Thursday, July 22, 2010

Dodd-Boxer Colloquy Says Volcker Rule Exempts Venture Capital Investments

According to Senate Banking Chair Christopher Dodd, the purpose of the Volcker rule, which is in Section 619 of the Dodd-Frank Act, is to eliminate excessive risk taking activities by banks and their affiliates while at the same time preserving safe, sound investment activities that serve the public interest. It prohibits proprietary trading and limits bank investment in hedge funds and private equity for that reason. A colloquy between Chairman Dodd and Senator Barbara Boxer revealed that properly conducted venture capital investment will not cause the harms at which the Volcker rule is directed. (Cong. Record, July 15, 2010, S 5904-5905).

Section 619 explicitly exempts small business investment companies from the rule, and because these companies often provide venture capital investment, the intent of the rule is not to harm venture capital investment. In the event that properly conducted venture capital investment is excessively restricted by the provisions of Section 619, Chairman Dodd expects the appropriate federal regulators to exempt it using their authority under section 619(J).

Senator Box noted the crucial and unique role that venture capital plays in spurring innovation, creating jobs and growing companies. She said that it is not the intent of Congress that the Volcker rule should cut off sources of capital for technology startups, particularly in this difficult economy.