In this week’s roundup, we look at federal financial regulators’ plan to reduce Volcker Rule restrictions on banks committing capital to venture capital funds. While the proposal in its current form only addresses venture capital and other financial vehicles, it asks the public whether agencies should exclude from the covered funds definition “long-term” investment funds, such as private equity. Also, the House Committee on Financial Services published its hearing schedule for the month of February.
Regulators Advance Covered Funds Proposal
Banks would face fewer restrictions investing in venture capital funds under a new proposal from regulators. Those changes could extend to other investment models following a public comment period.
Federal financial regulators, including the Federal Reserve and Securities and Exchange Commission, unveiled a proposal on Jan. 30 that would modify the Volcker Rule to allow banks to invest in venture capital funds.
Venture capital funds, along with credit funds, family wealth management funds and others, would qualify to receive expanded bank financing under the current draft of the rulemaking.
Federal Reserve Vice Chairman of Supervision Randal Quarles said he was comfortable with the eased restrictions because venture capital funds provide financing for companies that do not have publicly traded securities and don’t “raise the types of concerns the Volcker Rule was intended to address.”
The proposal also continues to prohibit banks from proprietary trading through a venture capital fund, restricts them from bailing out the funds it sponsors, and limits conflicts of interest.
Despite the agencies’ apparent détente with some investment types, others were explicitly left out of the rulemaking.
“Banks should not use deposits that are insured by taxpayers to make risky proprietary trades or investments in hedge funds and private equity funds,” said Federal Reserve Chairman Jerome Powell during a meeting of the Board of Governors the same day federal regulators approved the proposal.
However, the proposal asked the public whether to carve out from the Volcker Rule’s restrictions other funds that pursue a “long-term” investment strategy, which could include private equity funds.
The public comment period for the proposal will be open until April 1.
House Financial Services Announces February Schedule
Chair of the House Financial Services Committee Maxine Waters, D-Calif., announced several hearings for the month of February:
- February 5 at 10:00 a.m. – The full committee will convene for a hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps.”
- February 5 at 2:00 p.m. – The Subcommittee on Housing, Community Development and Insurance will convene for a hearing titled “A Future Without Public Housing? Examining the Trump Administration’s Efforts to Eliminate Public Housing.”
- February 6 at 10:00 a.m. – The full Committee will convene for a hearing titled “Protecting Consumers or Allowing Consumer Abuse? A Semi-Annual Review of the Consumer Financial Protection Bureau.”
- February 6 at 2:00 p.m. – The Subcommittee on Oversight and Investigations will convene for a hearing titled “Fake It Till They Make It: How Bad Actors Use Astroturfing to Manipulate Regulators, Disenfranchise Consumers and Subvert the Rulemaking Process.”
- February 11 at 10:00 a.m. – The full Committee will convene for a hearing titled “Monetary Policy and the State of the Economy.”
- February 12 at 10:00 a.m. – The Subcommittee on Diversity and Inclusion will convene for a hearing titled “A Review of Diversity and Inclusion at America’s Large Banks.”
- February 12 at 2:00 p.m. – The Task Force on Artificial Intelligence will convene for a hearing titled “Equitable Algorithms: Examining Ways to Reduce AI Bias in Financial Services.”
- February 26 at 10:00 a.m. – The full Committee will convene for a hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps (Part 2).”
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Benjamin Glick is ACG Global’s marketing and communications associate.