A Walk Through the JOBS Act of 2012: Deregulation in the Wake of Financial Crisis

A Walk Through the JOBS Act of 2012: Deregulation in the Wake of Financial Crisis

Traditionally, small businesses have relied on personal savings, help from family and friends, and small banks for cash infusions. However, the community banks that have typically provided the bulk of small business loans have been disappearing. Moreover, the fact that the recent crisis originated in the housing market put additional pressure on small business lending since many small businesses use the owner’s home to secure the loan.
While larger businesses have always turned to the capital markets to raise funds, these markets are more difficult for smaller companies to access. Regulation has always been a high barrier to entry, and, until recently, smaller companies have had no means of reaching a large audience of potential investors as publicly owned companies do. The advent of the Internet has, however, removed this second obstacle, and vehicles such as crowdfunding seem tailor-made to meet small businesses’ funding needs. The remaining great barrier was therefore regulation. The JOBS Act takes aim at key regulatory hurdles in several sections of the securities laws, seeking to lower the thresholds to make securities offerings a feasible option for a range of small business models.
Although the JOBS Act has taken important strides toward beneficial deregulation, more work remains to be done. The act’s crowdfunding provision is laden with protections that are likely to make it unworkable. Moreover, the regulations implementing the provision have rendered it even more cumbersome. Other titles suffer from similarly poor implementation. Even though some aspects of the act and its regulations could be improved, the mere existence of deregulatory legislation aimed at small business and financial innovation is encouraging and can serve as a template for other deregulatory attempts going forward.

Thaya Brook Knight

The Cato Institute

May 3, 2016

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By |2018-01-01T00:00:00-08:00January 1st, 2018|Efficiency/Growth, Financial Regulation, Reference, Reforms|