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The financial crisis unleashed a wave of new regulatory initiatives – over 400 new rules in the Dodd Frank-Act alone. Some of them – such as bringing needed transparency in the derivatives market – were a good thing. But in adding layer upon layer of complex rules, no one was in charge of making sure they worked as intended – or even worked all. Even worse, no one bothered to examine how these rules are impacting economic growth and Main Street business' ability to borrow, invest and expand.
President Trump has now ordered such a review – and none too soon. The Treasury Department will soon release the first of a series of reports reviewing financial regulation in the United States. As directed by the president, the purpose of this review is to examine financial regulations for consistency with seven Core Principles, including fostering economic growth and vibrant financial markets and enabling American companies to be competitive with foreign firms in domestic and foreign markets.
Over the last three months, the Treasury Department has taken a serious and deliberate approach to ensure the reports and included recommendations are well-informed and well-reasoned. They solicited letters and comments from the regulated community, and reached out to all stakeholders and hosted numerous roundtables with the business community, which depends on an efficient and robust financial services industry in order to thrive.
While the review is still a work in progress, we are pleased to see that the Treasury Department and the president have demonstrated an understanding of a fundamental economic truth: financial services regulation has direct impact on consumers, Main Street businesses, and economic growth. Unfortunately, this fact was often lost on policymakers in the past as they crafted the legislative and regulatory response to the financial crisis. Attempts to wring risk out of Wall Street ended up throttling Main Street.
To be fair, this mistake was understandable: the impacts of financial regulation on consumers, entrepreneurs, and Main Street businesses can be difficult to discern. As Maxine Turner shared in her testimony:
The Chamber has heard loudly from its small business members about the problems with the torrent of federal regulations emanating from Washington, DC. Research conducted by the U.S. Chamber of Commerce Foundation probes into the costs of red tape on small business and spells out how the $1.9 trillion annual cost of federal mandates is a drag on the American economy.
As policymakers look to drive economic growth beyond two percent, it is essential that they understand exactly how Main Street businesses rely on financial services, and accordingly, how a given financial regulation will impact these businesses’ operations. To that end, that Chamber has committed itself to studying just that.
Our survey of 219 chief financial officers and corporate treasurers at mid-sized and large-sized companies found that companies depend on a wide variety of the financial services– including cash management, obtaining long- and short-term loans, issuing debt, equity, and commercial paper, and utilization of derivatives to hedge commercial risks. And more than 61 percent of CFOs and treasurers reported that higher costs imposed by financial regulation forced them to take action that negatively impacted consumers, investment, job creation, or services.
Our recent survey of small business executives showed that 80 percent of small businesses depend on the capital provided by banks to succeed. In the wake of Dodd-Frank, unfortunately, more than 60 percent of small business executives reported that access to affordable credit had remained flat or gotten worse in the past year. More than half of small business executives believe that regulatory relief on lending by banks would help small business in the United States.
The impacts of financial regulation on small businesses are particularly critical as we aim to spark job creation: Karen Mills, who served as administrator of the U.S. Small Business Administration from 2009 to 2013, has noted that small businesses have historically created two thirds of U.S. jobs and may be rightly characterized as the “engine of America.”
Companies like Maxine’s are dealing every day with the real-world implications of these statistics. Main Street depends on financial services to receive capital, expand, hire, and succeed. In order to restore growth, the impacts of financial regulations on these entities should be at the forefront of any policy discussion. The Treasury Department is to be commended for recognizing this truism and for its commitment to common-sense improvements to regulation of the U.S. financial system.