The Financial CHOICE Act is a Vote for Entrepreneurship and Small Businesses

By at 6 June, 2017, 3:39 pm

(Image courtesy of the Financial Services Committee, U.S. House of Representatives)

by Raymond J. Keating-

If Members of Congress are serious about supporting small business, then they need to vote in favor of the Financial CHOICE Act of 2017 (H.R. 10). The legislation will be voted on this week by the U.S. House of Representatives.

Regulatory Modernization and Sanity

The CHOICE Act would bring regulatory relief to financial institutions – including small, community banks – and thereby would reduce unnecessary, misguided costs and obstacles imposed on lending to small businesses.  The bill also fixes antiquated and costly red tape created by the Securities and Exchange Commission, which is harming capital formation in America and restricting the availability of capital for startups and growth-oriented firms.  H.R. 10 also makes needed changes to the Consumer Financial Protection Bureau (CFPB) – an entity created by Dodd-Frank, and embedded within the Federal Reserve, that has become increasingly unaccountable and whose rogue actions are harming capital access as well as innovation and competition in the financial industry.

The Financial CHOICE Act would roll back much of the 2010 Dodd-Frank financial regulation law. Dodd-Frank was passed in response to the 2008-09 credit and economic mess. Unfortunately, though, the law failed to deal with foundational problems that played key roles in causing the meltdown, such as quasi-government mortgage entities (i.e., Fannie and Freddie) featuring privatized profits but losses left to the taxpayers; changes in accounting regulations mandating mark-to-market asset valuations that forced unnecessary write downs; and a federal housing agenda that disconnected home ownership from sound economics. Instead, Dodd-Frank created additional regulatory costs that have hampered lending, and business startups and growth. (See SBE Council’s most recent look at small business lending.)

Small, Community Banks Getting Hammered

And make no mistake, while hearing a great deal about reining in “big banks” from Dodd-Frank supporters, it is small banks that have suffered. In a release from House Speaker Paul Ryan’s office, it was correctly pointed out, “Small, community banks give the majority of small business loans in this country. Since Dodd-Frank, these banks have struggled. Many community banks have gone under. That has hit Main Street hard, since families and small businesses can’t get the loans they need to get off the ground.” It goes on to be noted in the release, “The CHOICE Act will give regulatory relief to banks that keep 10% in cash reserves, which delivers relief while protecting consumers.”

Indeed, it is critical to remedy the ills of Dodd-Frank, as explained in two recent SBE Council analyses: Recommended Reading on Dodd-Frank and its Aftermath and Dodd-Frank and its Aftermath: The Need to Accelerate Reform

The CHOICE Act Enables Vibrant Capital Markets – Key to Successful Entrepreneurship

In a recent letter to Congress, which highlights the various provisions of the CHOICE Act and their benefit to small businesses, SBE Council President & CEO Karen Kerrigan noted that the number of small banks has dropped and new bank entry has collapsed. Those ills are about both the Great Recession and the subsequent period of costly regulation. Kerrigan concluded, “Entrepreneurship and small business growth continue to struggle. Without capital and confidence in our economy, many potential entrepreneurs are sitting on the sidelines while existing small businesses cannot seize opportunities because capital is difficult to access, or costly. The Financial CHOICE Act is a clear, significant positive for small businesses, entrepreneurs and their workforce. Therefore, it is a positive and needed change to help spark robust and sustainable growth for the U.S. economy.”

In early February, President Donald Trump issued an executive order titled “Core Principles for Regulating the United States Financial System.” Among the key points were:

• “prevent taxpayer-funded bailout;”

• “foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;”

• and “make regulation efficient, effective, and appropriately tailored.”

Those principles make sense, and the Financial CHOICE Act, in fact, is built on such ideas. Passing the Financial CHOICE Act would make a real difference for small banks, small businesses and the future of American entrepreneurship in general.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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