Global Competitiveness and the Financial Services Industry, Crapo’s Amendment to H.J. Res. 20

[Statement in the Congressional Record- February 13, 2007]

[Page: S1896]  GPO's PDF

Mr. CRAPO. Mr. President, I rise today to speak to a global competitiveness amendment to H.J. Res . 20 and to call attention to the challenges facing U.S. financial markets. The first half of the amendment highlights findings from two recent reports that the U.S. is already losing ground in the key areas of global initial public offerings, IPOs, and over-the-counter, OTC, derivatives. The second half of the amendment expresses the sense of the Senate about what steps should be taken to bolster the competitiveness of this essential sector of the U.S. economy.

   IPOs are critical to our economy because when a company goes public, it creates capital--and that means jobs and investment opportunities with great potential payoffs. The risk-taking exemplified by IPOs is in the most important sense the critical fuel of a market economy. OTC derivatives play a critical role in our economy, assisting investors to more precisely match their investments to their risk preferences, and helping companies to manage or hedge their risks. Additionally, these instruments provide liquidity to financial markets and reduce volatility by helping to diversify and distribute risk. At the same time the OTC derivatives industry attracts highly skilled professionals who, by virtue of the demand created by their talents, have the potential to contribute significantly to an area's tax base.

   Together, IPOs and OTC derivatives contribute to a robust and dynamic capital market which is a tremendously beneficial force for our economy and an empowerment to our citizens. It is critical to ensuring economic growth, job creation, low costs of capital, innovation, entrepreneurship, and a strong tax base in key areas of the country. The U.S. financial sector acts as a catalyst for all other sectors in the U.S. economy. That is why the decline in global initial public offerings in the United States, and the fact that London already enjoys clear leadership in the fast growing OTC derivatives market, are such worrying trends.

   Fortunately, academics, business leaders, and politicians are working together to study this issue. They have identified several specific problems that hinder the competitiveness of the U.S. capital markets and have issued reports outlining possible solutions. Chaired by former White House economic adviser Glenn Hubbard and former Goldman Sachs president John Thornton, the Committee on Capital Markets Regulation was formed in September 2006 and issued its preliminary report in November 2006. Mr. Schumer of New York along with New York Mayor Bloomberg released the McKinsey Report on New York Competitiveness in January 2007 outlining regulatory, legal, and accounting changes they say are necessary to maintain the city's status as a leading global financial center.

   Both reports add considerably to the understanding of the challenges that American capital markets face and offer solutions that could help American markets, companies, and workers to better compete.

   According to the Committee on Capital Markets Regulation:

   A key measure of competitiveness, one particularly relevant to the growth of new jobs, is where new equity is being raised--that is, in which market initial public offerings (IPOs) are being done. The trend in so-called ``global'' IPOs i.e., IPOs done outside a company's home country, provides evidence of a decline in the U.S. competitive position. As measured by value of IPOs, the U.S. share declined from 50 percent in 2000 to 5 percent in 2005. Measured by number of IPOs, the decline is from 37 percent in 2000 to 10 percent in 2005.

   According to the McKinsey Report on New York Competitiveness:

   London already enjoys clear leadership in the fast-growing and innovative over-the-counter (OTC) derivatives market. This is significant because of the trading flow that surrounds derivatives markets and because of the innovation these markets drive, both of which are key competitive factors for financial centers. Dealers and investors increasingly see derivatives and cash markets as interchangeable and are therefore combining trading operations for both products. Indeed, the derivatives markets can be more liquid than the underlying cash markets. Therefore, as London takes the global lead in derivatives, America's competitiveness in both cash and derivatives flow trading is at risk, as is its position as a center for financial innovation.

   The challenge we are facing is that the U.S. capital markets are losing their competitive edge in intensifying global competition. A shrinking proportion of international companies are listing shares on U.S. stock exchanges and the fast-growing OTC derivatives market are growing more rapidly elsewhere.

   This amendment welcomes these reports and encourages Congress and the administration to begin to vet and consider their recommendations.

   (1) Congress, the President, regulators, industry leaders, and other stakeholders should carefully review the Interim Report of the Committee on Capital Markets Regulation, published in November 2006, and the McKinsey Report on New York Competitiveness, published in January 2007, and take the necessary steps to reclaim the preeminent position of the United States in the financial services industry.

   (2) The Federal and State financial regulatory agencies should, to the maximum extent possible, coordinate activities on significant policy matters, so as not to impose regulations that may have adverse unintended consequences on innovativeness with respect to financial products, instruments, and services, or that impose regulatory costs that are disproportionate to their benefits, and, at the same time, ensure that the regulatory framework overseeing the U.S. capital markets continues to promote and protect the interests of investors in those markets.

   (3) Given the complexity of the financial services marketplace today, Congress should exercise vigorous oversight over Federal regulatory and statutory requirements affecting the financial services industry and consumers, with the goal of eliminating excessive regulation and problematic implementation of existing laws and regulations.

   I urge my colleagues to join me in supporting this amendment.