[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                          ENABLING SUCCESS: EXAMINING THE 
                     COMPETITIVE LANDSCAPE FOR SMALL BUSINESSES

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON ECONOMIC GROWTH, 
                            TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 13, 2023

                               __________
                               
                               
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               
            Small Business Committee Document Number 118-024
             Available via the GPO Website: www.govinfo.gov
             
                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
53-364                      WASHINGTON : 2024                    
          
-----------------------------------------------------------------------------------     
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                    ROGER WILLIAMS, Texas, Chairman
                      BLAINE LUETKEMEYER, Missouri
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                         BETH VAN DUYNE, Texas
                         MARIA SALAZAR, Florida
                          TRACEY MANN, Kansas
                           JAKE ELLZEY, Texas
                        MARC MOLINARO, New York
                         MARK ALFORD, Missouri
                           ELI CRANE, Arizona
                          AARON BEAN, Florida
                           WESLEY HUNT, Texas
                         NICK LALOTA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                          JARED GOLDEN, Maine
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                          GREG LANDSMAN, Ohio
                       MORGAN MCGARVEY, Kentucky
                  MARIE GLUESENKAMP PEREZ, Washington
                       HILLARY SCHOLTEN, Michigan
                        SHRI THANEDAR, Michigan
                          JUDY CHU, California
                         SHARICE DAVIDS, Kansas
                      CHRIS PAPPAS, New Hampshire

                  Ben Johnson, Majority Staff Director
                 Melissa Jung, Minority Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Dan Meuser..................................................     1
Hon. Greg Landsman...............................................     2

                               WITNESSES

James Chung, Franchisee, CEO, Jimmy John's, testifying on behalf 
  of the International Franchise Association.....................     4
Holly Wade, Executive Director of the NFIB Research Center, 
  National Federation of Independent Businesses, Washington, DC..     7
Kathryn Judge, Harvey J. Goldschmid Professor of Law, Columbia 
  Law School, New York, New York.................................     8

                                APPENDIX

Prepared Statements:
    James Chung, Franchisee, CEO, Jimmy John's, testifying on 
      behalf of the International Franchise Association..........    23
    Holly Wade, Executive Director of the NFIB Research Center, 
      National Federation of Independent Businesses, Washington, 
      DC.........................................................    32
    Kathryn Judge, Harvey J. Goldschmid Professor of Law, 
      Columbia Law School, New York, New York....................    37
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Engine.......................................................    44
    Goldman Sachs................................................    47
    National Association of Manufacturers........................    49
    NFIB Research Center Banking Survey..........................    53
    Small Business & Entrepreneurship Council....................    65
    U.S. Chamber of Commerce.....................................   119

 
                    ENABLING SUCCESS: EXAMINING THE 
               COMPETITIVE LANDSCAPE FOR SMALL BUSINESSES

                              ----------                              


                      TUESDAY, SEPTEMBER 13, 2023

              House of Representatives,    
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Dan Meuser 
[chairman of the Subcommittee] presiding.
    Present: Representatives Meuser, Williams, Alford, 
Landsman, and Davids.
    Chairman MEUSER. Well, good morning. I appreciate you all 
being here. The hearing this morning on Enabling Success: 
Examining the Competitive Landscape for Small Business will 
come to order.
    I greatly appreciate our witnesses for being here and 
making the trip. And certainly, good morning to everyone, my 
colleagues on both sides.
    So we will delve into today the critical issue of how 
regulatory decisions, particularly by the Federal Reserve, are 
impacting our nation's small businesses, which as we all know 
are the backbone of our communities and the strength of your 
economy. Small businesses are already navigating a maze of 
challenges, inflation, regulatory costs, access to capital to 
name just a few. And the last thing our small businesses need 
is additional roadblocks, particularly from institutions like 
the Fed that limit their access to capital and ability to 
succeed.
    Take for instance the important issue of interest 
deductibility. To address inflation brought on by excessively 
high levels of spending, the Fed has raised interest rates to a 
2 decade high and small businesses are capped at the relief 
that they can receive. The current cap on interest rates are 30 
percent of adjustable taxable income really unfairly penalizes 
small businesses that utilize large capital expenditures to 
grow their business and hire employees. This hampers domestic 
investment but also erodes the global competitiveness of U.S. 
businesses.
    The Joint Committee on Taxation estimate in its first year 
this change will have approximately $10 billion in fiscal cost 
for American businesses. Most developed businesses do not place 
such constraints on their companies. Putting this onto American 
entrepreneurs creates a disadvantage.
    The Federal Reserve also, despite its own data in the Beige 
Book and the Senior Loan Officer Opinion Survey is in the 
process of implementing stricter capital standards on banks 
known as the Basel III endgame proposal.
    Now, the proposal will require banks to keep more money on 
the sidelines where it will not be utilized to fulfill the 
lending needs of particularly small businesses. This move will 
exacerbate the already tightening capital access problem for 
small business. If banks have to hold back on lending due to 
these requirements, it is, again, small businesses that will 
suffer.
    So larger financial institutions may be able to mostly 
absorb these regulatory shocks; not so much for small business. 
What happens when a business needs to replace crucial equipment 
or repair damages urgently and cannot very simply access 
affordable capital.
    These are not theoretical concerns. They are real issues 
that can close the doors of our small businesses, impacting the 
lives and livelihoods of everyday Americans. Due to this 
proposal, banks will have less flexibility than ever and again, 
small businesses will receive the brunt of the lending 
pullback.
    We do have a duty on this Committee to address the problems 
facing small businesses. Simple measures like restoring the 
163J interest deductible and reconsidering the Basel III 
endgame can go a long way in ensuring we do not add to the 
problems.
    Despite the headwinds of inflation and turbulent economic 
landscape our small businesses are fighting to thrive. Let's 
not allow misguided proposals to tie their hands.
    I look forward to hearing the insights of our witnesses 
today on all of these topics.
    Before concluding my remarks I would like to enter into the 
record three separate surveys of small businesses conducted by 
the National Federation of Independent Businesses, otherwise 
known as FIB and NFIB, Goldman Sachs 10,000 Small Business 
Voices and the Small Business Entrepreneurship Council on 
detailing the difficulties of small businesses are facing 
accessing capital. Thank you.
    I now yield to our Ranking Member, Mr. Landsman.
    Mr. LANDSMAN. Thank you, Mr. Chair. Thank you all for being 
here. This is a very important hearing and discussion about 
helping our small businesses with the regulatory landscape but 
also as the Chair mentioned, some of the tax issues that our 
small businesses are dealing with. So I am echoing some of his 
remarks but, you know, over the last several years our small 
businesses have faced compounding crises from the initial COVID 
shock to the ongoing repercussions involving the labor market 
and supply chain issues, the competitive landscape for these 
businesses has been a whirlwind.
    Over the past 2 years, however, we have seen an 
unprecedented growth in small business startup activity. In 
2021 and 2022, over 10 million people filed applications to 
start new businesses, and small firms are almost entirely 
responsible for the strong labor market we see today. An 
economic landscape in which the only constant is change, it is 
our job as policymakers to give these firms some semblance of 
stability and certainty. By making policy decisions that allow 
small businesses to gain their footing, we can enable their 
success by creating the ability to plan long term and have 
confidence in their decision-making.
    Unfortunately, the policy environment is far from a sure 
thing. Right now we are facing several changes to tax policy 
that undermines small businesses' competitiveness and the 
potential for financial market instability as we saw with 
Silicon Valley and signature banks. To create more certainty, 
it is time to take stock and explore how we can stabilize this 
landscape for small business.
    Let me start by discussing the lending environment, and 
this is where I believe there is real bipartisan support. Over 
the last few years we have seen the quickest rise in interest 
rates in our nation's history to combat the ongoing issue of 
inflation. While this helped to stabilize prices, it has pushed 
the cost of capital for businesses out of reach for many of our 
small businesses. With the prime rate of over 8 percent, the 
small business loans rates upwards of 15 percent, the ability 
to deduct interest payments is more important than ever.
    Now, some of our small businesses are exempt from these 
deduction limitations but others are not and this is an area 
where Congress can act to make sure that interest payments are 
deductible for all of our small businesses. I am very eager to 
work with my colleagues to ensure that our small businesses 
have tax policies that reflect how they operate.
    Tax relief for businesses should also be paired with tax 
relief for workers and families. That is why I believe we 
should be expanding, extending the Child Tax Credit which 
managed to cut child poverty in half. Many of you saw that 
child poverty is up again because this has gone away. This 
makes a big difference for our small businesses as they look to 
attract and retain workers.
    It is crucial that we improve the resilience and stability 
of the financial system on behalf of small businesses. Doing so 
increases the competitive landscape of our main streets 
businesses and allows them to do what they do best, which is 
create jobs and invest in our local communities.
    I thank all the witnesses for joining us today and look 
forward to a very productive discussion.
    I yield back.
    Chairman MEUSER. Our first witness here with us today is 
Mr. James Chung. Pleasure to have you with us. Mr. Chung is a 
franchisee and CEO of Atlas, located in Pasadena, California. 
Mr. Chung began his franchising journey into the great 
Commonwealth of Pennsylvania, Pittsburgh. He now owns and 
operates 33 Jimmy John's across four states including a number 
of stores in Pittsburgh, Pennsylvania. In addition to serving 
as the CEO of Atlas, Mr. Chung was the CEO of Bacix, an 
administration organization that provides HR, payroll, 
financial services for franchises and professional 
organizations. He also currently serves on the Board of Nano 
Bank, among the fastest growing banks in the nation. Mr. Chung 
is a graduate of the University of Southern California where he 
earned a degree in economics. I am glad to see that is being 
put to good use. I was an economics major and wondered what I 
was going to do with it as well.
    Mr. CHUNG. Here we are.
    Chairman MEUSER. Here we are.
    Mr. Chung, thank you for joining us today, and we look 
forward to today's conversation.
    Our next witness with us today is Ms. Holly Wade. Ms. Wade 
is the executive director of the NFIB Research Center here in 
Washington, D.C. Ms. Wade has over 19 years of experience 
conducting research on the small business sector focusing on 
economic conditions, business operations, and public policy 
issues impacting small businesses. In addition to her role at 
the NFIB, Ms. Wade is a Member of the Board of Directors of the 
Global Interdependent Center and a former Member of the 
National Association for Business Economics where she is the 
current Co-Chair of the Small Business Roundtable. She is a 
frequent media spokesperson on the small business economy and 
related policy issues. Ms. Wade is a graduate of the University 
of Washington where she earned her Bachelor of Arts in 
Political Science and Sociology. Thank you, Ms. Wade for 
joining us today, and we look forward to your testimony.
    I now recognize my friend, the Ranking Member from Ohio, 
Mr. Landsman, to introduce our last witness.
    Mr. LANDSMAN. Thank you, Mr. Chair.
    Our last witness today is Professor Kathryn Judge. 
Professor judge is the Harvey J. Goldschmid Professor of Law at 
Columbia Law School. Her research on financial markets and 
regulation has been published in top law journals and she has 
won accolades from academic peers and from the industry. She 
served as a clerk for Judge Richard Posner and Supreme Court 
Justice Stephen Breyer. She is a graduate of Stanford Law and 
Wesleyan University. Last year she published the book Direct: 
The Rise of the Middle Man Economy and the Power of Going to 
the Source.
    Thank you, Professor Judge, and we look forward to hearing 
your testimony. I yield back.
    Chairman MEUSER. Thank you. The gentleman yields.
    And we have some esteemed witnesses. So we appreciate it 
and we want to get right to it.
    Before we begin, I would like to remind you all that your 
oral testimony is restricted to 5 minutes. If you see the light 
turn red in front of you it means your 5 minutes have concluded 
and you should wrap up your testimony so I do not have to rap 
this too hard.
    We now recognize Mr. Chung for your 5 minute opening 
remarks.

STATEMENTS OF JAMES CHUNG, FRANCHISEE, CEO, ATLAS; HOLLY WADE, 
   EXECUTIVE DIRECTOR OF THE NFIB RESEARCH CENTER, NATIONAL 
 FEDERATION OF INDEPENDENT BUSINESS; KATHRYN JUDGE, HARVEY J. 
        GOLDSCHMID PROFESSOR OF LAW, COLUMBIA LAW SCHOOL

                    STATEMENT OF JAMES CHUNG

    Mr. CHUNG. Thank you, Chairman.
    Chairman Meuser, Ranking Member Landsman, and Members of 
the Subcommittee, thank you for the opportunity to appear 
before you today to share my perspective on the competitive 
landscape for small businesses in America.
    I appear before you on behalf of myself and International 
Franchise Association, otherwise known as the IFA. The IFA 
comprised of franchise companies in over 300 different 
industries who support nearly 8.4 million direct jobs. I have 
experienced firsthand the remarkable impact that a franchise 
business can have on local economies and communities, including 
job creation, workforce development, and economic growth.
    While attending the University of Southern California, I 
was expected to continue my family's medical legacy and study 
medicine. However, I made the decision to break from my family 
tradition and chase my entrepreneurial dreams. Lacking support 
and business knowledge, I decided to pursue a venture that 
would allow me to develop a business within an already thriving 
brand. Therefore, I created a business plan that redefined how 
wireless carriers, such as T-Mobile and their retail partners 
supported one another.
    Through the program, I was able to develop T-Mobile retail 
locations throughout California. Once I hit my 10-year 
anniversary in 2018, I made the tough decision to exit wireless 
retail. I enjoyed and flourished in an environment where I was 
in business for myself, but not by myself, and it gave me the 
skills necessary to build my confidence.
    After T-Mobile, I made the decision to invest in Jimmy 
John's, another well-known brand that built a reputation for 
their tenacious culture, fresh baked bread, and delicious 
sandwiches. Jimmy John's informed me they needed more stores in 
Pittsburgh, and although I knew nothing about the market, or 
food for that matter, I was confident that I could make it 
happen with the support of the franchise. To further my 
chances, I partnered with a mentor of mine, Tony Gressak. His 
experience as the VP of Cheesecake Factory Bakery and a Vietnam 
vet would prove to be invaluable.
    After receiving my first SBA loan, I signed up to open a 
Jimmy John's in Pittsburgh. My team and I hit the ground 
running and before we knew it we had opened four more in 
Pittsburgh and earned the rights to open 24 more in California.
    Unfortunately, the stores in California opened producing 
half of the sales we expected. We bared down, close 
underperforming stores while acquiring cash-flowing franchisees 
in other states and started to turn the corner.
    The day we became profitable, shelter in place mandates 
were announced. I was sure this was the end. But thankfully, 
our government had the foresight and grace to provide programs 
that restaurants relied upon to make it through the numerous 
COVID shutdowns and restrictions. Because of the grit of my 
team and their devotion to our vision, we are now on the path 
to owning and operating 100 Jimmy John's across six states that 
would employ more than 2,000 employees.
    Entrepreneurs cannot leave their teetering businesses to 
engage and participate consistently in regulatory and political 
matters. However, the current political climate is making it 
too difficult, litigious, and expensive to operate. I am deeply 
concerned that the American dream is being threatened by the 
current political landscape.
    One headwind is an aspect of tax policy. The limitation on 
the deductibility of interest imposed by the expiration of a 
provision in the Tax Cuts and Jobs Act hinders small business 
growth, and at the beginning of last year it got worse. Prio to 
January 1, 2022, business interest expense deductions were 
limited by Section 163J to 30 percent of their earnings before 
interest, tax, depreciation, amortization, otherwise known as 
EBITDA. Interest deductions are now limited to 30 percent of 
earnings before interest and tax, otherwise known as EBIT, a 
much stricter limitation, especially for businesses with a lot 
of depreciable equipment such as restaurants. This change, 
combined with rising interest rates, is proving to make 
incremental investments by small businesses much more 
expensive. On average, a restaurant affected by change could 
see a threefold increase in its incremental tax burden facing 
both higher interest rates and higher tax rates.
    Restaurants famously offer entry level jobs with high upper 
mobility. In fact, one in three Americans begin their jobs or 
their careers in a restaurant. Most of my managers and district 
managers started as simple delivery drivers.
    The EBITDA based interest limitation would allow us to keep 
creating jobs and open this opportunity for countless more 
Americans.
    I am consistently hearing from franchisees who want to 
delay restaurant openings because of the cost of funds. This is 
hurting job creation in America.
    Fortunately, there is a bipartisan legislation, H.R. 2788, 
to permanently preserve the EBITDA standard and ensure that the 
Tax Code does not penalize job creating investments. In 
addition, H.R. 3398, the Build It in America Act includes 
retroactive extensions through 2025, and was approved by the 
Ways and Means Committee earlier this year.
    I would urge Congress to take either of these approaches to 
address this critical issue as soon as possible but certainly 
before the end of 2023.
    Finally, I would like to highlight an issue that has 
potential to completely dismantle the franchise business model. 
Any day now, the NLRB is planning to issue the final rule on 
joint employer standard that would reverse its course back to 
the harmful 2015 version. This rule will take away the equity 
and independence of franchise small business owners and will 
put their success and livelihoods, including mine, in jeopardy. 
Franchisers will move to hire numerous attorneys to oversee 
employment issues across the network of independently owned 
franchises where the franchisor has no control. Ultimately, the 
additional cost to the franchisor will translate into 
additional cost to independent owners like me.
    Additionally, the increased scrutiny by the franchisor 
would put into question accountability regarding the success of 
the franchise which would make the franchise model untenable.
    Mr. Chairman, thank you for your invitation to speak on 
behalf of small business owners everywhere. I look forward to 
any questions you may have. Thank you.
    Chairman MEUSER. Thank you, Mr. Chung. I provided some 
leeway so I will do the same for our other witness.
    Yeah, Washington time tends to be extended. California time 
I understand might be as well but we are going to try to stay 
within the limits.
    Mr. CHUNG. Thank you, Chairman.
    Chairman MEUSER. Ms. Holly Wade, your testimony, please. 
Thank you.

                    STATEMENT OF HOLLY WADE

    Ms. WADE. Good morning, Chairman Meuser, Ranking Member 
Landsman, and Members of the Subcommittee. My name is Holly 
Wade. I am the executive director of the NFIB Research Center.
    NFIB is the nation's leading small business advocacy 
organization, advocating on behalf of nearly 300,000 small 
business owner Members in Washington, D.C., and all 50 states. 
NFIB's mission is to promote and protect the right of our 
Members to own, operate, and grow their business.
    Small businesses appreciate the invitation to discuss 
opportunities for Congress to create an environment for small 
businesses to grow and flourish. Small businesses continue to 
face economic headwinds, including stubbornly high inflation, 
supply chain disruptions, and pervasive workforce shortages. 
These headwinds all affect the competitive landscape for small 
businesses.
    Small business owners' ability to grow and successfully 
operate their business are also constrained by unprecedented 
growth of burdensome regulations and red tape under the 
administration and the looming expiration of the 20 percent 
Small Business Deduction (also known as Section 199A) at the 
end of 2025.
    Small businesses face many challenges. Many of these 
challenges are familiar to small business owners but others are 
quite new, namely inflation and rising interest rates. NFIB 
Research Center's August Banking Survey found that the cost of 
credit is small business owners' biggest financial concern. 
According to the survey, small businesses' access to credit is 
currently not a major problem, which is consistent with the 
findings of NFIB's monthly Small Business Economic Trends 
Survey. The Banking Survey found most small business owners are 
generally satisfied with their ability to borrow, however, 
increased cost of financing is a problem. In fact, 58 percent 
of those owners accessing credit in the last 3 months reported 
interest rates a significant issue.
    The increasing cost of financing associated with high 
interest rates is a growing concern for many small business 
owners. If interest rate costs continue to increase, more small 
business owners will be priced out of traditional financing 
options.
    Unfortunately, small businesses face many other significant 
economic headwinds in addition to rising interest rates. One of 
the biggest concerns for small businesses is the expiration of 
the 20 percent Small Business Deduction (Section 199A) at the 
end of 2025. Without Congressional action, millions of small 
businesses across the country face a massive tax increase. This 
looming tax increase threatens the ability of small business 
owners to plan and grow operations, as nearly half of small 
business owners (48 percent) reported the uncertainty of 
expiring tax provisions is impacting their current or future 
business plans.
    It will also reduce their primary source of financing, 
business earnings. Small business owners' primary source of 
financing for their business are profits, and a tax increase 
will directly impact that source at a time when access to 
credit is more costly.
    Additionally, the historic regulatory burdens and red tape 
of the administration are another significant problem facing 
small businesses. Since 2021, the Biden administration has 
imposed more than $403 billion in regulatory costs and added 
more than 233 million hours in paperwork burdens for 
businesses. These unprecedented burdens are crushing small 
businesses and there does not appear to be a regulatory 
slowdown in sight. Regulations are not only costly but require 
small business owners to allocate valuable time of themselves 
and often their employees to understand and implement the 
regulations.
    On January 1, 2024, one of the most expansive small 
business regulations in history will go into effect. This 
substantial new reporting requirement, known as beneficial 
ownership information reporting, will affect 32.6 million small 
business owners in the first year and 5 to 6 million small 
businesses each year thereafter. The cost of this regulation is 
a staggering $22.7 billion in the first year, and $5.6 billion 
per year moving forward. Failure to file completed and updated 
reports could result in civil penalties up to $10,000 and 
criminal penalties of up to 2 years in prison. In total, this 
burdensome regulation smothers the smallest small businesses in 
America with more than $73 billion in compliance costs, and it 
only applies to small businesses with 20 or fewer employees and 
$5 million or less in annual revenue.
    Small businesses need certainty to successfully invest, 
grow, and operate their business. Congress can help mitigate 
the many economic challenges facing small businesses by 
providing relief from burdensome regulations and eliminating 
the threat of tax increases.
    I appreciate your time and attention to these concerns, and 
thank you for the opportunity to testify today.
    Chairman MEUSER. Thank you, Ms. Wade. We appreciate your 
testimony very much.
    Now, Ms. Kathryn Judge for your testimony. Thank you for 
your opening statement.

                   STATEMENT OF KATHRYN JUDGE

    Ms. JUDGE. Thank you, Chairman Meuser, Ranking Member 
Landsman, Members of the Subcommittee. It is a great pleasure 
to be here today to be able to address two topics that are 
close to my heart. One is how to build a healthy banking system 
that is capable of supporting businesses in good times and bad. 
And second, how to make sure small businesses have access to 
the financing they need to survive and thrive. I am going to 
focus my opening remarks on three key points.
    First, the proposal known as Basel III endgame reforms are 
an important step in efforts to promote a more resilient 
banking system and a healthier economy.
    Two, the proposed reforms should enhance the ability of 
small businesses to access financing during periods of distress 
when they often most need it, while likely having limited 
adverse effect on their ability to access capital at other 
times.
    And three, small businesses do face very real challenges, 
including with respect to their ability to access outside 
financing on reasonable terms and more can and should be done 
to help in that regard.
    First, I will do Basel II endgame. What we are really 
talking about here is a host of different reforms that are 
largely designed to enhance the accuracy and transparency with 
respect to how the largest and most complex banks in the 
country calculate their risk exposures for regulatory purposes.
    For example, the reforms introduce more standardization and 
reduce the ability of banks to rely on internal models for 
assessing risk. Sheila Behr, Republican Chair of the FDIC 
during the 2008 financial crisis recently explained in a 
Financial Times piece supporting the reforms. The so-called 
internal ratings based system failed spectacularly during the 
2008 financial crisis. This is just one of many different ways 
that the proposed reforms are efforts to learn the lessons of 
the past and build a more resilient system.
    Second, the proposed reforms are not intentioned with a 
very important aim of helping small businesses. First, we can 
see this by looking at where the reforms actually have bite. 
The great majority of the reforms are really focused on the 
largest, most complex banking organizations. By contrast, they 
will have no impact on community banks. And this matters 
because traditionally it is the smaller community banks that 
have done the best job really helping to support small 
businesses. We can look at the Federal Reserve surveys and our 
resources and we know small businesses still say they have a 
better experience when they are borrowing from a smaller bank, 
and they have a higher likelihood of actually getting at least 
some of the financing they need, whether it is a loan or credit 
line when they are going to a small bank as opposed to a large 
bank. And again, the community banks that are the vital 
lifeline for credit for small businesses are not going to be at 
all affected by these reforms.
    Just as importantly, the proposed reforms could actually 
really help small businesses. Research shows that one of the 
most important impacts of having a better capitalized banking 
system is that banks remain more willing and more able to lend 
after a financial crisis. And this is doubly helpful for small 
businesses.
    First, it is great news for small businesses because it 
means they are more likely to be able to access credit after a 
crisis sets in when they most need credit and it is otherwise 
hardest to obtain.
    But second, the research also shows that you have a 
significantly shorter and shallower recession. And actually 
great research by the NFIB really looked at what small 
businesses, how much they struggled after 2008. And if you look 
like years after that, there was research from 2012 showing 
that the uncertainty and the lingering effects of the recession 
continued to adversely impact small businesses, and it is going 
to make those types of deep recessions after crises less 
likely.
    Third, the title of the hearing captures exactly what is 
needed: enabling success, examining the competitive landscape 
for small businesses. Right now small businesses do not face a 
level playing field. They have a harder time accessing 
financing. They have to pay more for that financing. And they 
face a host of disadvantages in other ways as well.
    And again, there are two different ways to try to help this 
out. One, you level the playing field from the top down. So you 
use the full suite of tools that are available, that Congress 
has given to regulators through competition policy to try to 
make sure that the largest companies are not abusing the power 
that they have.
    But second, we can also think about really innovative ways 
to try to from the bottom up address some of the frictions and 
the challenges that small businesses face. And again here, a 
lot of those opportunities lie in helping to support that nexus 
between small businesses and small banks that often have 
received the most relationship lending. They did a good job 
with things like the Paycheck Protection Program, which my 
fellow witness referred to as a really critical component of 
how Congress really helped small businesses get through the 
challenges of the pandemic, so I would love to see Congress do 
more in those regards. There are a lot of opportunities that 
exist, but allowing the largest, most complex banks to game the 
system and not have regulations that adequately reflect the 
risk that they pose the entire economy is not going to be the 
best way of achieving that aim.
    Chairman MEUSER. Thank you, Ms. Judge, very much.
    Before we begin our questioning from our Members I will now 
recognize the Chairman of the Full Committee, Mr. Roger 
Williams from Texas, for his opening statement.
    Thank you, Chairman Williams for participating with us 
today.
    Mr. WILLIAMS. Thank you. And good morning.
    I would like to start off by thanking Chairman Meuser for 
holding this hearing and thank all of you for the witnesses for 
being here today.
    I am a franchisee holder. I am a car dealer in Texas and 
small business owner.
    There is no doubt small businesses are the backbone of our 
communities and the engines of our economy. Entrepreneurs have 
faced many challenges over the past few years from labor 
shortages to crippling inflation, yet still prevail while our 
nation's job creators have faced and overcome countless hurdles 
as the Committee has heard prior, access to capital has 
remained a top concern for small business owners.
    In order for a business to get off the ground, small 
businesses must invest their time and financial resources. This 
means taking out a loan and accruing interest. Currently, 
interest deductibility is capped and this cap may very well 
impact the number of investments a company decides to make.
    To make matters worse, in the current state of our economy 
we are raising interest rates at record rates, at record 
numbers. With access to capital being the top issue for our 
nation's small business owners, the introduction of the new 
Basel III rule would be disastrous for our primary job 
creators, and if implemented, this rule would make it more 
costly to give out small business loans.
    So despite tough times right now, small businesses are 
still finding ways to thrive because that is what we do, just 
as they always do and can. This Committee is focused on making 
sure our nation's small businesses have a fighting chance at 
success, and I am glad we are going to be looking at these 
issues today.
    So lastly, I ask unanimous consent to submit a letter for 
the record from the National Association of Manufacturers, 
regarding interest deductibility.
    So thank you again to Chairman Meuser, and I yield back.
    Chairman MEUSER. The Chairman yields back. Thank you, 
again, very, very much.
    And now we will move to Member questions under the 5-minute 
rule. And I recognize myself for 5 minutes.
    So we have got some interesting views, some interesting 
experiences. We hope to all benefit by that.
    Mr. Chung, I would like to begin with you. You offered a 
lot of information there. I think your story is not atypical of 
a small business and growth and setbacks and whether it is 
mistakes or not there are setbacks and I know that very well 
from my 20-plus years in small business and perhaps into the 
larger business world.
    So let's just talk a little bit about some of the 
challenges; right? I mean, Goldman Sachs, 10,000 Small 
Businesses Voices put out that 70 percent of small businesses 
have difficulty accessing capital. Of course, NFIB offers the 
same. States that only 19 percent of small businesses have 
adequate access to capital. The concern of the lack of 
predictability in taxes moving forward, i.e., costs on small 
business is a concern from 20 percent small business deduction 
to R&D to the interest deduction to the bonus depreciation. So 
the list goes on of what changes could occur and the type of 
preparation. Small businesses. And we need to address that. 
Where are the small business advocates here in the U.S. 
Congress? And we need to act vigorously in that way for you.
    So that on top of the regulations that you mentioned, Ms. 
Wade.
    So Mr. Chung, those lack of certainty, the challenges, the 
interest deductibility, access to capital, expand a little bit 
further. What are the things that are of concern to you that 
can be the difference between your growth, more employment, 
being built to last, and survival?
    Mr. CHUNG. Thank you for the question, Chairman.
    I think you guys hit it on the head. The first thing is 
predictability. We are in an everchanging environment where 
when we go to work with a bank when they are underwriting any 
requests for access to capital, the unpredictability causes or 
makes it difficult for the bank to consistently underwrite our 
business.
    In terms of specifically what we are discussing today in 
regards to the deductibility with interest rates, it would 
further reduce ultimately cashflow, for any type of cashflow 
analysis for underwriting.
    Another issue that came to mind as one of my fellow 
witnesses was discussing some of the programs that were rolled 
out during COVID is also the EIDL loans. A lot of these small 
businesses have EIDL loans sitting on their balance sheets as 
well. These EIDL loans are taken into consideration by the 
banks and are becoming difficult for these businesses (1) to 
pay off, and also to reach or to access additional capital due 
to the balance sheets holding these EIDL loans.
    Chairman MEUSER. Thank you.
    Mr. CHUNG. I yield back.
    Chairman MEUSER. Yeah, I appreciate that.
    So NFIB, of course, you mentioned, Ms. Wade, a number of 
concerns. Is access to capital something that comes up often? 
And as well, I would like to just ask you both and get to Ms. 
Judge as well. When you are dealing with these costs, when you 
are dealing with this lack of predictability, when you are 
dealing with the inability to invest more in capital 
investments so you can grow your business, your profitability 
will decrease due to the added costs and such and the lack of 
growth. Revenues will be mixed. Your margins will be squeezed. 
But also your tax revenues are squeezed. It is one thing that I 
think government does not recognize enough. Are you finding 
that your sales might be going up but your margins are tighter?
    Mr. CHUNG. Margins are definitely tighter for a multitude 
of reasons. You know, our businesses right now are in a vice. 
We are facing actually a multifront battle. One is the tax 
increases that we are facing. Two is the deductibility we are 
facing. Three is, well, ultimately the rising cost of funds. 
And four is the rising cost of labor. So we are fighting a 
multifront battle right now and we are trying to find ground 
that we can win on. And it has been very difficult.
    Chairman MEUSER. I want to address one thing with Ms. 
Judge. It was interesting how you related to the Basel III. 
Now, our concern is that the number of small businesses seeking 
loans from the larger banks, over $100 billion that would be 
affected by the Basel III will overflow into the smaller banks 
because there simply is not enough capital to go around, if you 
will, and creating more competition perhaps for the banks but a 
more challenging market for the small businesses, and as well 
at higher costs. So that will happen. So yes, it might benefit 
actually in the short-term the community banks but it will not 
in my view anyway, and you can respond to that afterwards, I am 
over my time, create the type of environment for access to 
capital that we want for small businesses.
    And by the way, after the '08 financial collapse, capital 
requirements were raised significantly at that time. Basel III 
is asking for as much as a 20 percent increase, 19 percent to 
be exact. That is excessive. I yield back.
    And I now recognize the Ranking Member for 5 minutes for 
his questions.
    Mr. LANDSMAN. Thank you, Mr. Chair.
    So let's stay with you, Ms. Judge. Many opponents of the 
financial regulation blame greater regulation for the continued 
consolidation of the banking sector. We talked a little bit 
about this already. Can you discuss how deregulation has 
created this wave of mergers that have taken place and taken 
over much of the community banking? This is really a question 
about consolidation and the impact it is having on lending and 
what can be done to revitalize community banking that 
encourages more small business lending?
    Ms. JUDGE. It is precisely the right question to ask. And 
we have seen an incredible wave of consolidation that has now 
been in place for over 40 years. We went from having more than 
16,000 community-oriented financial institutions that were 
really focused on serving businesses and families in their 
communities, to having massive consolidation. So we have now 
fewer than 4,000 community banks depending on how you are 
measuring. And more importantly, a disproportionate share of 
the banking assets are really held in the top four or top six 
banks depending on how you look at it that engage in a whole 
variety of different activities, many of which have little to 
do with lending or supporting even the domestic economy. And so 
the core question going forward is how do we make sure we 
continue to have a robust community banking system?
    And so when we look historically, actually, the highest 
rate of consolidation was during the late 1980s and really 
throughout the 1990s where we had a significant period of 
deregulation. The last couple of years where there was an 
effort to build in a more robust system we actually saw a much 
slower rate of consolidation among the banks and kind of more 
viability for the community banks.
    So the question gets at the core issue which is what does 
the structure of the banking system look like? And what does 
that tell us about who they are really going to serve? And it 
was actually during the periods of deregulation that we saw 
changes in the structure that reduced the orientation to really 
serving the needs of small businesses and communities.
    Mr. LANDSMAN. You mentioned that at one point it 16,000 
institutions, banks, now four. So is it fair to say that the 
consolidation has, you know, reduced the number of lenders by, 
what is that, I mean----
    Ms. JUDGE. Yeah. They were shrinking and they were growing 
at the same time because we did have a new entry for a while 
and we have had more credit unions. But it has reduced it by a 
massive fraction. And again, it has also changed dramatically 
the composition of the banks that are in the market.
    Mr. LANDSMAN. Then this gets at the Chairman's question. 
The smaller banks, as you mentioned, provide the bulk of 
lending to small businesses in their area. And there is 
concerned that the new proposed regulation may impact these 
small banks. Can you explain how this proposed regulation will 
have a limited impact on small banks? You talked a little bit 
about it in your testimony but if you can expand a little bit 
more.
    Ms. JUDGE. Of course. So the regulations really only kick 
in for banks that have at least $100 billion in assets and 
their insured subsidiaries. The only exception to that is for 
slightly smaller banks that engage in a lot of trading 
activity. So it is not the banks that are actually focused on 
lending; it is the banks that are focused on trading that might 
be caught that are slightly smaller. And disproportionately, 
the real impact is going to be found among the most global and 
systematically important institutions. And again, they do 
provide important services and it is not going to stop them 
from being able to provide loans to small businesses, loans to 
businesses of all size. But instead it is going to recalibrate, 
for example, how their GSIB surcharge, the surcharge they face 
because of the threat they pose to the rest of the economy gets 
calculated in ways that better calibrate the risks that they 
are actually posing.
    Mr. LANDSMAN. So as I understand it, this will, or at least 
your testimony is that the regulations will probably increase 
the lending done by these community banks. I mean, more and 
more folks are going to look to community banks for loans. What 
will that do to the cost of capital. I am just trying to get at 
the Chairman's question.
    Ms. JUDGE. Yeah. So getting to the Chairman's question, I 
think one of the ways we can try to get at it is, well, let's 
look at what happened the last time we really increased capital 
requirements. As the Chairman accurately noted, we really did 
increase capital requirements after 2007 and 2008. We realized 
they had been too low. So if you look at some of the key years, 
the 2013 through the 2016-2017 period which is when the post 
Dodd-Frank reforms were actually implemented and where you look 
statistically bank capital levels were actually going out, if 
you look at my written comments, a couple of economist have 
done a really nice job of saying, well, what actually happened 
to credit access during that period of time? Credit access 
remained robust and the banking system played more of a role in 
providing that credit.
    Mr. LANDSMAN. Thank you.
    I yield back.
    Chairman MEUSER. Okay. The gentleman yields back.
    I now recognize the Chairman of the Full Committee, Mr. 
Williams, from the Great State of Texas, for 5 minutes of 
questions.
    Mr. WILLIAMS. Thank you, Mr. Chairman.
    As we have discussed at length today, earlier this year the 
Federal Reserve unveiled the Basel III proposal that changes 
capital requirements for financial institutions. These proposed 
changes will dramatically affect the banking community, and 
there is concern that the revisions will have broad impacts on 
small businesses' ability to access reliable credit and 
increase overall borrowing costs.
    So small businesses that rely heavily on loans and credit 
lines from the banks of all sizes in order to sustain and 
expand their operations. Implementing additional regulatory 
capital requirements will slow economic growth and ``hinder 
financial institutions'' ability to lend and quite frankly make 
it easier maybe on banks not to make loans as to make loans.
    So Ms. Wade, how will lending access to capital affect the 
small business community?
    Ms. WADE. Certainly. So small businesses rely on the 
flexibility, a ``one size fits all'' regulation or regulatory 
environment. It also includes the banking industry. Well, 
certainly it impacts small firms' ability to access credit.
    One of the areas of concern is also the added paperwork 
burden and the process by which they are applying for credit 
and that the process is being lengthened, the amount of 
paperwork being required is increasing, and all of this affects 
small business owners' ability to access credit.
    Mr. WILLIAMS. No question. They find themselves hiring more 
compliance officers than officers to do business.
    Now, when businesses get to keep more of their hard-earned 
money they reinvest it into their business, employees, and the 
broader community. Excessive taxation prevents all the positive 
things from happening.
    The interest deductibility tax provision is a perfect 
example of making it harder for business owners to make 
strategic decisions when they are forced to treat interest as a 
business expense.
    So Mr. Chung, can you talk about some of the things that 
you have been able to do for your employees or with the 
strategic investments when you were able to keep more of your 
profits instead of sending them to Washinton in taxes never to 
be seen again?
    Mr. CHUNG. Sure. And thank you for the question.
    One of my mantras is ``People over profits.'' And my team 
knows that. And so the profits that we generate in the company, 
we reinvest within the team and within the business.
    One of the programs we are currently evaluating right now 
is an EAP program which will give our staff access to mental 
health programs. However, one thing we have to take into 
consideration or the reason we have not rolled out the program 
as of yet is simply because of the uncertainty with the tax 
provisions that are under discussion today.
    Mr. WILLIAMS. Okay. The government does not understand if 
we make money we do not save money; we spend money. And that is 
why we need this.
    As a small business owner for over 52 years I can tell you 
that the Biden administration is completely out of touch with 
Main Street America. Inflation is at a record high. Supply 
chain disruptions leaving stores helves empty. Worker shortages 
that are hindering business operations, and the constant threat 
of tax hikes coming from democrats in Washington have business 
owners concerned that they will not be able to compete in the 
future.
    So yet this administration, the Biden administration, 
continues to create new and unnecessary regulations which 
overwhelm businesses with more red tape and administrative 
burdens. We cannot except small business owners whose resources 
are already stretched thin to handle increased costs and 
manhours that have come with increased regulations and 
businesses are already working within tight margins and 
compliance costs can be their tipping point.
    So Ms. Wade, while we have time left, how have NFIB Members 
been dealing with the massive web of new regulations coming out 
of the Biden administration?
    Ms. WADE. Certainly. It has been a huge challenge for small 
business owners to navigate the new regulatory system that they 
are required to comply with. And a lot of this is the time that 
is required for the owner but also their employees. And 
oftentimes, their most valuable employees to divert time into 
figuring out how to comply and what they need to do to adjust 
business operation. And time is one of the most valuable 
resources of a small business owner and it is very limited 
these days, especially in light of the labor shortage that many 
are having to deal with.
    So the regulatory environment, it is costly in a number of 
ways. The dollar amount but also the time that is devoted 
towards compliance and understanding what they need to do.
    Mr. WILLIAMS. Well, the fact of the matter is--let the 
competition work and let the consumer drive it, not the federal 
government.
    So I appreciate you being here. And with that I yield back.
    Chairman MEUSER. The Chairman of the Full Committee yields 
back.
    I now recognize Representative Davids from Kansas for 5 
minutes.
    Ms. DAVIDS. Thank you, Chairman Meuser. And thank you to 
you and to Ranking Member Landsman for holding the hearing 
today.
    Tax and capital access policy absolutely have a major 
impact not just on small business owners' ability to make money 
but their ability to hire, upgrade their company, and enhance 
their products as well.
    As financial regulations change and provisions from the Tax 
Cuts and Jobs Act expire it is definitely important for our 
community to understand how the nation's small businesses are 
going to be impacted. It is also important that we do that in a 
bipartisan way to continue supporting the financial stability 
of these small businesses.
    I have met with a lot of small businesses, with Chambers of 
Commerce, and others in the greater Kansas City Metro area 
which is where the Kansas 3rd District is. And certainly I have 
heard a lot about the uncertain tax landscape facing many 
business owners right now. Some of the provisions that would 
specifically have a significant impact on main street companies 
include, we have heard a bit about it already today, the 
decrease in the accelerated deduction rate for major purchases, 
how the adjusted taxable income is calculated, and then also 
changes that small businesses are going to be facing with the 
deduction of research and development expenses.
    So there have been a number of us working on this. I have 
been working with my Republican colleagues, particularly Tracy 
Mann, who sits on this Committee as well, who serves on the 
Small Business Committee as a whole, to try to figure out how 
we can help address some of these uncertainties. And I know 
small businesses are out there trying to figure out ways to get 
capital, to hire new folks, and you know, some of what you guys 
have been saying has really been resonating today.
    So I wanted to ask a question of everyone. I am curious 
what effects specifically we can expect for small businesses 
when it comes to the tax provisions from the Tax Cuts and Jobs 
Act that are about to expire.
    Mr. Chung, I would very much like to hear from you first 
about what specifically you are anticipating with those 
expirations.
    Mr. CHUNG. Thank you for the question.
    To be clear, you are asking in terms of our strategic 
growth what are we anticipating or what are we forecasting?
    Ms. DAVIDS. Yeah. And I think specifically when we think 
about some of the Tax Cuts and Jobs Act provisions that are 
going to expire, what does that impact look like to you and how 
are you anticipating navigating that if Congress is unable to 
address that?
    Mr. CHUNG. Sure. Well, I will put it in real-world 
decisions. And real-world decisions would be simply we were 
looking to build 30 more stores over the next 5 years. We have 
now trimmed that down to five stores. And that is going to be 
spread over 5 years until we understand what the landscape 
looks like, which ultimately is a difference in about 500 jobs.
    As I was explaining to another Member of the Committee as 
well, we will also be looking at when and how we roll out 
various programs for our employees, such as the EAP program. 
Because of the constraints with budgets we will probably push 
that back until we have some definition hereinto.
    With that I yield back.
    Ms. DAVIDS. Thank you.
    Ms. Wade, do you have----
    Ms. WADE. Yeah. So one of the biggest factors again is 
their primary source of financing and reinvesting in their 
business's profits. And so a huge tax hike for many small 
business owners when this, if it expires, it will impact their 
ability to grow their business and use those dollars to finance 
their business.
    One of the areas that I also think is going to be really 
important are a lot of, especially the smaller businesses are 
not going to be aware of the expiration and this huge tax hike 
that they are going to have to absorb. And so it will be a 
shock for them to have a larger tax liability at the end of the 
year that they were not anticipating. So the uncertainty 
element I think is very critical in understanding how this is 
going to impact small firms and their inability to plan going 
forward. But it will certainly limit their ability to invest in 
their business.
    Ms. DAVIDS. Thank you.
    I am short on time so I will yield back. Thank you, 
Chairman.
    Chairman MEUSER. Thank you, Representative Davids, very 
much for your questions. And thanks again to our testifiers.
    I now recognize the fact that we are going to--what I think 
we are going to do is pursuant to Committee rules, we are going 
to do a second round for those who would like to participate at 
any length of time under 5 minutes.
    So to our Members, if you have one or two questions or if 
you want to utilize your entirety of your 5 minutes, you are 
free to do so.
    I will start with myself. And I will recognize myself for 5 
minutes.
    So Mr. Chung, I want to come back to you. You mentioned you 
were planning on 30 stores if it was a more vibrant economy and 
you saw the returns and opportunities in a brighter manner. 
What would you like to see that would create such a brighter 
outlook for you from a tax regulation, access to capital 
standpoint?
    Mr. CHUNG. Thank you for the question, Chairman.
    In regards to the deductibility standpoint, EBIDTA would 
still be the status quo for considering what portion of 
interest was deductible. That is how it was previously and that 
is what we might need to maintain.
    In regards to access to capital, we do need a vibrant 
economy that does provide access to capital, simple 
underwriting at various levels, whether it be large 
institutional banks or smaller community banks. So access to 
capital, stability in terms of the tax provisions, and keeping 
the status quo.
    Chairman MEUSER. Has your bank or banks and the bank that 
you are a board member of, do you find that the so-called 
banking crisis from a few months ago had any systematic effect 
on smaller community banks?
    Mr. CHUNG. Absolutely. In regards to deposits, we saw 
deposits vacate some of the smaller community banks and be 
consolidated into larger banks which caused many banks to make 
tough decisions one way or the other. A very strategic 
conditions one way or the other.
    Chairman MEUSER. Okay. Yeah. I mean, we saw some of that 
initially throughout my district, for instance, and banks that 
I speak with. But it seems that it has kind of balanced out. 
However, since those deposits have been lost, those assets have 
been lost, making loans from community banks to our small 
businesses, that much more selective; right? I mean, they will 
certainly be more diligent for secure loans and perhaps because 
the opportunity is there, where there is great demand, prices 
go up. And so they can loan at higher costs, higher interest 
rates even above and beyond where the Fed has gone with the Fed 
rate. So that will happen. I mean, that is happening with 
automobiles and it is certainly having an effect on where we 
had a boom in automobiles. I mean, and now it is at 7, 8 
percent interest rates. People are turning away from it. Our 
housing market is really being struck hard in that manner.
    So here we had a bailout. We will call it that of three 
banks. We had a special assessment to make up for the $44 
billion when the bailout occurred. So that is a whole another 
story that larger banks are going to be facing. Interest rates 
due to inflation and the causes of inflation are relatively 
obvious. But the continued increase in energy costs, gasoline 
is $4 a gallon. I mean, and such. So the interest rates. Now we 
throw in there the increased capital requirements. So there is 
a squeeze that will be taking place. We have 19 percent, Ms. 
Wade, your Members, access to capital is something that is at 
the top of the list particularly lately. And so the idea of 
having capital requirement increases on banks to me just adds a 
significant burden or additional obstacle for accessing such 
capital. So they are going to be turning nontraditional lenders 
where that is not as regulated and usually with higher 
penalties for missing payments and all.
    So Ms. Wade, why do you not comment on what your Members 
think of a tighter lending environment.
    Ms. WADE. Certainly. Well, they are currently facing a lot 
of headwinds and challenges. And a lot of that is related to 
cost increases in business operations. So the inflationary 
pressures that they are experiencing right now, if there are 
additional costs related to financing that is just another part 
or a piece of absorbing higher costs in operating their 
business that they will have to navigate.
    Chairman MEUSER. Right.
    Ms. WADE. And all of this makes it very challenging and 
difficult for a small business owner to navigate, first, 
because the business owner is the one who is having to make all 
these decisions themselves generally speaking. So any increase 
in costs on the financing front will certainly be a factor in 
their ability to operate their business effectively.
    Chairman MEUSER. Right. And banks over $100 billion need to 
tighten up by 19 percent. Okay? That is not a small amount. It 
will clearly drive those looking for such business loans to the 
smaller banks who will then be more selective and be able to 
charge stronger fees, so creating more competition, which tends 
to be good, but when we are advocating for small business, and 
small banks are small businesses, that competition, increased 
demand increases prices. And more selective; right? Banks will 
have the opportunity to be that much more selective in who they 
extend loans to which again might be good but not so much for 
our small businesses. And simply, less opportunity.
    And Ms. Judge, later on perhaps you want to comment on that 
but I am over my time and I yield back.
    I will now yield to the Ranking Member, Mr. Landsman.
    Mr. LANDSMAN. Thank you, Mr. Chair.
    Ms. Judge, just a couple of questions.
    The Basel III has been, you know, implemented in other 
countries. Can you just talk a little bit about what that has 
looked like? And then I am going to ask the questions and then 
just hand it over time.
    One is what the experience has been in other countries.
    Number two is a little bit more focused on these regional 
banks. So Ohio is home to three regional banks, Fifth Third, 
Huntington, and Key Bank, who as a result of the proposal will 
largely face the same capital standards as global systemic 
banks. So from what I can see, we have got this ecosystem in 
Ohio that is one to envy. So what changes would you suggest for 
the proposed rule that could avoid any negative impacts from 
the current draft as it relates to the regional banks?
    So one, it has been implemented globally. Wha have we seen?
    Two, you know, as I am looking out for our regional banks, 
advice in terms of proposed changes.
    Ms. JUDGE. Both great questions. I will take them in 
opposite order. And again, I think the ecosystem in Ohio is 
wind envy. I mean, I think you have a robust set of different 
size banks and I think that is critical to providing a whole 
variety of services to different types of businesses.
    I actually think a lot of the reforms are meant to maintain 
the health of that ecosystem over time. So if you think about 
what California is going through right now, there are areas of 
California where the two biggest regional banks imploded 
precisely in an environment where credit standards are already 
tightening and access to credit is becoming more strict and 
more expensive. And so right when they need it they are dealing 
with like the greatest disruptions.
    So part of what they are really doing through all of the 
different reform proposals, all of which are implemented very 
incrementally over time, many of them not taking into full 
effect for 5 years, others on a 3-year timeframe. 1:07:04xx 
allow banks to use the capital they already have, to use their 
accrued earnings so that there is no disruption even among 
necessarily what large banks are doing. Certainly, not what 
regional banks are doing to be able to become stable and 
resilient. So we do not have huge losses to deposit 1:07:19xx, 
but also so the banks continue to be there so they can continue 
to service the small businesses and the other businesses. So I 
would say when you are taking a longer term perspective, I 
think the real aim here is to maintain that healthy ecosystem 
and not have the unexpected disruptions that create uncertainty 
and fear for small businesses and for others that has been a 
concern running throughout the hearing.
    And with respect to other countries, they have not 
implemented, and it actually really goes to the process through 
which the standards were promulgated. These are standards that 
came out of discussions as part of the Basel Committee. And 
part of what is really interesting there is it is an effort 
among different jurisdictions that say let's really learn what 
is the best thing that we can do. And yes, the U.S. has a huge 
voice there. Europe also has a huge voice there. Europe is 
actually more reliant on small- and mid-size enterprises. They 
are a bigger part of the economy and they are more reliant on 
banks. And so these were standards that through years of 
research and testing were decided to be like these are the best 
overall standards that we can come up with to try to balance 
out the need for resilience while also wanting to make sure the 
banks have the freedom that they need to be able to really make 
loans in good times and bad and to support the real economy.
    So I think what we have really seen is there is actually no 
easy answers in terms of impact but on a whole it looks like it 
has been able to be completely consistent with ongoing and 
important support for businesses.
    Mr. LANDSMAN. And you have got a minute left.
    On the regional banks as I am thinking about them, are 
there proposed changes to the rule that you would offer? And 
this could be just generally speaking. It does not have to 
apply just to regional banks.
    Ms. JUDGE. No. I think the real key is going to be what is 
the timeframe for implementation because it is true as has been 
alluded to numerous times, you do not want to tighten 
expectations during periods of distress. But you also do not 
want to not adopt the rules that are actually going to have the 
healthiest banking system possible. I think right now there is 
probably adequate leeway and I bet on calls where a lot of bank 
analysts have said that given the timeframe there is the 
ability for the market to absorb the type of changes that lie 
ahead. That being said, you do want to make sure that you are 
not doing this in a way that could adversely impact lending. It 
does not seem likely but I think paying close attention to that 
is going to be important.
    Mr. LANDSMAN. Thank you very much. And I yield back.
    Chairman MEUSER. The Ranking Member yields back.
    I now recognize Representative Alford from Missouri for 5 
minutes.
    Mr. ALFORD. Thank you, Mr. Chairman. I appreciate it. And 
thank you to the witnesses for being here today.
    A very important hearing for our Subcommittee. I have said 
it before, and I am going to say it again that America's 
greatest economy in my lifetime really under President Trump 
thanks to the Tax Cuts and Jobs Act. A record number of small 
businesses were opening. The American dream was in reach for 
many more people than now. A crucial component for small 
businesses is capital and access to capital has been a 
challenge for a lot of people. This is especially true for the 
rural small business community in Missouri's 4th Congressional 
District. Simply put, we have banking deserts there. I have 
seen it firsthand. In our Small Business Committee hearing 
earlier, I was proud to have a rural small business owner 
sitting where you are now. Her name is Jennifer Cassaday. She 
testified about starting up her business and financial 
resources, they just were not available to her when she was 
first starting out. So she had to turn to family for financial 
support. By the way, she has a great business thriving right 
now but it could have been a lot different. She could have had 
help from financial resources.
    Unfortunately, the landscape for small businesses 
continually worsens as we see the TCJ provisions expiring and 
supervisors making borrowing more difficult and less 
affordable. The latest from Basel III will increase capital 
requirements and therefore tighten lending during a time that 
small businesses need it the most in America.
    Ms. Wade, thank you for being here today. You note in your 
testimony that H.R. 4721, the Main Street Tax Certainty Act 
will provide relief and tax certainty to small businesses. This 
bill would make permanent a provision in the TCJA that helps 
small businesses. I am a proud cosponsor of this bill.
    You also mention that regulatory burdens and red tape from 
the Biden administration and using the SBA Offices of Advocacy, 
you touch on that. Can you expand on that? Just how important 
is H.R. 4721?
    Ms. WADE. It is incredibly important for the ability of 
small business owners to continue to operate and grow their 
business. They are under some really challenging headwinds 
right now with inflation and worker shortage and all of that. 
And having some certainty that their taxes will not increase in 
a couple years will go a long way to allow them the room to 
grow and operate their business. The Tax Cuts and Jobs Act was 
a huge help for small business owners to retain more of their 
profits to then use those profits to invest in their business. 
And that was where we saw, you know, some huge optimism that we 
track in our Small Business Economic Trend Survey, and small 
business owners, you know, felt confident going forward that 
they would be able to maintain business operations and even 
grow their business if they found the opportunity. But those 
expirations of those key provisions, especially the 20 percent 
small business deduction that they are able to benefit from now 
will be a huge tax increase for them if it does expire and will 
impair their ability to reinvest in their business and grow.
    Mr. ALFORD. You also talked about the cost of borrowing, 
the concern of small business owners. Can you talk about how 
the cost of financing can really inhibit small business growth? 
And also talk about in the minute 20 that we have left, what 
does this mean for people wanting to start a business, much 
less those who are already committed their family's time and 
treasure to get a business going in America?
    Ms. WADE. Absolutely. So the increased cost of financing 
will be another hurdle that they will have to absorb those cost 
increases. But then also, you know, having to figure out 
whether it is worth the increased financing costs to purchase 
that new equipment or purchase that other building and whether 
that return on investment is worth it in this higher interest 
rate environment. And so the cost of financing is going to 
impact their decisions on how to grow and expand their business 
or reinvest in their business.
    For those starting out, capital is paramount. And so their 
inability to afford financing if available to them to start a 
business is a huge hurdle for those who want to bring their 
ideas and creativity to the marketplace. In starting a 
business, financing will be a crucial role in that.
    Mr. ALFORD. Ms. Wade, thank you. And I yield back.
    Chairman MEUSER. The gentleman yields back.
    Well, I think that concludes our hearing. I would like to 
thank our witnesses for your testimony and for certainly making 
the trip and appearing before us today.
    Without objection, Members have 5 legislative days to 
submit additional materials and written questions for the 
witnesses to the Chair which will be forwarded to the 
witnesses. I ask the witnesses to please respond promptly.
    If there is no further business, without objection, this 
Committee is adjourned.
    [Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]
                            
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