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Volcker Rule reforms expand options for raising VC funds

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Volcker Rule reforms expand options for raising VC funds

It’s time to placed on our considering caps so we will talk about an esoteric however essential coverage change and the way it’ll impression the VC world.

The 2008 monetary disaster devastated the worldwide economic system. One of the reforms that got here from the detritus of that scenario was a coverage referred to as the Volcker Rule.

The rule, proposed by former Fed chairman Paul Volcker and handed into legislation with the Dodd-Frank Act, was designed to restrict the ways in which banks may make investments their stability sheets to keep away from the type of cataclysmic systemic dangers that the world witnessed through the disaster. Many banks confronted a liquidity crunch after investing in mortgage-backed securities (MBSs), collateralized debt obligations (CDOs), and different much more arcane speculative monetary devices (like POGs, or Piles Of Garbage) in in search of earnings.

Quite a few reforms are underway to the Volcker Rule, which has been a home regulatory precedence for the Trump administration since Inauguration Day.

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One of the unintended penalties of the rule is that it restricted banks from investing in sure “lined funds,” which was written broadly sufficient that it, effectively, lined VC companies in addition to hedge funds and different personal fairness autos. Reforms to that coverage (and to the rule basically) have been proposed for a decade with little traction till not too long ago.

Now, various reforms are underway to the Volcker Rule, which has been a home regulatory precedence for the Trump administration since Inauguration Day.

Proposed amendments to the Volcker Rule might be a lifeline for enterprise companies hit by market downturn

First, a simplification to among the rule’s laws was handed late final yr and went into impact in January. Now, a remaining rule to reform the Volcker Rule’s functions to VC companies, amongst different points, was agreed to by a gaggle of U.S. regulatory companies, and can go into impact later this yr.

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