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Middle-Market Public Policy Roundup

The Fed Chairman testified before Congress, the SEC came out with a string of announcements, and Volcker Rule restrictions have been rolled back for some banks.

Middle-Market Public Policy Roundup

Updated on July 18, 2019

With contributions by Maria Wolvin and Ben Marsico.

Federal Reserve Chairman Jerome Powell made his semiannual visit to Congress for a hearing last week, where he briefly addressed concerns about rising corporate debt levels.

Meanwhile, a string of announcements came out of the Securities and Exchange Commission. The agency recently announced the date of its Small Business Capital Formation Advisory Committee meeting in Omaha, Nebraska, which will occur the day before the SEC hosts its 38th Government-Business Forum on Small Business Capital Formation. Just in the time for the event, the SEC also released the findings from the previous year’s forum, where attendees made policy recommendations to the federal regulator.

Finally, five federal financial regulatory agencies announced the adoption of a new rule that would make it easier for private equity firms to do business with some banks.

Fed Chairman Testifies before Congress

Jerome Powell, chairman of the Federal Reserve Board of Governors, spoke to members of Congress last week during the central bank’s semiannual hearing.

During Powell’s hearing before the Committee on Banking, senators raised concerns over the increasing levels of corporate debt. High rates of leveraged lending could pose a risk to firms and their creditors if they’re caught in an economic downturn, lawmakers said.

“These borrowing firms are companies that employ millions of people,” Sen. Sharrod Brown, D-Ohio, told Powell at the hearing. Brown cited a report published by the Federal Reserve in February, which showed that credit standards for loans deteriorated in the second half of 2018.

While leveraged loan levels are high, Powell assured the Senate committee that the central bank doesn’t see their risk approaching pre-Financial Crisis levels. “Most of this risk is now held in market-based vehicles, which have stable funding,” he said.

As leveraged loans approach 4% of the size of the United States’ national debt, Sen. David Perdue, D-Ga., asked Powell if leveraged lending has reached a point where it’s beginning to present systemic risk. Powell said the Fed also doesn’t expect leveraged lending to rise to the level that it would compromise financial stability.

Given the critical role that leveraged loans play in growing middle-market companies, ACG continues to seek input from its members to help so that policymakers have a clear understanding of how such loans work in the marketplace and to ensure that the voice of the middle market is part of the policy dialogue. If you are an ACG member who would like to provide thoughts on leveraged lending in the middle market, please reach out to policy@acg.org.

SEC Announces Dates for Small Business Events

A date has been selected for the SEC to receive advice and recommendations on its rules, regulations and policy related to small business.

The SEC announced the meeting of its Small Business Capital Formation Advisory Committee on Aug. 13 at Creighton University in Omaha, Nebraska.

The committee, whose members reflect a diverse cross-section of the business community, provides the SEC with guidance that could potentially shape future policymaking.

The committee meeting will be held prior to the annual Government-Business Forum on Small Business Capital Formation, which will take place at the same location on Aug. 14.

Accredited Investor Definition a Top Priority at Government-Business Forum

The last Government-Business Forum was held in December 2018 in Columbus, Ohio, and the SEC recently released its findings in a report from that event.

According to the report, the definition of an accredited investor topped the list of priorities for small businesses as they seek to raise capital.

Currently, only individuals with incomes of $200,000 or higher, or a net worth of more than $1 million, are permitted to invest in private equity funds. Attendees requested the SEC alter the definition to include metrics like education, experience and training.

Expanding the definition of an accredited investor beyond the wealth-based criteria is a key topic in a recent SEC Concept Release on harmonizing exemptions for private securities offerings. This proceeding provides an important opportunity for the SEC to clarify the patchwork of exemptions that currently exists to better facilitate capital formation. ACG is planning to submit comments on behalf of its members to assist the SEC in better understanding how the definition of an accredited investor, and other issues, impact the middle market. Comments are due on Sept. 24.

Agencies Adopt Final Rule to Exclude Community Banks from the Volcker Rule

Five federal financial regulatory agencies announced last week they have adopted a new rule that will make it easier for private equity and other funds to do business with some banks.

On July 9, the Federal Reserve, Commodity Futures Trading Commission, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and SEC approved a new rule that will allow community banks with $10 billion or less in assets that meet other criteria to be excluded from the Volcker Rule, opening the door for smaller banks to invest in private capital funds.

The Volcker Rule generally prohibits banks from having certain business dealings with hedge funds or private equity funds.

The rule will also allow private equity and other funds to share the same name with an investment adviser, with some exceptions.

Are you an ACG member who enjoys reading the public policy roundup?  Join our Public Policy Interest Group to receive even more in-depth coverage of federal policy activity impacting the middle market, as well as opportunities to help shape ACG’s advocacy efforts.


Benjamin Glick is ACG Global’s marketing and communications associate.