THE DEREGULATION IMPACT, AND IN PARTICULAR DODD FRANK
One of the biggest job killers is over regulation. Whether it is for the purported purpose of environmental or consumer protection, climate change, or other beneficial end result, regulation drives up costs. It especially raises costs for small and medium-size businesses. This is because compliance costs typically can be absorbed better by bigger companies, because they can be spread out over a larger enterprise. For example, the Dodd-Frank financial regulations have not had a significant adverse impact on prime banks, such as Chase, Bank of America, or Citibank. However, they have had a devastating effect on Community Banks. Likewise, the increase in in regulation has not slowed the growth of the larger financial services companies, but has decimated the ranks of the smaller broker-dealers. This has led to a decrease in IPOs for smaller capitalization companies
A high level of governmental regulation also fosters monopolies, at the expense of startups or new entrants to the market. This is because large, existing companies have the financial resources to employ lobbyists to influence legislation. For example, the family tobacco act assigned early in the Obama Administration assigned many regulatory duties to the FDA with respect to tobacco, the regulations under that law favor, as you might expect, the e-cigarettes of Big Tobacco, while potentially ending the business model of startup vaping companies. For example, any new tobacco product introduced after passage of the bill must be approved by the FDA. The approval process is estimated to cost over $1 million per product.
Deregulation will, almost assuredly, have a huge impact on the ability of entrepreneurs to grow the companies and to obtain capital. If the deregulation is extended to the capital-raising process, this will lead to an even greater possibility of increase in the in the success of capital raising in the United States. Hopefully, this will lead to an explosion in successful IPOs and revivify the current public merger market.
Conversations with several smaller broker-dealers reflects this optimism.
