The National Venture Capital Association (NVCA) is recommending key changes to the Volcker Rule related to the definition of “covered funds.”
The Volcker Rule was established as part of the Dodd-Frank Act in response to the financial crisis. It prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with covered funds, which are hedge funds, venture capital funds, and private equity funds.
In a letter submitted last week to federal regulators, NVCA says that defining “covered funds” to include VC funds is not what Congress intended and has harmful economic consequences, particularly for startups.
“Congress was rightly concerned about including venture capital in the definition of a ‘covered fund,’” Bobby Franklin, president and CEO of NVCA, said. “Unfortunately, the final rules inexplicably banned banks from providing investment to VC funds. While this prohibition does nothing to accomplish the Volcker Rule’s objectives of deterring systemic risk, it has had particularly harmful consequences for entrepreneurial capital formation in emerging ecosystems—areas outside of Silicon Valley and other traditional technology centers. We applaud the willingness of the agencies to review this important issue, and hope they will use their discretionary authority to allow bank investment into venture capital funds and improve entrepreneurial access to capital.”
NVCA said the federal agencies could correct the issue using the discretionary authority provided to them in the statute.