Federal Regulation Stifles Lending That Would Create Jobs
John Kane is a North Carolina leader of the Job Creators Alliance. He is also chairman and CEO of Kane Realty Corporation, a leading East Coast property development company.
The Job Creators Alliance believes that small businesses are the engine of the American economy, creating the majority of all new jobs in recent decades. That’s why the alliance has consistently advocated for small businesses and been the voice of the entrepreneur in the public debate about how we get our economy growing again and jumpstart the American jobs machine.
If small business is the engine of the American economy, then credit is the gas that allows it to accelerate and move forward. Without credit or lending, the dynamic potential of our businesses is dampened and growth is crippled. According to the Small Business Administration’s Office of Advocacy, small businesses rely heavily on bank investment in their projects (aside from the entrepreneur’s own capital) in order to get their enterprises off the ground, averaging about $80,000 a year.
Policymakers, business leaders, and entrepreneurs alike all agree on the importance of business lending, yet policy responses to the financial crisis and the Great Recession have made the kind of lending that would get our economy growing again harder, not easier. Essentially, Congress’s response to the financial crisis was to punish banks on Main Street for the bad decisions made on Wall Street–and it has stifled the kind of financing that businesses desperately need to keep the lights on, much less hire more workers. It’s not hard to understand: As federal regulators make it more difficult for banks to give out loans to businesses, job creation grinds to a halt.
As fellow Job Creators Alliance leader John Allison has said on numerous occasions, banks are being forced to deny loans that they would otherwise give for no other reason than federal regulatory requirements–loans that would undoubtedly put more people back to work. This is a problem that has persisted since the financial crisis; in 2009, the Kauffman Foundation found that 89 percent of businesses who were denied loans attributed it to more stringent lending requirements. And it hasn’t gotten any better–just this week, the Federal Reserve’s quarterly survey of senior loan officers found that only 7 percent of banks have eased credit standards for big businesses and none have made it easier for small businesses to borrow .
That’s no way to get an economy growing or jobs created again.
Lending standards are being increased across the board, making it tougher for the real job creators. Standards need not be lowered to improve the environment for small business loans. No one is advocating that banks not exercise reasonable restraint and due diligence. But there needs to be more emphasis on how well local banks are serving local businesses–and so long as banks are only concerned about federal regulators and not about investing in their community, our recovery will continue to sputter.