly after the New York Democrat was elected minority leader in a closed-door caucus vote in November 2022. 
  • Before McCarthy endured a grueling 15 rounds of ballots to be elected speaker in January, he gave Jeffries a courtesy heads-up that his election might not be over after the first round and to “buckle up” because his intention was to fight until he earned the top slot.
  • Now, McCarthy and Jeffries frequently circumvent staff and text each other directly, a rarity in a formal workplace where writing letters and maneuvering through staff is still the norm. They also meet in a room off the House floor nearly weekly.
  • Both McCarthy and Jeffries chose leaders for the House Intelligence Committee and members on the China select committee who are knowledgeable and focused on the issue, not firebrands with little policy acumen. They met with members of both committees to encourage them to take their assignments seriously.
  • McCarthy invited Jeffries and Democrats to a briefing by the Congressional Budget Office director. It was held in a room that is usually reserved for contentious and classified briefings. As the budget battles begin, Democrats and Republicans filled the same room.

Read the full story by Leigh Ann and Marianna here

The Campaign

Clearing the way for David McCormick’s Pa. Senate run

All or nothing: “Republican Party officials and strategists have told Pennsylvania businessman David McCormick that if he runs for the Senate again, the party will coalesce around him to avoid the bruising primary battles that elevated flawed candidates in the 2022 midterms,” our colleague Colby Itkowitz reports.

  • “McCormick, who is releasing a book on Tuesday outlining his vision for America, has been laying the groundwork for a 2024 U.S. Senate run, seeking assurances from state and national party leaders that they will have his back this time.”
  • “In recent interviews, a dozen Republican insiders in Washington and Pennsylvania said that if McCormick gets in the race, other possible GOP contenders would clear the way for him. Beating Democratic Sen. Robert P. Casey Jr., a three-term incumbent whose family name has been a staple in Pennsylvania politics for more than three decades, will be a challenge, the strategists and party leaders say, but not impossible with the right candidate.”

New report on how many 2022 House races were actually competitive

First in The Early: Just 10 percent of House races were competitive in last year’s midterms, according to a new report from the advocacy group Fix Our House.

The report echoes the conclusions of a similar analysis last month by FairVote, which found that House races are becoming less competitive.

Both groups cited their findings to make the case for moving from single-winner districts to a proportional representation system. Such a system would create larger districts that would elect multiple members of Congress based on the share of the vote they receive — giving deep-red states like Arkansas at least one Democratic representative and vice versa in blue states such as Massachusetts.

But the Fix Our House report found that another much discussed change for making House races fairer — independent redistricting commissions — didn’t make for more competitive races last year than states in which maps were gerrymandered.

  • Such “commissions actually performed worse than Democratic legislatures, where the number of competitive districts slightly increased this year,” according to the report.
  • Part of the reason: Democrats in states such as Nevada and Oregon chose a high-risk, high-reward strategy of drawing more districts they could barely win rather than a smaller number of districts that Democrats could win more easily.

What we're watching

Donald Trump is in Iowa today talking about education. Michael Cohen, Trump’s former lawyer and fixer, meanwhile, is set to testify today before a New York grand jury investigating the former president’s hush-money payments to Stormy Daniels and Karen McDougal

President Biden is heading to San Diego, where he will meet with Australian Prime Minister Anthony Albanese and British Prime Minister Rishi Sunak. The trio will announce a plan to supply Australia with a new fleet of nuclear-powered submarines through the AUKUS defense partnership.

The Biden administration is expected to approve a multibillion-dollar oil drilling project in Alaska called Willow. It is the largest of its kind on federal land to date. 

The House is out this week. The Senate has a short week, with senators coming in on Tuesday. 

Tuesday: The Senate will hold its first procedural vote to confirm former Los Angeles mayor Eric Garcetti as U.S. ambassador to India. It has been a long slog for Garcetti, who was first nominated in July 2021. 

Biden will travel to Monterey Park, Calif., the site of a January mass shooting that killed 11 people, to give a speech on gun violence. 

Wednesday: Office of Management and Budget Director Shalanda Young will testify before the Senate Budget Committee on the president’s budget. 

Biden will be in Las Vegas, where he will speak on his efforts to lower prescription drug costs, before heading back to Washington.

Thursday: Treasury Secretary Janet L. Yellen will testify before the Senate Finance Committee about the president’s budget — though SVB is likely to be a top topic. 

At the White House

U.S.-China geopolitical rivalry comes into full view

Making moves: China’s successful mediation of the historic peace deal between Iran and Saudi Arabia after seven years of diplomatic radio silence comes as its competition with the United States for global dominance heats up. 

The signing of the accord in Beijing is the realization of Chinese President Xi Jinping’s long-sought desire to present China as an alternative to Washington worldwide, but particularly in the Middle East, “where the United States has been the dominant outside power brokering agreements since the end of the Cold War, waging wars and exerting influence in an oil-rich region vital to the world’s energy security,” our colleagues John Hudson, Yasmeen Abutaleb and Dan Lamothe wrote over the weekend. 

Washington’s top intelligence official has also argued that China is the United States’ greatest geopolitical rival of the 21st century.

Although White House spokesman John Kirby told reporters that the U.S. supports “any effort to de-escalate tensions there,” our colleague Ishaan Tharoor writes that Washington analysts are “looking on somewhat nonplussed at the proceedings.”

The Media

Must reads

From The Post: 

From across the web: 


She did it

Thanks for reading. You can also follow us on Twitter: @LACaldwellDC and @theodoricmeyer.