Whilst you were quarantining and attending to the vicissitudes of life, the banking world was undergoing some incredible changes to its regulatory environment.
Last Thursday, the Federal Reserve, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp (and the US Securities and Exchange Commission in a tangential manner) agreed to changes to the Volcker Rule (part of the 2010 Dodd-Frank Act which laid down the law for banks and undue risk).
Believe it or not, the Federales are going to allow banks, commercial banks, to invest their own funds (meaning that balance in your checking account you never touch) in venture capital partnerships.
Yep, old Wells Fargo can send some money to your favorite venture fund and get into the highest risk business imaginable.
“But, there’s more!” — imagine your best Billy Mays OxiClean pitch voice saying those words.
1. Banks also received a second Christmas present when loan loss reserve percentages were reduced.
2. But it was not all good news — banks are forbidden from engaging in stock buybacks.
3. Banks also cannot increase their dividends.
These last two provisions were enacted to shore up the cash on balance sheets to ensure banks were able to withstand impending hard winds. This falls under the “head fake” of pandering to the left regulatory zeal. But, then, banks can invest money directly into venture capital funds?
Ponder what this means as it relates to venture capital.
Spoiler alert — many of the biggest banks engaged in and continue to engage in investment banking, so the leap to venture capital is not all that great. Some big banks used to have their own venture operations.
Still, it is surprising that the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the US Securities and Exchange Commission would pick this exact moment to touch the accelerator.
Stay tuned. Venture capital? Wow.