U.S. Congressman Anthony Gonzalez (R-OH) and Rep. Bryan Steil (R-WI) led a letter this week with 14 other members of the House Financial Services Committee to regulators encouraging reforms to allow for further investments into start-up companies.
“Growing Northeast Ohio’s economy is one of my top priorities as a Member of Congress,” said Congressman Gonzalez. “Northeast Ohio has the workforce and entrepreneurial spirit needed to foster an environment where start-up businesses can be successful. Allowing venture capital funds located in Ohio and the Midwest to have more flexibility in raising capital will give more start-up businesses the leverage they need to grow and create jobs.”
Under the Dodd-Frank Act signed into law in 2010, banks are restricted from certain investment activities in risky proprietary trading. Current regulation includes venture capital as a prohibited investment, contrary to Congressional intent.
Senator Chris Dodd (D-CT) while discussing the legislation at the time stated, “In the event that properly conducted venture capital investment is excessively restricted by the provisions… I would expect the appropriate Federal regulators to exempt it using their authority.”
The letter led by Representative Gonzalez encourages banking regulators to exercise their authority to exempt venture capital from the Volcker Rule.
“Prior to the Volcker Rule’s implementation, banks supplied vitally needed capital to venture and growth funds located outside of the traditional regions for this type of investment. Although only a small percentage of the overall capital invested into such funds, banks acted as so-called “anchor investors,” signaling confidence in the fund to other investors and members of the community. The prohibition on investment in covered funds cut off this critical source of capital and made it more difficult for start-ups and small businesses to attract the lifeline investment that enables them to turn ideas into successful companies,” reads the letter.
“The Volcker Rule’s unintended prohibition of bank investment into venture capital funds has had harmful consequences for entrepreneurial capital formation in emerging ecosystems—in particular the Midwest where our members have shared stories of losing banks as investment partners after the rule was finalized. On behalf of our members and entrepreneurs across America, we thank Representative Gonzalez for his efforts to break down this unnecessary barrier and improve access to capital for startups,” said National Venture Capital Association President and CEO Bobby Franklin.