When Fed locks up funds, small businesses suffer

http://www.eurekalert.org/pub_releases/2015-09/bu-wfl091715.php

Public Release: 17-Sep-2015
When Fed locks up funds, small businesses suffer
Binghamton University

When the Federal Reserve raises interest rates to slow down a speeding economy -- effectively raising the price of money -- banks often sell down their stockpile of securities to keep the financial assembly lines going. That's much like a widget-building company might rely on a warehouse of raw materials when prices rise.

But according to newly published research from Binghamton University, federal accounting rules can padlock those warehouses, particularly hurting small banks and their customers.

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It also means small businesses in particular -- from a local pizza joint to a bio-pharma startup -- have a tough time getting cash they need to grow, said Meder, a regional bank's credit analyst before he came to academia. "Regional banks are where the local businesses tend to go," he said.

And as small companies generally have greater growth potential than larger companies, that further limits economic development.

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