SEC seeks comment on proposal allowing PE firms to share bank’s name

The Volcker Rule forbids a bank or investment advisor from sharing the same name or a variation of the same name with a private equity fund that it creates.

The Securities and Exchange Commission is seeking comments on a proposal that would allow private equity firms to share the name of a bank.

Under the Volcker Rule, a bank or investment advisor can’t share the same name or a variation of the same name with a private equity fund that it creates. However, consistent with a statute in the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), the proposal would amend the Volcker Rule and allow private equity funds to “share the same name or a variation of the same name with an investment adviser that is not an insured depository institution, company that controls an insured depository institution or bank holding company,” according to the SEC.

The agency noted in a recent report that name-sharing “effectively and easily conveys the identity of a fund’s [registered investment advisor] and preserves the brand value.”

The regulator and four other government agencies – the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – are also looking to ease restrictions on community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets. Currently, these banks are prohibited from engaging in proprietary trading and owning or sponsoring private equity funds.

These changes would be made in response to the EGRRCPA. The SEC believes that some banks are no longer complying with the Volcker Rule because EGRRCPA exempts them from its restrictions. The agency estimates that up to 308 bank-affiliated registered investment advisors could be affected by the proposed changes.

Comments will be accepted until January 20. The agency requests that those commenting consider an economic analysis of the proposed amendments. It specifically asks: “Has the SEC accurately characterized the baseline, costs, benefits and effects on competition, efficiency and capital formation of the proposed amendments and alternatives with respect to SEC-regulated entities and securities markets? If not, why not?”

The SEC has been seeking comments to changes in the Volcker Rule, which went into effect in 2014.

There has been opposition to banks engaging in private equity investment in the aftermath of the 2008 global financial crisis based on concern of systemic risk to the banking industry. The Congressional Research Service, Congress’s think tank that focuses on public policy, wrote in its June 2018 report that proponents of the Volcker Rule “argue that proprietary trading adds further risk to the inherently risky business of commercial banking.”