Small Business and Big Government
According to the New York Times, President Obama sought a wide range of views on finance rules, consulting with, among others, top executives from Goldman Sachs, Metlife, Allstate, JPMorgan Chase, Credit Suisse, Citigroup, Barclays, UBS, Deutsche Bank, Morgan Stanley, Wells Fargo, Travelers and Prudential. It does not appear as though any representatives from small businesses were given the opportunity to have input, although the Administration has consistently acknowledged that we account for over one-half of the economy and all net job growth. The Administration released an 85-page white paper, outlining its proposals to reform financial market regulation. Various proposals were put forward for an expanded role of the Federal Reserve Bank, new bank loan loss reserve accounting, the elimination of the Office of Thrift Supervision and other matters. But what was missing was a consideration of the ultimate goals of regulation: to ensure the safety and soundness of our financial system while maintaining access to a multilayered system. The access part is missing from the Administration’s proposal, save for a cursory mention of the requirements of the Community Reinvestment Act.
South Africa’s Centre for Financial Inclusion described the phenomenon of regulatory drift: first, markets grow and become more sophisticated and complex. When market failure occurs, regulators impose costs and barriers that foreclose market entry for the less advantaged. This result occurs in part because of the regulators’ emphasis on stability over access. This was the unintended result of anti-money-laundering and anti-terrorist financing regulations, which had the consequence of slowing remittances upon which many poor people in the developing world depend. The emphasis of stability over access also contributed to choking the flow of credit to smaller businesses in the U.S. The omission of the financial access issues of smaller businesses is all the more significant given that the Administration has publicly identified this issue as a priority.