Exclusive: Goldman Sachs leads small biz campaign against new bank rules
Goldman Sachs is embarking on a new advocacy campaign on behalf of small businesses, asking federal regulators to abandon a push for new banking rules that opponents argue will heap new pressures on Main Street.
Why it matters: Already, the small business sector and interest-rate-sensitive parts of the economy are crying uncle as rates hit their highest levels in at least a decade. That has chilled housing activity and crimped lending.
Driving the news: The Wall Street giant is throwing its weight behind a pressure campaign against Basel III Endgame (B3E), new capital rules for large and regional banks. They are likely to impact lending decisions in ways opposed by a growing number of banks.
- Goldman's 10,000 Small Business Voices is launching digital ads that demand the Fed "stop the squeeze" on small biz.
- According to Goldman, access to capital is a recurring problem for many of the small businesses they work with, particularly those with Black or Hispanic owners.
Bulge bracket banks have managed — and even profited from — rates perched at their highest in nearly 20 years. Yet smaller and regional banks — which handle much of Main Street's finances — have less fortified balance sheets, and are likely to respond to new rules by tightening credit.
- In theory, Basel III could make lending more restrictive, and make small-business cash problems more acute.
It's not just Goldman making noises about B3E: Ernst & Young says the proposals, scheduled to take effect in 2025, "represents a sea change for the U.S. banking industry, significantly altering the regulatory capital regime for U.S. banks."
- "The proposal would modify how the largest US banks think about regulatory capital, and extends more granular, rigorous requirements to US regional and mid-sized banks," the firm says.
- Advocacy groups also have come out strongly against the new rules, citing the impact on communities of color.
What they're saying: "Interest rates are higher now than any time over the last 22 years," said Gwen Jimmere, a Michigan businessman and an alumnus of Goldman Sachs 10,000 Small Businesses, who is featured in one of the digital ads.
- "The result is evident in survey findings showing small business owners are alarmed by the difficulty in accessing capital."
Zoom out: Soaring borrowing costs are having economic spillover effects, with Main Street increasingly feeling the pinch of conditions that haven't improved materially since the pandemic.
- A recent Bank of America small business survey found that while brisk consumer spending has helped support the sector, "higher interest rates and quality of labor have become more of a concern relative to a year ago."
- The National Federation of Independent Businesses — a leading advocacy group for small biz — found that sentiment in the sector is weighed by concerns about inflation, and increased costs and operational challenges.
The bottom line: "More of the capital that would otherwise be used for productive economic purposes such as loans to businesses or helping manage risk through derivatives will have to sit idly at banks," Bill Hulse, an SVP at the U.S. Chamber of Commerce, wrote in a June blog post about the new banking rules.
- "So, if you're an entrepreneur looking to start a new business or an existing business looking to obtain financing to expand, there will be fewer financing options, and at higher prices."