Dear Chairman Garrett, Chairwoman Capito, Ranking Member Waters and Ranking Member Maloney:
As an association of chief executive officers of leading U.S. companies that employ more than 14 million Americans and generate more than $6 trillion in annual revenues, Business Roundtable is committed to meaningful financial regulatory reform that safeguards market liquidity, ensures access to capital markets, and protects investors.
Business Roundtable is concerned that several provisions of the proposed rules to implement the Volcker Rule of the Dodd-Frank Act will undermine liquidity in the markets and hamstring companies seeking to raise capital. Any reform must ensure the preservation of functioning capital markets, which are the lifeblood of the American economy and drive economic growth and jobs creation. Our concerns are briefly outlined below.
In general, Business Roundtable does not support the needless restriction of market-making or underwriting activities. These services are required by U.S. companies that are accessing the capital markets to achieve growth. They are critical to ensuring that the markets for corporate bonds and other securities are liquid, which reduces the cost of capital, reduces transaction costs, and increases investor returns.
The Dodd-Frank Act exempts market-making and underwriting activities from the Volcker Rule because of the centrality of those activities to sound capital markets. Yet, in implementing those exemptions, the proposed administrative rules unduly restrict market-making and underwriting activities. For example, they permit only passive intermediation activities by market-makers and underwriters, even though in all but the most liquid markets market-makers must actively engage the markets to ascertain prices, anticipate customer demands, and facilitate transactions. One study estimates that the proposed rules’ restrictions on market-making could cause immediate corporate bond value losses to investors of $90 to $300 billion, increased annual transaction costs to corporate bond investors of $1 to $4 billion, and increased corporate bond borrowing costs to companies of $43 billion annually. In total, these regulation-generated costs amount to $1000 per household each year.
In addition, Business Roundtable does not support the restriction of investments in entities that finance growing firms and innovative solutions to societal problems. Congress enacted the Dodd-Frank Act with the understanding that it would not be interpreted to restrict such investments. Yet, in implementing the Volcker Rule, regulators are proposing to needlessly restrict investments by companies in joint ventures, wholly-owned subsidiaries, and other similar funds—the very type of investment vehicles that Congress explicitly indicated should not be restricted by the Volcker Rule.
While Business Roundtable supports beneficial reforms of the U.S. financial regulatory system, America’s business leaders are concerned that the proposed Volcker Rule would significantly reduce liquidity and beneficial investments in the capital markets, thereby harming the American economy at a sensitive time and potentially threatening the United States’ role as a leading financial center. At bottom, this rule will impose tangible costs both in terms of job loss and economic growth. In contrast, any benefits to the complicated new regulatory structure are undefined and have not been quantified. It is hard to see why such a market-dampening new set of restrictions is needed, and no analysis appears to have been undertaken to determine whether a less onerous rule could achieve the risk-reduction sought by Congress in enacting the Volcker Rule provisions.
We look forward to working with you and your colleagues on the Committee to improve these rules and to help ensure meaningful reform that preserves market liquidity and encourages beneficial investments.
Sincerely,
John Engler