Nodler: Federal Regulations Harm Small Business Job Growth

Small business growth is a key aspect of economic prosperity. Economists estimate that over the past 25 years, two-thirds of new jobs originated among small businesses. There is a lot of talk on federal and state levels about ways to better the economic climate and support our small businesses, but there is one big problem that has not yet been addressed: the unavailability of credit. Federal regulations put in place are forcing banks into a situation where regulations not only make it close to impossible to make loans, but actually create an environment that discourages issuing credit.

Small business owners throughout the country are facing the same situation. They go to their community bank for a line of credit. They are good customers, who have never been late with a payment, and have an established small business. These customers are being turned down because federal regulators are discouraging banks from making loans. It puts our small business owners in a bind because they are unable to expand or hire new employees without having cash on hand.

Community banks’ hands are tied because they face tighter regulations from the Comptroller of the Currency, Federal Reserve, and Missouri Division of Finance. Examiners are downgrading the ratings of performing loans because the value of the collateral (often commercial real estate) has dipped or because the banks happen to be located in an “economically distressed” area. Regardless of how well a bank in the community might know their customers, they are unable to loan to creditworthy borrowers because federal regulations are actually impeding their ability to do business.

Federal examiners should be more careful in light of the financial crisis, but creating an environment where small businesses can’t get access to credit is not the way to stimulate recovery. An overly restrictive credit environment actually provides banks with an incentive not to issue loans. Banks are able to maintain a better rating if they have less risk in their portfolio, and the result is that they don’t make loans they would otherwise approve.

The Senate recently approved my Senate Concurrent Resolution 33 to discourage the federal government from continuing to harshly regulate our community banks and to instead give community banks the right tools to start lending again. With House approval, the legislation could be adopted and Missouri’s support for better access to credit would be clear to Congress. Expanding job growth in this state is my top priority, and SCR 33 would do just that by supporting our community banks and small businesses.

(Windows Media Video from Sen. Nodler's office)

(Video also appears below by clicking play.)