Middle-Market Public Policy Roundup

In this week’s roundup, we look at a letter submitted by congressional leaders that criticizes the recent changes to the Volcker Rule and urges agency heads to explain their decision. Additionally, we examine the House Financial Services Committee, which has been debating a package of legislation, including one bill that would reauthorize the charter of the Export-Import Bank. The bill has generated strong partisan disagreement despite the positive role the bank has played for small- and medium-sized businesses in the U.S.

Congressional Leaders Decry Volcker Rule Changes

Prompted by concern over changes to the Volcker Rule made earlier this month, Democratic congressional leaders are now urging financial regulators to explain their decision.

In a letter submitted to the heads of the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corporation, Securities and Exchange Commission and Commodity Futures Trading Commission, Chair of the House Committee on Financial Services Rep. Maxine Waters, D-Calif., and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs Sen. Sherrod Brown, D-Ohio, criticized regulators for the recent rulemaking.

According to the letter, dated Oct. 17 but released publicly four days later, the lawmakers said the amendments open the door to “risky, speculative activities” and requested that the heads of the signatory agencies explain the reasoning behind the changes.

“The 2019 rule is simply a giveaway to Wall Street banks that puts taxpayer-backed banks at risk. We believe the changes to the Volcker Rule and other regulatory changes proposed and implemented by your agencies threaten the stability of the financial system,” Waters and Brown wrote in the letter.

The changes to the Volcker Rule, completed on Oct. 8, narrow the definition of short-term trading accounts, eliminate some metrics reported to federal agencies, remove some restrictions on non-U.S. banks, and expand permitted activities related to covered funds—including private equity firms.

The deadline for responses was set for Oct. 25, but no information has yet been released.

HFSC Debates Export-Import Bank Reauthorization

 The federal agency that helps businesses finance their exporting activities is up for renewal, but faces opposition.

The House Financial Services Committee considered four bills during a markup hearing on Tuesday and Wednesday, one of which—the United States Export Finance Agency Act of 2019—reauthorizes the charter of the Export-Import Bank, which expires on Nov. 21.

Also known as Ex-Im, the bank supports the export of American goods and services by providing loans and insurance to U.S. exporters that they aren’t able to access through private lenders.

Federal law requires Congress to reauthorize Ex-Im every four to five years, but the reauthorization legislation extends funding for 10 years and provides for a number of changes, including an increase in the amount of cash the bank can lend from $135 billion to $175 billion by 2029.

The proposed bill also raises the share of capital Ex-Im reserves for small businesses from 25% to 30%.

Because Ex-Im’s charter relies on congressional authorization, support for the agency can lapse, causing the bank to cease business activities. That happened for the first time in the bank’s 81-year history in 2015, when the bank’s charter lapsed for five months.

The Ex-Im Bank, which under the current proposal will be renamed the United States Export Finance Agency, has drawn support from business groups, along with criticism from both Republican and Democratic politicians.

Supporters, such as the U.S. Chamber of Commerce, highlight the role the bank plays for small- and medium-sized businesses, which account for more than 85% of Ex-Im’s transactions. On Sept. 11, more than 200 manufacturers and industry groups submitted a letter in support of the bank’s reauthorization.

According to the National Association of Manufacturers, Ex-Im has supported nearly $450 billion in exports from small and midsize companies and 2.5 million jobs since 2000.

However, a 2018 report from the Mercatus Center, a research organization affiliated with George Mason University, found that between 2007 and 2017, more than one-third of all aid provided by Ex-Im went exclusively to aircraft manufacturer Boeing—leading critics to say the bank gives an unfair advantage to some companies.

Some Republican lawmakers said Ex-Im say the bank extends too much funding to Chinese firms buying U.S. goods and by extension supports the Chinese government.

Rep. Patrick McHenry, R-N.C., a ranking member of the House Financial Services Committee, disagreed with a proposal from committee Chairman Waters to renew the bank’s charter on the grounds that Ex-Im activities benefit the Chinese government by providing “cheap financing for the Chinese Communist Party.”

Following McHenry’s statement, Rep. Nydia Velazquez, D-N.Y., said Congress’ deadlock regarding Ex-Im has hampered economic growth. She said the decision to delay the appointment of a new agency head for almost four years caused $40 billion worth of transactions to be blocked, which could have supported 250,000 jobs.

An earlier version of the reauthorization bill was pulled from markup in June amid opposition from several members of both parties. The current version of the bill will likely see a large number of amendments, particularly by Republicans.

The committee is expected to vote on the bill in the near future.