Banks in the U.S. would no longer face limits on ownership stakes in venture capital funds under a proposal put forth yesterday by regulators including the Federal Reserve, the Wall Street Journal reported. The proposal to remove a 3 percent cap on such stakes is the latest step to ease a set of regulations known as the Volcker rule, which were enacted after the 2008 crisis in a bid to strengthen the financial system and reduce the chance of taxpayer-funded bailouts. Randal Quarles, the Fed’s vice chair for supervision, said banks should be able to invest more of their own money in venture funds since they are already allowed to invest directly in startups. The Fed board voted 4-1 to approve the proposal, with governor Lael Brainard, who was appointed by President Obama, dissenting. She said some of the changes would “weaken core protections in the Volcker rule and enable banking firms again to engage in high-risk activities.” Under existing capital rules, banks are required to set aside a significant cushion against possible losses in their venture-capital offerings. Those capital requirements could keep many banks from significantly increasing their own stakes in such funds. Limits on banks’ stakes in hedge funds and private-equity funds would remain in place. (Subscription required.)
