Are financial regulations killing jobs?


There is increasing concern across America that Dodd-Frank, last year’s banking regulatory reform, is having harmful, unintended consequences on small business–and jobs.

With the economy showing no signs of a return to pre-recession unemployment numbers, policymakers are beginning to become aware of the issue of access to credit for small businesses, due to its direct correlation to job creation, but more is needed to truly accelerate the economic recovery. 

Surveys of franchise businesses by the IFA indicate that financial regulatory reform is having a crippling effect on the lending environment to small businesses. In fact, the commercial lending market to small business is almost frozen. This is extremely harmful to franchising. Study results say the credit gap for franchised small businesses is at least 20%, but the evidence suggests the number may be much higher. This credit gap is a root cause of unemployment and continued economic stagnation in our country.

Last week, leaders of the IFA including President & CEO Steve Caldeira, Credit Access Task Force Chairman Bill Hall, multi-unit franchisee Aziz Hashim and The UPS Store’s VP of Domestic Development Kevin Pignone met with Martin Gruenberg, the Vice Chairman of the Federal Deposit Insurance Corporation. They were joined by Tony Wilkinson, President & CEO, and Greg Clarkson, Chairman, respectively, of the National Association of Government Guaranteed Lenders.

For the first time in IFA history, the organization met with one of the top financial regulators in the nation to offer the franchise industry’s perspective on the business climate as well as our members’ experience that escalating capital reserve requirements set by regulators and the current financial regulatory environment in general have essentially halted small business lending.
The IFA estimates that the credit gap this year will be over $2 billion – the equivalent of 332,000 jobs by the end of 2011 in our industry. Franchised small businesses can’t create jobs if they don’t have access to credit.

 The Treasury Department’s $30 billion approved in the Small Business Jobs Act has not succeeded in its goal of providing capital where it is needed in the U.S. economy.

From left, FDIC Vice Chairman Martin Gruenberg and FDIC Chair Sheila Bair (Bloomberg News)

On Wednesday, June 22nd, House Small Business Committee Chairman Sam Graves (R-MO) will hold a full committee hearing entitled, The State of Small Business Access to Capital and Credit: The View from Secretary Geithner.

The only witness at the hearing will be U.S. Treasury Secretary Timothy Geithner, the administration’s top financial policy maker.

The hearing will review the current state of small business access to equity capital and debt financing. The hearing will focus on the Department of Treasury’s current and future efforts to assist the private sector in providing the needed funds for small businesses to expand and grow.

We urge IFA members to contact their representatives and urge Congress to ask Secretary Geithner and others to examine and, where necessary, reverse financial regulations that are strangling small business credit. Also, the Small Business Lending Fund, a whopping $30 billion that has been completely ineffective, should be redirected to efforts that work – such as SBA’s loan guarantee programs.

Click here to find out how to contact your representative.