Special Order Remarks on Rebuilding the Economy through Banking Reform (H.R. 4877 -- The Community Bank and Automotive Industry Recapitalization Act)

Like many Members of Congress, I listen to, I visit the small businesses in my community in Colorado. Small businesses are really the backbone of our country. When I visited one of our small towns like Lyons, Colorado, last month, I did what I call a Main Street tour where I stop and introduce myself at many of the local businesses. I have a small business advisory council.

I am not alone as a Member of Congress in hearing from the businesses in our district that one of the biggest impediments to their growth and allowing them to hire people is the lack of credit that they have from their banks. Their traditional borrowing that they have been able to do to fund their activities, whether it is against accounts receivable or future revenue flows, they find themselves cut off and unable to access those credit lines because of the tightening of credit.

There is a swing in the pendulum. Credit was, in all honesty, too loose 3 years or 4 years ago. It has now swung to the other extreme, as it tends to do, and has become too tight. That has become an impediment to job growth. There are businesses in my district that, if they had access to credit, they would be able to grow and expand and hire more people.

Now, when you talk to the banks, the banks in my district and everywhere, they say there is a number of reasons for this. One is increasing capital requirements that the Federal Government is imposing to reduce the rate of bank failures, a very legitimate policy interest. Others include other regulatory reasons that the banks feel that they are having to reduce the amount of money they are effectively able to lend out. But it is something that we need to solve, Mr. Speaker, because it will create jobs for Americans, small and midsize businesses across our country.

There are a number of solutions that people are talking about in this body. It includes the Federal credit facility to small businesses through the banks, includes some actions on the regulatory front, and it includes an idea, a bipartisan idea that I have introduced, H.R. 4877, which would provide an incentive for private money to flow into the equity line of these community banks to get them lending again.

Now, a bank, like any business, has many kinds of capital. So when you deposit your money with a bank, they can certainly loan against that money, but it is not as leverageable as equity capital. If a bank actually sells its shares, they get money in that they can lend against with much higher leverage.

So what we can do is provide an incentive for people to invest in community banks; for community banks to go back out to their communities, to their boards, to say, You know what? We need to sell some more shares of our community bank to raise some more capital. And that capital can be deployed in a very powerful way in lending to our small businesses.

So for any investment in the community bank under H.R. 4877 during an 18-month period when we want to incentivize this investment--and much of it will occur very quickly, I might add, 1 month, 2 months, 3 months, and held for 5 years, then the investors would not have a capital gains tax. There would be an exemption from capital gains on that investment in the community bank.

What will this do? It will get the attention of the people that we want to get the attention of, existing investors at banks, private equity funds, and others who could be doing anything with their money. They could be sitting on the sideline with their money. They could be investing in businesses of any sort. This will get their attention to say, Hey, there is a special incentive, because of the public good that comes from a robust community banking sector and the lending that will help stimulate the demand for a whole host of businesses and help businesses grow, to put your money into community banks.

Many community banks will recapitalize. By the way, this might even prevent some bank failures by allowing community banks on the margin to recapitalize within the bounds of solvency rather than becoming insolvent or having to be bailed out.

There is, rightfully so, great frustration with what has been seen as collusion between the government and big banks; what has been seen as a bailout and what is a bailout of bad behavior. Why not incent a private investment in these banks before we start talking about using taxpayer money for this or that or the other? Let's see what investors out there are willing to do when given the chance to invest in our communities, invest in our banks, and help them extend credit widely to the small businesses.

This is truly one of the highest leverage areas that small businesses have come to me and other Members of Congress and said, If only we can get the banks lending again. Well, we can, Mr. Speaker. With H.R. 4877, we have the opportunity without the use of taxpayer money to get an infusion into our community banks and get them lending to our small and medium businesses, commercial property across this country, to help get the economy going and create good jobs for Americans.

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