New Dodd-Frank Relief to Focus on Capital Formation: Hensarling

By Jeff Bater

House Republicans are pushing capital formation proposals in talks with Senate Democrats on a potential second round of Dodd-Frank Act relief.

Financial Services Committee Chairman Jeb Hensarling (Texas) told attendees at a Politico event May 17 that he’s having a “healthy dialogue” with Senate Republicans and Democrats about a bill that he hopes will move this summer.

Hensarling’s focus on capital formation suggests House Republicans have conceded there’s no chance for broader changes to financial regulation beyond what’s included in a Senate bill (S. 2155) the House is scheduled to vote on May 22. The Senate bill relaxes rules for regional and community banks and leaves out House Republican priorities such as overhauling the Consumer Financial Protection Bureau.

“We’re working on strongly bipartisan bills that will help capital formation, help entrepreneurship,” Hensarling said at the May 17 event. “If the Senate wants to be done with the banking portion, fine. But 80 percent of our corporate debt financing doesn’t come from banks, it comes from our capital markets.”

Hensarling didn’t offer specifics on what the supplemental package might contain but candidates could include a list of a half dozen or more bills he released in March as part of an unsuccessful bid to amend the Senate bill. Many of those measures passed the House with overwhelming bipartisan support.

Hensarling referenced one of those measures in his May 17 remarks: the Encouraging Public Offerings Act (H.R. 3903), which is sponsored by Rep. Ted Budd (R-N.C.) and passed the House 419-0 last November. The bill would allow startups exploring an initial public offering to file confidential draft registrations with the SEC and to gauge investor interest before filing.

The bill has a Senate companion (S. 2347) sponsored by Sens. Thom Tillis (R-N.C.) and Chris Van Hollen (D-Md.).

Capital Raising

Another bill on Hensarling’s March wish list that would ease capital raising is H.R. 1585, sponsored by Rep. David Schweikert (R-Ariz.).

The bill, approved by voice vote in the House Nov. 1, would expand the pool of “accredited investors” to include licensed securities professionals or those with appropriate experience or training, to be defined by the Securities and Exchange Commission. Accredited investors, who are allowed to partake in some unregistered securities offerings, now qualify by meeting asset and net-worth thresholds.

Hensarling has also pushed bipartisan legislation that modernizes the regulatory regime for business development companies. H.R. 4267, approved by the House Financial Services Committee 58-2 last November, requires the SEC to streamline the registration processes for BDCs in order to increase their ability to deploy capital to businesses.

Other potential candidates for the legislative package include:

  •  H.R. 79, Helping Angels Lead Our Startups (HALOS) Act, which would alleviate SEC restraints that startup companies face when meeting angel investors at venture capital fairs.
  •  H.R. 4281, the Expanding Access to Capital for Rural Job Creators Act, which would require the SEC’s advocate for small business capital formation to report on matters affecting firms in rural areas.
  •  H.R. 4792, the Small Business Access to Capital After a Natural Disaster Act, which also would require the small business advocate to report on matters concerning firms touched by hurricanes and other natural disasters.

— With assistance from Andrew Ramonas.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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