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Restarting the Growth Engine: Reforming Capital Markets to Revitalize Our Economy
Remarks by Thomas J. Donohue, President and CEO, U.S. Chamber of Commerce
Illinois Chamber of Commerce
Good morning ladies and gentlemen.
It’s wonderful to be here in Chicago among so many friends and business leaders.
We’re joined by Allstate Chairman and CEO Tom Wilson—who is also a member of the U.S. Chamber Board and will take the gavel as our chairman in June. Todd Maisch is another great friend of the U.S. Chamber. He is a valued member of our committee of the top 100 chamber executives in the country.
Under his leadership, the Illinois Chamber of Commerce is one of our strongest federation partners. Working closely together with Governor Rauner and his administration, the Illinois Chamber is a powerful champion for this state’s vibrant business community and one of the largest and most diverse state economies in the country. They are committed to driving stronger, faster growth—something that many states, including Illinois, and our country as a whole needs a lot more of right now.
So today, we couldn’t be more excited to partner with them to kick off the “Let’s Grow Tour” right here in Chicago.
Growth—that’s what it’s all about.
Economic growth is the foundation on which a prosperous, secure, and compassionate society rests. Restoring our country to vigorous growth is necessary to expand jobs, incomes, and opportunities for all Americans.
As the new government settles in, the business community’s overriding focus will be on those policies and reforms that can return robust growth to the American economy.
We will work to advance a pro-growth agenda that provides regulatory relief and reform; expands trade; accelerates domestic energy; reforms the tax code; modernizes our infrastructure; creates a skilled, competitive workforce; reforms our legal system; and, as I’ll discuss in a few minutes, revamps our capital markets.
Every proposal should be subjected to the growth test: Will it speed growth or will it impede growth?
Our lawmakers must make their decisions accordingly. They must choose growth.
Growth is good for everyone. It’s good for every state. It’s good for every business. It’s good for every industry.
We will also ask our leaders to listen to the men and women, from businesses of all sizes and sectors, who are on the front lines of economic growth across the country. We welcome their ideas. We want their perspectives. And we need their voices in Washington.
Starting here today, the Let’s Grow Tour will help facilitate that conversation in six cities across the country. The tour will be led by our state and local chamber partners, who know better than anyone what their members need to succeed. It will bring together public and private sector leaders to discuss pro-growth proposals. Together, we’ll highlight a number of policy priorities that are crucial to growth.
Then we’ll gather up what we’ve learned. We’ll convene a final summit in Washington, D.C. And we’ll invite our leaders to come so that they can do some listening.
We’re going to get this discussion started a little later this morning. But first, I’d like to highlight one of the policy areas that is crucial to fueling a growing economy—a robust financial services sector.
There are few places that exemplify that truth better than Chicago. A global financial powerhouse in its own right, Chicago is home to the world’s largest derivative exchange and the biggest options exchange in the country.
Chicago is also a great example of America’s diverse financial services industry.
It is home to banks of every size and every type—from small community banks to large merchant banks. It is the home of Discover, Allstate, Citadel and whole swath of regional, national and even global asset managers, insurers, and credit providers. In Chicago, if you need a financial service, you are likely to have someone who can provide it down the street or around the corner.
All U.S. businesses—from the Fortune 500 to Main Street shops to nimble startups—need that same kind of access to short- and long-term capital, liquidity, and risk management tools to operate.
They need it to hire, invest, meet payroll, buy inventory, and hedge their bets. Most can’t survive—let alone grow—without it. And our economy can’t grow without them.
Unfortunately, for too many of our job creators, access to those products and services isn’t as available as it should be. Eight years of overregulation has squeezed business financing, raised the cost of capital, limited access to credit, and taken cash out of the economy altogether.
The lawmakers and regulators who put in place Dodd-Frank, Basel III, the Volcker rule, and a host of other excessive capital rules chose against growth. Their goal was financial stability—but they went too far. In their view, credit was a problem that needed to be solved. Risk needed to be eliminated, rather than managed. And saving and investment needed to be harder, not easier.
We all see the results today. Dodd-Frank has created choke points that prevent Main Street businesses from getting the services they need.
A small business that needs to buy more inventory faces higher costs and greater challenges to getting a short-term loan. An entrepreneur may find that her personal credit history isn’t good enough to secure the startup capital she needs.
A mid-sized firm will have a harder time issuing debt to buy new equipment because there is less liquidity in those markets. High-growth companies are told to wait—or avoid—going public. And you know the rules aren’t right when some banks are even turning away large deposits!
It’s as if we forgot why we need financial services in the first place.
In short, we’ve cut off the fuel supply—and guess what—America’s economic engine is sputtering.
Those policy choices have contributed to the worst economic recovery in years. We’re muddling along at a lousy and unacceptable 1 to 2 percent growth rate, and are expected to do little better this year. The labor participation rate is at its lowest point in 40 years, while millions of Americans remain unemployed or underemployed. Business startups have plummeted, and we have seen some years where more businesses have shut down than started up. The number of public companies has shrunk by over half since 1996.
A recent Wall Street Journal investigation found a decades-long slowdown in entrepreneurship. That’s devastating because the American economy has long relied on fast-growing young companies to drive job growth and spread the latest innovations.
We’ve got to do better. We’ve got to restart the growth engine, and we’ve got to fuel it with capital—and all the financial products and services that businesses and consumers alike rely on.
The new administration, working together with Congress, has the opportunity to fix the mistakes of the past, modernize and improve our financial regulatory system, and help drive the growth and job creation we need.
To help guide their efforts, the U.S. Chamber’s Center for Capital Markets Competitiveness released a blueprint for financial regulatory reform—one that promotes stability and assures growth. It has more than 100 practical and actionable reform recommendations. And don’t worry—I’m not going to put you to sleep with all 100 of them.
Pro-Growth Reform Priorities
But I would like to briefly share just a few of the most important pro-growth reforms lawmakers can pursue now to help finance America’s growth.
Restore Main Street Lending
First and foremost, we need to pursue regulatory fixes to restore lending to Main Street.
This year the Chamber will be releasing a series of Main Street impact stories explaining the countless ways a robust financial services system powers growth. It will show that America’s job creators rely on a diverse array of financial institutions—especially large community banks and regional banks.
But Dodd-Frank is making it increasingly costly and difficult for these banks to meet small business needs.
Many community banks, mid-sized and regional banks got swept up in costly and burdensome systemic risk regulations. They pose absolutely no threat to the stability of our financial system. Yet they’re still forced to meet steep capital requirements and regulations once they pass certain arbitrary thresholds. As a consequence, banks reduce lending and the smaller businesses that create jobs and drive growth become starved for capital.
The Volcker Rule is also hitting Main Street hard. Designed to ban proprietary trading by banks, the rule has created market stress, hurt liquidity, and unnecessarily raised the cost of capital. Even the Federal Reserve recently acknowledged that the Volcker Rule has made the bond and equity markets less efficient.
The administration and Congress should work together to tailor the rules to fit the institutions being regulated, to come up with a better way of determining which firms are actually risky, and to exempt smaller banks from enhanced regulation.
Repeal and Replace the Fiduciary Rule
Next, we have to stop the government’s takeover of the private retirement system, especially for small businesses.
The Labor Department’s Fiduciary Rule dramatically expanded the definition of a fiduciary investment advisor to private employer-sponsored retirement plans—like 401(k)s, traditional pension plans, and Individual Retirement Accounts.
That means that advisors who have traditionally provided guidance to small dollar savers and small business plans will have to jump through a lot more regulatory hoops. Many will stop offering these services altogether, limiting employees’ retirement options and making it all but impossible for small businesses to offer competitive retirement plans in order to attract top talent.
Last year the Chamber sued the Department of Labor over the Fiduciary Rule—the case is still pending.
In the meantime, we’re not taking any chances. We’re urging the administration to delay the rule, repeal it, and replace it with something that actually meets the needs of small businesses and their employees.
By the way, DOL also needs to stop its proposal to allow state and municipal public pension plans to take the place of private sector retirement plans for small businesses. As the crisis right here in Illinois illustrates, we cannot trust these state public pension plans with small business retirement security.
Reform the Federal Reserve
Another priority will be reforming the regulatory processes of the Federal Reserve.
Now let me make clear, the Chamber strongly supports the Fed’s longstanding monetary independence—and we have defended that role against attacks in Congress.
However, the Fed was granted broad new regulatory powers under Dodd-Frank with significant impact on Main Street and economic growth—and those powers must be wielded carefully.
Late last year, a few of us from the Chamber had the opportunity to meet with Fed Chairman Janet Yellen and the Board of Governors to present some commonsense reforms. Very simply, the Fed must be held to the same level of transparency, accountability, and due process as any other regulator.
It must eliminate the one-size-fits all approach to regulating systemically important financial institutions—many of which are non-banks struggling to comply with rules designed for the banking industry.
And above all, it must take into account the economic impact of its rules.
The Fed should be mandated to facilitate economic growth and productivity when it is acting as a regulator. This would require the Fed and other banking regulators to use facts and data to ensure that regulations don’t harm the broader economy.
With key reforms such as these, the Fed can fulfill its mission of promoting financial stability without compromising growth.
In addition to the three priorities I’ve just outlined—restoring Main Street lending, repealing and replacing the Fiduciary Rule, and reforming the Fed—the Chamber will continue to fight aggressive regulatory actions stemming from Dodd-Frank and other financial rules.
For example, the Consumer Financial Protection Bureau should be restructured to be more accountable. The CFPB should promote rules that truly help the consumers the bureau is charged with protecting. It must stop its practice of regulating by enforcement. And it must abandon its efforts to eliminate arbitration. This will only lead to crushing class-action lawsuits that will harm businesses throughout the country.
While we are at it, we are also going to remind policymakers that it’s past time for an overhaul of the financial regulatory system itself. Lawmakers layered Dodd-Frank on top of a New Deal-era regulatory structure—and now we’ve got an overlapping, duplicative, and complex system. One regulator doesn’t know what the other is doing. And no one is adding up the cumulative impact of all the rules.
Streamlining our financial regulatory structure so that it actually works will require a bold and thoughtful undertaking. A Presidential Commission, similar to the Reagan-Moynihan commission that saved Social Security, could help modernize the system to meet the needs of a 21st century economy.
However systemic reform comes about, it must ensure that the system is transparent, efficient, and accountable—and that it encourages competition and growth.
Lawmakers should address these priorities and adopt other pro-growth reforms when the House Financial Services Committee begins work on legislation to fix Dodd-Frank next month.
We’re going to work closely with leaders in Congress and the administration to break the dam that has prevented capital from reaching Main Street and spurring growth.
Conclusion: Choosing Growth
Ladies and gentlemen, we have the opportunity to right some of the wrongs and restore the vitality of our capital markets—and we have to do it for the sake of growth.
Some of the loudest voices in the debate over our financial system have forgotten, ignored, or obscured the fact that capital markets are the lifeblood of our economy. Instead, our opponents have cast them as a system of tricks and traps, as instruments of inequality, as fundamentally unfair and inherently corrupt.
Their policy choices reflect that cynical view—and they will help trap us in this anemic economy, strangle small businesses and Main Street, and destroy our ability to finance America’s economic growth.
We flatly reject the idea that 1%–2% growth is the “new normal.” It’s anything but normal—and it’s entirely unacceptable.
Those in Washington who believe the best we can do now is divvy up a shrinking economic pie have got it all wrong. They are aiming way too low.
We are aiming higher. We are aiming for stronger, faster economic growth that can be broadly shared.
And we will fight tirelessly for the policies that will help achieve it.
If our leaders choose growth—not just in the financial regulatory system but in all of our major policy areas—business startups will speed up, job creation will accelerate, incomes will rise, poverty will decline, investments will flood in, innovation will flourish, and our deficits will shrink.
Don’t misunderstand me. Growth is not something handed down from on high in an edict from Washington.
It comes from the bottom up and it only happens if communities in Chicago and across Illinois have the right conditions, the right opportunities, and the right government policies.
It only happens when local, state, and federal policies give free enterprise the ability to flourish, from the smallest mom-and-pop stores to the largest employers.
And that’s why we’re here today—we want to hear from the business leaders here, and all over the country, what you need to succeed, what you expect from Washington, and how we can work together to achieve it.
Thank you very much.
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