Republican floats bill to allow certain firms to take on more risk

Rep. Mick Mulvaney (R-S.C.) is working on bipartisan legislation that he says would make it easier for certain investment firms to finance the middle market.

The switch would allow the firms to take on more risk, but Mulvaney says it could also allow more capitol to reach people, helping the economy.

{mosads}Mulvaney said at a House Financial Services subcommittee hearing on Tuesday that he’s looking to update regulations for a special type of investment firm known as business development corporations (BDCs).

Congress created the BDC regulations in the 1980 to help boost investment to middle market businesses’ access to capital. BDCs are different than other investment options because they are less risky because of the regulatory framework.

They are required to operate at a risk leverage ration of 1:1. Larger financial institutions operate at a leverage ratio significantly higher than that.

Mulvaney wants to increase the risk-leverage ratio for BDCs to 1:2.

“Everybody starts to worry when we talk about increasing anybody’s leverage,” Mulvaney said. “It’s still a very, very small thing… Part of the reason we want to do this is small and medium sized financial institutions are having difficulty getting the capital.” 

Mulvaney said that “this comes down to can we make safe and smart capital available to more people.”

“I see no reason why we can’t do that,” Mulvaney said.

Rep. Carolyn Maloney (D-N.Y.) signaled she’s open to working with Mulvaney, thanking him for his efforts on this issue.

“There’s not many things that Congresswoman and I can work on together,” Mulvaney said after the hearing. “So today was a really good sign that this could be a bipartisan issue.”

Since the 2008 financial collapse, the BDC market has boomed as investors and the middle market have looked for more safe access to capital.

Publicly traded BDCs went from $2.2 billion in assets in 2000 to $56.5 billion in early 2014 – an increase of 2,468 percent.

“As new regulations have caused banks and other lenders to pull back from the small and mid-size lending market, BDC’s have played an increasingly important role in our economy,” said Rep. Scott Garrett (R-N.J.), who chaired the subcommittee hearing.

Rep. Nydia Velázquez (D-N.Y.) and former-Rep. Michael Grimm (R-N.Y.) introduced BDC legislation in previous years but the proposals failed to gain traction in the divided Congress.