The FDIC convened a broad panel of experts and stakeholders of the small business sector in Arlington, Virginia on Thursday to examine the issues of and potential solutions to the challenges facing small business funding.
Entitled “Overcoming Obstacles to Small Business Lending Forum,” the event offered two distinct panels: “Framing the Issues,” which provided a macroeconomic context of these funding challenges, and “Confronting the Obstacles,” which offered potential solutions from various perspectives.
The first panel offered much familiar information with little debate about where the economy had risen from since the darker days of 2008. Even U.S. Chamber Chair Thomas Bell grudgingly agreed that TARP and other government intervention prevented a meltdown of the capital markets, and was proving to have been legendary action by the Federal Reserve and Bush Administration.
(L-R Ben Bernanke, Sheila Bair, Sen. Mark Warner, and Thomas Bell)
But that proved to be the only broad agreement on that panel, as Senator Warner offered an insightful discussion about the necessity and wisdom of the Dodd-Frank Financial Regulatory Reform. A 20-year capital markets veteran, Senator Warner reminded the forum that about 50% of our pre-crisis economy was financed outside of government oversight, and it was the conditions created in that part of the markets that created the crash.
Senator Warner also spoke deftly about the absence of start-up capital in all financing sectors, including venture capital and the receding angel capital market.
Mr. Bell contributed mostly a sour diatribe that the government made everything worse, and was over-taxing and over-regulating businesses. His most pertinent comment though was to point out that the banking industry continues to carry a significant volume of unrealized real estate losses. As the former Chair of an Atlanta-based REIT, Cousins Properties, he should know. None of the other panelists offered a response.
Mr. Bernanke and Ms. Bair consistently pointed to the attention they have given, in respective regulatory roles, to address complaints of micro-management and strident attention to managing bank loan risks. Both agencies have recently opened a hotline to field business owner complaints of excessive interference by regulators of banks.
Chairman Bernanke reminded the audience that robust sales growth is the key to opening more lending, as companies become stronger and lower the risk presented to banks that field their loan requests. Ms. Bair spoke about the need to examine collateral values more closely, and steps the FDIC had taken to avoid criticizing loan renewals based solely on real property appraisals.
The second panel had few solutions to offer. Clearly there was a broad range of political philosophies on the panel, and a shortage of front line experience. Ms. Rainey, a community bank CEO was the exception to this rule, and offered some good perspective on the challenges of balancing heavy regulation with the entrepreneurial spirit of managing a community bank.
(L-R Don Graves, Jr., Steven Smits, Rebeca Rainey, Anthony Lowe, John Harrison, Kathleen Sowa, Jorge Corralejo, and William Dennis, Jr.)
A consensus of the panel felt as though the funding provided through the Small Business Jobs Act was positive, but would probably not in and of itself be the only answer. A significant problem is that many banks needing capital to expand lending will not qualify for it under guidelines issued in the wake of the bill’s adoption in September. There was even disagreement among the panelists as to how many banks still needed capital.
Each of the second panel agreed that sales activity and loan demand were also issues, and that a more robust economy would solve many problems. But they were more diverse in their opinions about the effects of bank regulation reform, health care reform, and access to small businesses to government contracts.
While the forum did not offer many firm conclusions to what seemed to be a consensus of what problems were present, it was a positive airing of several viewpoints in the presence of an army of banking regulators, small business advocates, Congressional aids, and media.
Commentary: I believe these kinds of conversations are very useful, but their effectiveness is diluted with the absence of real answers. The first panel provided plenty of framework for the public policy efforts around these issues. Let’s face it, you can’t go much higher than Ben Bernanke himself talking about small businesses.
Disappointing that Tom Bell’s presence served as little more than a reminder of the U.S. Chamber’s dissent of anything to do with the Obama Administration, and offered little more. (For the record, I am a member of the U.S. Chamber via my membership in the Metro Atlanta Chamber). If they cannot contribute anything to the discussion, merely banging on the tin cans of dissent only exacerbates the problem.
Similarly the second panel offered no concrete solutions, and in fact, exposed a lack of knowledge about small business set-aside provisions for federal contractors. The FDIC did a good job of assembling a diverse panel of many voices, but none of them seemed able or willing to put forth a concrete idea to act on to improve small business funding at this critical time.
And again, the representative of the National Federation of Independent Businesses served only to add dissent and complaints about the government, but like Tom Bell before him, was mum when asked to offer solutions.
 “Framing the Issues” panel included Ben Bernanke, Chair, Federal Reserve Board of Governors, Sheila Bair, Chair, Federal Deposit Insurance Corporation, Senator Mark Warner (D-VA), and Thomas Bell, Jr. Chair, U.S. Chamber of Commerce. Opening remarks were presented by Rep. Spencer Bachus III, Chair, House Financial Services Committee. The panel was moderated by Steve Liesman, CNBC.
 “Confronting the Obstacles” panel included Don Graves, Jr., Deputy Assistant Secretary, US Department of Treasury, Steven Smits, Associate Administrator for Capital Markets, US Small Business Administration, Anthony Lowe, Director, Chicago Regional Office FDIC, John Harrison, Superintendent, Alabama State Banking Department, Jorge Corralejo, Chair, Latino Business Chamber of Greater Los Angeles, William Dennis, Jr., Senior Research Fellow, NFIB, Rebeca Rainey, CEO, Centinel Bank of Taos, and Kathleen Sowa, National Business Credit Executive, Bank of America. The panel was moderated by John Harwood, CNBC.