Patrick McHenryChairman

Washington, November 3, 2017 -

The Subcommittee on Capital Markets, Securities, and Investment held a hearing today to examine the effect regulation has on small business and community financing in the U.S. capital markets.  The subcommittee discussed how regulatory burdens affect capital formation, job creation, and economic growth for small businesses and also examined legislative proposals.

“During the previous Administration, bureaucrats in Washington continuously constructed arbitrary walls that cut off innovative small business job creators from essential financing,” said Subcommittee Chairman Bill Huizenga (R-MI). “If our nation is going to have an economy that provides opportunities for every American, then we must promote and encourage the success and growth of our small businesses and startups.”

Legislation Discussed:

H.R. 2319, the Consumer Financial Choice and Capital Markets Protection Act of 2017.  Introduced by Rep. Keith Rothfus (R-PA), H.R. 2319 reverses portions of the SEC’s final rule on money market funds (MMFs) regarding the rule’s floating Net Asset Value (NAV) requirement for certain MMFs

H.R. ____ , the Small Business Credit Availability Act.  Rep. Steve Stivers (R-OH) circulated a discussion draft of legislation to  modernize the business development company (BDC) regulatory regime for the first time since 1980 through two important reforms: by amending the Investment Company Act of 1940 to enable BDCs to deploy capital to small businesses by reducing their asset coverage ratio; and by directing the Securities and Exchange Commission to  revise its rules and forms to allow BDCs to use streamlined securities offering provisions available to traditional operating companies.

H.R. ____ , the Expanding Investment Opportunities Act.  Rep. Trey Hollingsworth (R-IN) circulated a discussion draft  of legislation to conform the filing and offering regulations for closed-end funds to those of traditional operating companies, thereby simplifying the registration process and enabling these funds to more easily provide information to investors.

Topline Quotes from Witnesses

“BDCs offer a critical source of capital to small and middle market U.S. companies. The proposed ’Small Business Credit Availability Act’ would position BDCs to play an even more substantial role in supporting these job-creating businesses.  -- Michael Gerber, Executive Vice President, Corporate Affairs, FS Investments

“Notwithstanding the benefits these funds provide to investors and the capital markets, the last several years have seen a steady decline in the number of closed-end funds and new closed-end fund offerings.  By simplifying the closed-end fund offering process and liberalizing existing restrictions on communications with investors before and during an offering, the legislation would reduce unnecessary regulatory burdens that raise costs for investors.  These changes, which would conform closed-end fund offering rules to those for traditional operating companies, could encourage new closed-end fund offerings and lead to a concomitant increase in the long-term capital these funds supply to companies in which they invest.” -- Paul Schott Stevens, President and CEO, Investment Company Institute

“During the 12 months prior to the [MMF reform] October 2016 implementation date, prime fund purchases of corporate commercial paper declined significantly, while a number of institutional prime funds have also closed during the same time period.  This has created further pressure upon corporate treasurers and businesses that have historically relied upon the liquidity provided prime institutional money market funds…This has caused a shift to bank funding which leads to smaller businesses getting crowded out of bank lending.” -- Tom Quaadman, Executive Vice President, Center for Capital Market Competitiveness, U.S. Chamber of Commerce