While there’s been a lot of hand-wringing about access to capital in securities markets as a result of regulation, the Securities and Exchange Commission (SEC) found those fears overblown.
That was the conclusion of a 315-page report by the SEC, which was delivered to Congress.
“DERA (Division of Economic and Risk Analysis) analysed primary issuance of debt, equity, and asset-backed securities (ABS). The total capital formation from the signing of the Dodd-Frank Act into law in 2010 through the end of 2016 is approximately $20.20 trillion, of which $8.8 trillion was raised through registered offerings, and $11.38 trillion was raised through unregistered offerings. We do not find that total primary market security issuance is lower after the enactment of the Dodd-Frank Act (including during the implementation of the Volcker Rule) and during the implementation of Basel III, and it may have increased around the implementation of the JOBS Act,” the report concluded.
While this report – which has been in the works since December 2015 – is not the final say on this issue; it is a blow to the Republicans, who have made the exact opposite argument.
Jeb Hensarling, the Texas Republican who chairs the House Financial Services Committee, has spoken in almost apocalyptic terms of the effects of the Volcker rule, especially on the corporate bond market.
The committee recently held a hearing suggesting that Sarbanes-Oxley, a law which increased reporting and auditing requirements for publicly traded companies, was making it harder for companies to go and stay public.
The committee recently passed the Improving Access to Capital Act which would reduce some of these burdens.
But this report concluded differently:
Evidence for the impact of regulatory reforms on market liquidity is mixed, with different measures of market liquidity showing different trends. Moreover, many of the observed changes in these measures are consistent with the combined impacts of several factors besides new rules and regulations, including, among others, electronification of markets, changes in macroeconomic conditions, and post-crisis changes in dealer risk preferences that pre-date the passage of either the Dodd-Frank Act or Basel III.
Dodd-Frank was sweeping legislation which transformed the rules for securities and banks, while Basel III set international standards for capital requirements for large banks.
Both have been criticized by Republicans as overreaching and constraining capital markets, while Democrats have championed both as common-sense responses to the excesses which led to the financial crisis in 2008.
An email to Sarah Rozier, public affairs officer for Jeb Hensarling, was left unreturned; the House Financial Services Committee did not issue a statement in response to the report.
Congress is currently in August recess.