The U.S. has excluded the World Bank’s International Development Association (IDA) from the requirements of the Securities Exchange Act of 1934 and the Securities Act of 1933.
According to the World Bank, the exemption laws will result in significant savings for the Multilateral Development Banks (MDB), International Finance Corporation (IFC), and International Bank for Reconstruction and Development (IBRD).
Implications of the exemption
The exemption gives the institutions the freedom to negotiate private placements with U.S. investors directly, sell public benchmark bonds to municipal and state treasury portfolios across the country, and issue short-term paper at extremely cheap rates.
It also lowers the banks’ legal costs even if they still abide by SEC regulations.
It is IDA’s role to sell securities to qualified institutional buyers under the Rule 144A market, however, each issuance comes with a long lead time, significant legal costs, and the need to create a complete prospectus.
This begs the question of whether the SEC is still functional given that even a large international organization supported by wealthy governments finds it difficult to adhere to SEC rules.
The estimated cost of $700 million by the World Bank shows how expensive SEC compliance has grown, which is probably impeding development in the U.S. when businesses outside of tech have mostly stagnated.
SEC accused of anti-competitive practices
Commercial banks, however, are excluded from all SEC restrictions, giving rise to the argument that the SEC is an anti-competitive organization that shields banks and their lending operations from competition through open fundraising.
By asserting that IDA is still going to be under anti-fraud liability of the securities laws and that it will be expected to comply with the same disclosure requirements as other MDBs, the World Bank effectively refutes the validity of SEC regulations.
This is similar to the position taken by many companies and business owners: police anti-fraud, theft, and other criminal laws while mandating little disclosure, but leaving civil law to investor claims in court.
The Biden administration is working to pass H.R. 1161, aligning SEC regulations for the World Bank’s International Development Association Act, but it is doing little to assist startups and other innovative companies that are being held back by the SEC’s bureaucracy.
Meanwhile, according to Bank of America CEO Brian Moynihan, the U.S. will only experience a minor recession since consumers are still doing well.
The amount of stimulus that was handed out to consumers and the money they had left over on the bank’s quarterly earnings call, in Moynihan’s opinion, all point to a very light recession.
He went on to say that while they don’t observe any activity on the consumer end slowing down at a rate that would suggest so, commercial clients are noticeably exercising greater caution.