The American economy is growing too slowly because regulations designed for international financial institutions have been imposed on smaller banks that pose no grave threat, U.S. Rep. French Hill, R-Arkansas, and Tom Quaadman, executive vice president of the U.S. Chamber Center for Capital Markets Competitiveness, told business leaders in Little Rock on Tuesday.
The event held at the Little Rock Regional Chamber was co-hosted by the Arkansas State Chamber of Commerce.
Quaadman and the congressman said policies in play since the Great Recession, and even before, have effectively cut off traditional means of financing for small businesses and need to be updated. Policies implemented post-recession were aimed at stabilizing the economy, but a stable economy is a growing economy and ours isn't growing enough, Quaadman said.
Solutions discussed at the roundtable included requiring an economic analysis of any new regulation, the planned reintroduction of the Financial Choice Act, a more robust JOBS Act, tax reform and a gradual increase in interest rates by the Federal Reserve Bank. All of the above would, the speakers said, encourage banks to lend to small and growing companies.
Hill said the banking industry has $2 trillion in excess reserves, compared to $1.7 billion before the recession, but it's not being spent on the capital formation or business activity.
Quaadman launched the event by telling those gathered that economic growth over the last eight years has been 1.5 to 2 percent, when the norm in the 1980s and 1990s was 4 percent.
“Instead of determining policies that grow the pie, we’ve had a series of policies that have forced everybody to sort of decide how you continue to divide a shrinking pie, and that’s not really where we should be as a country,” he said.
Quaadman said the current growth rates are enough to stave off another recession but are not enough to create good-paying jobs that are needed.
Hill added that, although the national unemployment rate is low, 15 million people are “underemployed” and that rate is 6-7 percent. He also said major metropolitan areas have been doing well but “flyover country” has not reaped the benefits of the growth the U.S. has enjoyed since the recession ended in 2009.
Hill said the National Association of Counties reported that 93 percent of counties have not recovered from the recession. The congressman then said the Washington Post had reported that half of all business formation occurred in what he called “NFL cities,” with the exception of Austin, Texas.
Hill also said one issue that needs to be addressed is that it costs a small company about $2 million to go public and $1.5 million-$1.6 million a year to stay public. Those costs need to be lowered, he said. While accelerator programs are great, startups need an initial public offering as an option, Hill said.
Quaadman said the country has less than half the public companies it had 20 years ago and more people are going out of business than are starting a business.
Hill said the country isn't seeing the investment or capital formation it should and financing corporate expansion only through private equity players doesn't help the economy, although it does support innovation within industries.
The two men emphasized that financial institutions are less focused on how to be successful and grow than they are on how to keep the regulators in Washington happy. They don't understand some of the more complicated rules and are conservative in compliance to avoid legal pitfalls, they said.
Slow growth is the result, they said.
Quaadman added that reforms to the regulatory process need to include allowing for more public input. He also said fewer regulators are needed because the number that we have now causes “turf wars.” Regulators may also avoid addressing an issue so they don’t step on toes and an area may not have the oversight needed as a result, Quaadman said.
He provided guests at the roundtable a book produced by the U.S. Chamber’s Center for Capital Markets Competitiveness. Quaadman said it contains more than 100 recommendations to grow the economy compiled from nine months of research.
Speaking specifically about the Dodd–Frank Wall Street Reform & Consumer Protection Act, Quaadman and Hillman agreed that, while some things in it worked, the 2010 law did not fix the underlying causes of the problems it sought to solve. Hillman added that only three new bank charters have been granted since Dodd-Frank, while 100 or more banks were formed on average each year for the three previous decades.
Asked later about reinstating the 1933 Glass-Steagall Act, Hill said actions it prohibited and its repeal were not major contributors to the recession. The congressman also noted that predatory behavior by Wall Street firms is still outlawed by the Bank Holding Act of 1956.
He said a more thorough look into reform is needed than simply reinstating what the U.S. had before.
Hill also said the Fed owns 40 percent of the world's U.S. Treasury Agency securities, 15 percent of the world's treasury market and has a $4.5 trillion balance sheet. He said those positions need to change as it gradually increases interest rates.
Quaadman also said during the roundtable the Consumer Financial Protection Bureau, an independent agency set up by the Dodd-Frank Act, needs to be reformed because it’s not accountable to Congress, it “litigates through press releases” and it’s not clear what issues the bureau is trying to address. He said consumer protection is an important function but the bureau needs to be more transparent and accountable.
He added that some rules for the financial services industry have been adapted from other countries and applied here, with little input from the public, and that needs to change.
Quaadman also said the Obama administration's fiduciary rule, a requirement that all retirement advisers put their client's interests ahead of their own, was a first step toward the federal government taking over the private retirement space. He said it took away people's ability to choose what 's best for them and negatively impacted the ability of small businesses to provide retirement benefits.