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NY Rep. Velázquez comments on financial regulatory restructuring and small businesses
Sep 23, 2009

Rep. Nydia M. Velázquez (D-NY), chairwoman of the House Committee on Small Business, delivered the following remarks at today's hearing entitled, "The Impact of Financial Regulatory Restructuring on Small Businesses and Community Lenders": "One year ago this month, we saw the largest bankruptcy in U.S. history when Lehman Brothers filed for Chapter 11. The following weeks were a whirlwind of activity. The FDIC seized Washington Mutual, selling the company's banking assets to JP MorganChase. Wachovia was acquired by Wells Fargo, and Merrill Lynch by Bank of America. Attempting to provide relief to our teetering financial system, Congress passed and President Bush signed into law the $700 billion TARP legislation. "Since then, it has become evident that the problems leading up to this crisis did not accumulate over night. In fact, flaws in our risk management systems - both governmental regulations and private mechanisms - had been growing for decades. "In coming weeks, Congress and the Administration will examine options for strengthening our regulatory structure. This is long overdue. The gaps in the system have grown too large to be ignored. We cannot count on current regulations to prevent another crisis. "While considered by many an issue for the financial services industry, how we address those gaps will be critical for all small businesses. It is imperative that, as we look at alternatives for updating our financial regulations, we carefully consider how these changes might affect entrepreneurs. "Small businesses rely on the healthy functioning of our financial systems in order to access capital. New rules governing how financial institutions extend credit will directly affect entrepreneurs seeking loans at affordable rates. The biggest challenge facing small firms right now is access to affordable capital. We must be careful that regulatory changes do not exacerbate the current capital shortage, and undercut our recovery as it begins to take hold. "Likewise, financial regulatory reform could unintentionally touch sectors of the small business community that we do not think of as financial institutions. Businesses that allow customers to pay for goods and services after delivery are essentially extending "credit". Congress and the Administration must be careful not to define the term credit too broadly. Otherwise, businesses like home builders, physicians and others may face new rules that were not meant for them. "Small businesses come in all shapes and sizes and there are many in the financial sector. Community banks and credit unions could see their business models profoundly affected by many of the proposed changes. Small firms in the financial sector often face higher compliance costs than their larger competitors. Several proposals would result in small lenders answering to a new regulatory entity. I expect some of our witnesses today will testify that small lenders bear less responsibility for the recent turmoil and, therefore, should not carry the brunt of new regulations. This argument seems to carry at least some credibility -- the Committee should consider it carefully as we proceed. "As both lenders and borrowers, small businesses have much at stake when it comes to regulatory reform. The financial crisis of last year and the recession it triggered have hit small firms hard. As much as anyone, entrepreneurs want these problems fixed so that financial markets can again play their vital role in promoting commerce. "Numerous strategies have been floated for restoring transparency and stability to our financial systems. Depending on how they are crafted, these proposals could touch every sector of the American economy. For these reasons, we have invited representatives from a range of industries to testify. It is my hope that their testimony will add important perspectives to the discussion." For more information, visit  
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