Banks generally may not make passive equity investments in venture capital funds, and this may be the case even if the fund qualifies for a Volcker rule exclusion, according to a bulletin Tuesday from the national bank regulator.
In Bulletin 2021-44, the Office of the Comptroller of the Currency (OCC) sought to “remind” banks of the prohibition.
The bulletin notes that banks generally may not make passive equity investments in venture capital funds. It says equity investments in venture capital funds may be permissible if they are public welfare investments or investments in small business investment companies. Meanwhile, it also notes that qualifying for the Volcker rule’s venture capital fund exclusion “does not make a fund a permissible investment for a bank.”
“As with any investment, before a bank invests in a venture capital fund, the bank must determine whether the investment is permissible and appropriate for the bank,” the bulletin notes in its brief list of highlights. “Impermissible and inappropriate investments expose the bank and its institution-affiliated parties to enforcement actions and civil money penalties. National bank directors may be personally liable for impermissible investments’ losses.”