Opinion: How the REINS Act Fails Small Businesses and the Economy

CNBC.com

Government Regulation

Vince Siciliano, CEO of New Resource Bank, responds to the opinion pieceby Rep. Sam Graves, (R-MO) the Chairman of the House Small Business Committee, published yesterday on CNBC.com.

Yesterday, the House of Representatives passed the REINS Act, misleadingly named “Regulations from the Executive in Need of Scrutiny.” Proponents of the bill justified it with false claims of saving small businesses from “regulatory burdens.” In fact, the House did nothing for small business, and it took for itself extreme and unwarranted power to derail the entire regulatory process, including good regulations that are necessary for the economy to thrive.

Most small business owners will tell you that their biggest challenge right now is lack of demand, not regulations. During the first half of 2011, less than one-quarter of 1 percent of U.S. job layoffs was due to regulations, according to the Bureau of Labor Statistics. In contrast, 30 percent of layoffs were due to poor “business demand.” At least five other surveys, including ones commissioned by the Chamber of Commerce and the McClatchy News Service, found that lack of consumer demand and economic uncertainty were the most important reasons that small businesses are not expanding and hiring.

Now, the House of Representatives is seizing de-facto veto power over nearly all regulations coming from federal agencies. The REINS Act subjects any federal rule estimated to have a $100 million or more economic impact to a Congressional vote. Legislators will have the power to block common-sense standards and safeguards that prevent abuses and promote a healthy, competitive business environment.

If REINS becomes law it will deadlock the rulemaking process. As CEO of New Resource Bank, a community bank that lends to individuals and small businesses in San Francisco, it’s clear to me that we need more and better regulations in the financial sector. We need safeguards that prevent misleading and dangerous mortgage products from being sold to borrowers who can’t afford them. We need standards that prevent piles of bad loans from being packaged and sold as if they were top quality. Under these standards, we would never have had the near-meltdown of the major banks, the credit squeeze that resulted, the trillion-dollar bailout, and the millions of homeowners who are underwater on their mortgages and unable to spend much on anything.

If the REINS Act had been law in 2009, banks like mine would not be doing as well or lending as much to small business as we are today because we likely wouldn’t have the market rules that help us compete. For example, when the Federal Reserve passed rules (the so-called “opt-in/opt-out rules”) requiring banks to get customers’ permission for overdraft fees, it allowed customers to see the true cost of my bank’s products as compared to the bigger banks. Furthermore, the insurance assessment rules instituted by the F.D.I.C. after Dodd-Frank passed actually reduced the cost of insurance for 98 percent of community banks by making large banks pay their fair share.

As the American Sustainable Business Council, a leading advocate for sustainable economic development, argues, America's small businesses will succeed only if we have the flexibility to respond to complex and rapidly changing economic forces and if we operate our markets with rules, standards, and safeguards that promote responsible decision-making.

The REINS Act will hurt rather than help small businesses because it fails to address the sluggish economy, the lack of consumer demand, or the need for safeguards that make the financial system more robust and reliable. Now that this Act has passed the House, Senators who support small businesses and a strong economy must reject this harmful bill and build the foundation for a new and sustainable economy.

Vince Siciliano, CEO of New Resource Bank, a community bank that lends to individuals and small businesses in San Francisco.