Fed Moves to Allow Banks to Invest in VC Funds

WASHINGTON, DC – The National Venture Capital Association (NVCA) was thrilled today to see that the Federal Reserve proposed to modify the Volcker Rule to allow commercial banks to once again invest in venture capital funds as limited partners (LPs). The Volcker Rule’s prohibition on financial institution investment into venture capital created an unnecessary roadblock for capital formation, particularly in underserved areas where raising capital for venture capital investment tends to be more difficult.

“By allowing banks to invest in venture capital funds, more capital will be available for venture firms to invest in promising startups around the country, particularly in communities outside of the traditional startup hubs,” said Bobby Franklin, President & CEO of NVCA. “We would like to thank the Federal Reserve for taking the lead on this crucial rule change that will support investment into America’s startups and promote economic development across the country. And we look forward to working with the appropriate regulators to get this proposal across the finish line.”

Before the passage of the Volcker Rule, banks were an important source of investment for a number of small and regional venture capital funds. Despite the fact that investment in venture capital posed no systemic risk to the financial system, venture capital was inadvertently swept into the definition of prohibited investments under the Volcker Rule.

Learn more about the importance of reforming the Volcker Rule here.

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The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the US venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.