Stock Market Swings and What Really Matters for Main Street

According to legend, when esteemed banker J.P. Morgan was asked what the stock market will do, he simply responds, “It will fluctuate.”

While recent swings in the stock market make headlines it’s worth remembering those words. Short-term stock market fluctuations may be a sign of a larger downward trend but could also just be temporary volatility with no long-term impact.

Roughly half of all Americans don’t own any stocks at all (either directly or indirectly). This suggests other parts of the financial system, such as the financing of small businesses and job creation, may be more directly related to people on Main Street.

Following are four areas that affect the financing of Main Street and small businesses that should be looked at more closely:

• Technology is lowering lending costs and can help allocate capital more efficiently. Many traditional banks are trying to adopt new technology to lower their costs and make better lending decisions. However, small banks often find it challenging to adopt technology and need help from third parties. Many technology companies, known as fintechs, have emerged that are using new technology to directly lend to small businesses. But challenges remain in nurturing the adoption of this technology by traditional lenders and fintechs, while ensuring adequate protections for small business borrowers and the financial system.
• Signs of a decline in lending based on personal relationships. This decline, for better or worse, limits the discretion lenders have to make loans and provide financial services to small businesses based on attributes not easily captured by statistics.
  
• Policymaker review of financial regulation. Policymakers are reviewing financial regulations to ensure the right balance of protecting consumers and the integrity of the financial system, while promoting economic growth and innovation. The public might want to pay special attention to how this review affects Main Street small businesses, and not just Wall Street and large corporations. A properly regulated financial system protects consumers, enhances financial stability, and ensures qualified small businesses can access financing in an affordable, efficient, and fair manner.
• Data can make financial system safer and more efficient. During the financial crisis, policymakers had large blind spots due to limited data on small business lending. Filling these data gaps, in a manner that doesn’t overly burden lenders, could greatly help policymakers to develop sound policies for small businesses. Making certain government data more easily accessible can help lenders more quickly and efficiently allocate capital to small businesses.

Shifting attention away from daily stock market swings and towards Main Street finance will benefit small businesses and the people they employ. The daily fluctuations of the stock market generally have limited effect on the average American. But even short-term dysfunction in financing Main Street can be ruinous for many Americans who rely on small businesses for their jobs and daily income.