America’s Market System is Resilient

Why do capital markets matter? In short, efficient markets are essential to facilitate investment and capital formation that grow and sustain a vibrant economy. Markets provide the means for the best ideas and enterprises to obtain capital and credit and propel them forward. Nowhere has this been more evident than the United States, where we have the deepest, most liquid markets in the world and are the bedrock of our nation’s economy.

Global Equity Market Cap and Fixed Income Markets Outstanding

That depth and efficiency is evidenced by the size of our gross domestic product, the strength of the U.S. commercial sector, the level of home ownership, and the vast national infrastructure across the fifty states in comparison to the rest of the world.

  • The U.S. corporate bond market is the largest in the world: over 900 companies issued $1.3 trillion in corporate bonds in the United States to fund their operations and growth in 2018.
  • 197 companies conducted IPOs in 2018 in the United States, raising $49.8 billion.
  • Municipal issuers raised over $338.3 billion in 2018 to finance important community infrastructure projects including roads, bridges, hospitals and universities.

The historic success of the U.S. capital markets has been bolstered by a regulatory framework focusing on investor protection, transparency, safety and soundness.  The U.S. regulatory structure was first put in place 85 years ago, and Congress and policymakers have continually reviewed and supplemented it to keep pace with market developments and a changing national and global economy.

  • The U.S. and other jurisdictions adopted an unprecedented volume of new regulations over the last decade, affecting everything from market structure to capital standards and balance sheet liquidity. Our system is more transparent, safe and sound than in 2008.
  • All banks are subject to higher capital requirements. For the largest banks, aggregate CET1 (the core measure of a bank’s financial strength) is up 70% since the crisis, to $1.1 trillion from $634 billion.
  • The largest institutions are subject to forced liquidation designed to shield taxpayers and mitigate systemic risks.
  • Banks must hold high-quality liquid assets on their balance sheet to cover severe market disruptions and new capital for trading activities.
  • OTC derivatives, a critical financing tool for all types of businesses, agriculture and governments, are subject to a vast new regulatory regime and market structure, including new capital and margin requirements and most such transactions are now centrally cleared.
  • Short term financing transactions are subject to new clearing and margin requirements.

Policymakers have acknowledged that some changes may have gone too far, adversely impacting market efficiency and liquidity at the expense of economic growth potential. In order to help maintain the strength of our capital markets, we need to constantly evaluate the financial regulatory system to consider how it should evolve to continue to support our markets and facilitate investment and growth opportunities.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also CEO of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.