Promoting Job Creation and Reducing Small Business Burdens Actby Representative Andy Barr
Posted on 2015-01-13
BARR. Mr. Speaker, I thank the chairman for his leadership on
this important package, and I thank the gentleman from Pennsylvania
(Mr. Fitzpatrick) for his leadership, and I rise in strong support of
his legislation, H.R. 37, the Promoting Job Creation and Reducing Small
Business Burdens Act.
Indeed, this bill is about jobs and it is about economic growth. And it is about jobs on Main Street. Make no mistake about it: essentially the same legislative package passed the House last fall by a bipartisan vote of 320-102. If I may, I want to talk a little bit about title VIII of this legislation, which passed the House last April by voice vote, and it contains language from a bill I introduced in the last Congress, H.R. 4167, the Restoring Proven Financing for American Employers Act.
I worked closely with my colleague across the aisle, Congresswoman Maloney of New York, to craft sound, commonsense, bipartisan language to clarify the Volcker rule while maintaining its original legislative intent regarding the treatment of collateralized loan obligations.
Now let's just talk a little bit about the Volcker rule and what it does. As currently structured, this rule will substantially disrupt the market for CLOs, a vital source of capital for mid-sized and emerging growth American companies that cannot cost-effectively access the corporate bond market. There are two negative impacts of this rule.
First of all, it will have a serious negative impact on banks, many small- and medium-sized community banks, and it is estimated that banks will have to divest or restructure up to $70 billion of CLO notes under this rule if unchanged.
Second, it will compromise credit availability for American companies that are beneficiaries of this innovative source of credit.
Today, CLOs hold approximately $350 billion of senior secured commercial and industrial loans to some of the most dynamic, job- producing companies in America. One of these companies, Tempur Sealy International, the world's largest manufacturer of mattresses, foundations, pillows, and other bedding products, is headquartered in my district.
So it seems to me that the medicine being prescribed by the Volcker rule, forcing banks to sell billions of dollars of CLO paper in a fire- sale scenario, and the loss of credit availability for a wide range of Main Street businesses, growing companies, job-producing employers would be a far more damaging result to jobs and the economy than the perceived disease, banks ever suffering losses from holding AAA CLO paper, which is fundamentally different and distinguishable from the mortgage-backed securities that led to the run-up to the financial crisis.
It is important to note what this bill does and what this title does, and what it does not do. It doesn't do away with the Volcker rule. If you listened to my colleagues on the other side of the aisle, you would think that we are totally doing away with the Volcker rule. That is not what this does. What it does is it grandfathers legacy CLOs and prevents a fire sale of these CLOs.
So without the adoption of this grandfather provision, the Volcker rule would effectively operate to make illegal certain investments that were perfectly legal and safe when they were made. In other words, the Volcker rule as currently written applies retroactively to CLOs, attaching legal consequences to investment decisions [[Page H348]] made by private parties who did not anticipate these consequences at the time the decision was made. Such retroactivity will profoundly and negatively disrupt the plans and settled expectations of CLO investors, and this will create turmoil in the commercial credit market and force banks to sell billions of existing CLO debt. As a result, the cost of financing will increase and access to credit will dry up, and this will reduce liquidity in America's capital markets.
Let me make a point here. Much has been said about Wall Street versus Main Street. This is about Main Street jobs. The U.S. Chamber of Commerce, the Independent Community Bankers Association, and the American Bankers Association all talk about how this will help. Our bill, our fix, will help community banks grow capital and support local economic development and job creation on Main Street.
The Bipartisan Policy Center says that forcing a select group of banks to sell these assets over a short time is not the optimal solution. Such an action would create an environment of institutions forced to sell, and buyers who can purchase CLOs at extraordinarily cheap prices, and this would create unnecessary losses at banks and produce windfall profits for those who can demand to buy them at below market rates.
The CLO provision represents a small and commonsense solution, not a rollback of Dodd-Frank by any means. It keeps the Volcker rule completely intact and simply provides phased-in compliance to banks of all sizes that made sound investment decisions, allowing for a finite universe of well-performing legacy CLOs to be sold or paid off.
The SPEAKER pro tempore. The time of the gentleman has expired.