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Since when did banks decide to use other people's money to make risky trades, iffy mortgages, and precarious loans? How did things get to the point that large financial institutions—the backbone of our economy—could move billions of dollars into doubtful investments with minimal supervision?
As a small business owner, I'm happy that the financial regulatory bill has gotten closer to becoming law. Sure, it's not perfect. But I gave up on perfection the minute my company started selling Microsoft (MSFT) products. In the long term, this bill will be a good thing for my company.
First of all, it pretty much keeps the Fed's powers intact. I'm a fan of the Fed, and not just because most of their leaders are bald guys. There's been a good track record of smart guys running it over the past 30 to 40 years. Even though I'm annoyed at the banking industry, I'm not thrilled that bankers can no longer choose the Presidents of the 12 regional Fed Banks under this bill. But the good news is that the chairman retains his powers with no congressional involvement in telling him what to do. The Fed controls our money supply and interest rates. The last thing small businesses need is some guy with a political agenda, instead of an economic background, making these decisions. That bullet was dodged.
So was another. The new bill has something people are calling "the Volcker Rule," which basically limits banks from making risky investments—with depositors' money. I just upgraded my company's computers to Windows 7, and there's nothing riskier than that. The last thing I need is my banks putting money into creepy real estate deals and some type of derivatives backed by some type of something no one really understands. Banks can no longer make significant investments in hedge funds and private equity funds. They can no longer bail themselves out or use their own money (hey, that's my money) to make long-term bets. What? You mean banks can only be … banks? That means I can worry about making payroll, collecting cash, and what to do about that employee who hasn't bathed this week, instead of whether or not my bank will still be solvent on Monday. Yay.
I'm not thrilled that the new bill will impose added fees on banks to pay for … the new bill. You and I both know that the banks will find a way to pass these costs through to us. In effect, it's just another tax—this time levied by the banks, and not by the IRS. Then again, the extra cost means minimizing the chances that the panic we experienced in 2008 happens again. Even with these added costs, I like that the new bill makes the $250,000 FDIC limit permanent. It's one less thing I have to worry about when it comes to managing my company's cash flow.
I love the fact that investors will now be able to sue credit-rating firms, the guys who gave thumbs-up on all those great financial institutions that crashed and burned during the financial crisis. This bill now holds them accountable, forcing them to raise the bar. I wish this included the firms that report on the creditworthiness of my business, too. My business has, for years, been subject to the questionable processes these firms use to "rate" private companies. I've never submitted info to Dun & Bradstreet (DNB) but the company has somehow accumulated data on my company that is both incorrect and incomplete.
This bill has a few other good things for business owners. Banks can no longer pay guys commissions on deals they bring to them. I wasn't even aware they were allowed to do that. Am I the only one who thinks that this is not something a bank should be doing? I don't want my banker using my money to grant incentives to former used-car salesmen just so they can make a quick day-trade. And I'm glad the bill allows states the ability to impose further regulations if they see fit. There will always be a new risky money maker in some part of the country. It's good for local governments to recognize a potential disaster and be able to act before the Feds become aware of it.
Some people say the bill will hurt small businesses because bank profits will be so negatively affected, and the regulations so intrusive, that capital will be less available and loans will be harder to come by. Baloney. Banks should be in the business of giving prudent, reasonable loans to prudent, reasonable business owners. Backed by real assets and realistic revenue streams. Anything riskier than that should be absorbed by individual investors, venture capitalists, and other money men. If bankers aren't happy with the money they're making, then they should do something besides banking.