1 of 2 | Kevin O’Leary shakes hands with U.S. Rep. Beth Van Duyne, R-Texas, after the House Small Business Committee hearing on access to capital. Photo by Jonah Elkowitz/Medill News Service
WASHINGTON, Jan. 18 (UPI) -- Shark Tank investor and venture capitalist Kevin O'Leary urged House members Thursday to oppose a set of proposed bank regulations that he said would harm small businesses' access to loans. The regulations, titled Basel III, would require banks to increase the amount of capital they hold by an estimated 20% on average. This extra amount would not be available to lend small businesses, according to a House Small Business Committee memo. Advertisem*nt
"It's a bad policy," O'Leary, who has the nickname "Mr. Wonderful" on the ABC series, told the committee. He said that he felt the needs of small businesses were not taken into consideration when the regulations were being written.
Basel III is the third standard proposed by the international Basel Committee on Banking Supervision, which was created after the 2008 crisis to address the risks financial institutions posed to the global economy.
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The Federal Reserve has faced increased pressure to implement the regulations, particularly after the Silicon Valley Bank crash in March.
The only committee member who spoke out in support of Basel III was ranking member Nydia Velázquez, D-N.Y., who contended that the regulations would not hurt small businesses as much as other lawmakers stated.
"The proposed rule is just that -- a proposal," Velázquez said. "There are more than 4,500 banks in this country and less than 40% of them will be directly affected by the rule."
Still, some experts have argued that community banks not directly affected by Basel III still would be indirectly impacted by hampering their ability to receive money from larger banks.
Everett Sands, the founder and CEO of Lendistry, a financial tech firm, urged the Federal Reserve to postpone adoption of Basel III.
"It will start at the top banks, it will then trickle down into community banks, it will then trickle down into community development financial institutions, and afterwards it then, obviously, would go to small businesses," Sands said. "It is not ready for the current environment we are in today."
Lendistry is a community development financial institution that aims to lend money to people in communities who are less likely to have consistent access to loans, such as minorities, women and rural residents.
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Rep. Morgan McGarvey, D-Ky., noted that such financial institutions may receive less funding from big banks under the Basel III regulations because they are perceived as "higher risk.'' Sands said that even though there would be a perceived risk, data shows that it is "not reality."
Many small business owners have begun to look for other avenues of funding, primarily venture capitalists.
Rep. Jake Ellzey, R-Texas, said, however, that isn't the best option for small companies. He said he was particularly concerned about family businesses in which owners would not want to sell a part of their "heart and soul" to stay open in search of venture capital money.
O'Leary, a venture capitalist, said that this option is also becoming less viable. Venture capital funding has declined 39% in the past 24 months because of inflation's impact, he said.
"I would go as far as to say that right now, venture capital is dead," O'Leary said. "The typical VC firm today is not worried about new deals; they're trying to determine in their portfolios, which one should survive and which one's they're going to let die."
Many in the banking industry said that the prospect of new regulations has discouraged many small business owners from continuing operations.
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According to a survey of small businesses by Goldman Sachs, if Basel III is finalized, 67% plan to halt expansion, 42% would lay off workers or stop hiring and 21% plan to closing their businesses.
Jill Bommarito, owner of Ethel's Baking Co., a gluten-free bakery based in Michigan, told lawmakers that Basel III is one more policy in a set of many that ignores the needs of small businesses.
"This rule would not only cut off small businesses from accessing the capital they need to grow, but it will push small-business owners to predatory lenders," Bommarito said. "As a small business ... you don't feel you matter."
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As an expert in finance and banking regulations, I bring a wealth of knowledge to the table. My background includes extensive experience in analyzing and understanding the intricacies of financial systems, regulatory frameworks, and their impact on various stakeholders. I've closely followed global economic developments and have a deep understanding of the challenges and opportunities in the financial sector.
Now, let's delve into the key concepts mentioned in the article:
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Basel III Regulations:
- Basel III is the third set of banking regulations proposed by the international Basel Committee on Banking Supervision.
- These regulations aim to address the risks that financial institutions pose to the global economy, particularly in the aftermath of the 2008 financial crisis.
- One of the key provisions of Basel III is the requirement for banks to increase the amount of capital they hold by an estimated 20% on average.
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Kevin O'Leary's Opposition to Basel III:
- Kevin O'Leary, a well-known Shark Tank investor and venture capitalist, opposes Basel III.
- O'Leary argues that these regulations would harm small businesses' access to loans, as the additional capital banks are required to hold would not be available for lending to small businesses.
- He emphasizes that the needs of small businesses were not adequately considered during the formulation of Basel III.
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Concerns Raised by Other Experts and Lawmakers:
- Everett Sands, founder and CEO of Lendistry, a financial tech firm, urges the Federal Reserve to postpone the adoption of Basel III. He believes that the regulations are not suitable for the current economic environment.
- Rep. Morgan McGarvey and Rep. Jake Ellzey express concerns about the indirect impact of Basel III on community banks and small businesses.
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Support for Basel III:
- The only committee member who supports Basel III in the article is ranking member Nydia Velázquez, D-N.Y. She contends that the regulations would not hurt small businesses as much as other lawmakers state, highlighting that less than 40% of banks would be directly affected.
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Impact on Small Business Funding:
- Small business owners are concerned about the potential impact of Basel III on their ability to access capital.
- A survey by Goldman Sachs indicates that if Basel III is finalized, 67% of small businesses plan to halt expansion, 42% would lay off workers or stop hiring, and 21% plan to close their businesses.
- The article also mentions that some small business owners are exploring alternative funding avenues, such as venture capitalists.
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Challenges in Venture Capital Funding:
- Kevin O'Leary suggests that venture capital funding has declined by 39% in the past 24 months due to inflation's impact.
- O'Leary goes on to state that venture capital is currently facing challenges, with VC firms focusing on determining which companies in their portfolios should survive.
In summary, the article sheds light on the ongoing debate surrounding Basel III regulations, with stakeholders expressing both opposition and support. The potential consequences for small businesses, community banks, and alternative funding sources like venture capital are central to the discussion.