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Statement on Proposed Amendments to the Volcker Rule

Jan. 30, 2020

Today, the Commission joined the Federal Reserve, OCC, FDIC and CFTC in proposing additional amendments to the implementing regulations under section 13 of the Bank Holding Company Act, commonly known as the “Volcker Rule.”[1]  The proposed amendments, which principally relate to the “covered funds” provisions of the Volcker Rule, represent the next step in the Agencies’ efforts to better tailor and clarify the implementing regulations while furthering the Volcker Rule’s important statutory objectives.[2]  

Joint Agency Rulemaking and the Commission’s Three Part Mission

The Commission’s three part mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation; and it is through this lens that the Commission should focus its efforts as we—the five Agencies responsible for implementing the Volcker Rule—collectively strive to implement the Volcker Rule’s joint rulemaking mandate.  I thank my fellow regulators for bringing the perspective of their own statutory mandates and deep experience to this process, as well as for their unwavering dedication to preserving, protecting and improving our ever-evolving financial system.

The proposed amendments were thoughtfully developed, based on the Agencies’ collective experience, being faithful to both the prudential underpinnings of the Volcker Rule—to restrict high-risk, speculative trading and investment activity—and its clear directive to preserve important customer-oriented lending and financial services that are fundamental to capital formation and the efficient functioning of our markets.

Indeed, from the perspective of the Commission’s three part statutory mission, I believe that the proposed amendments could, if adopted, facilitate capital formation, improve competition and market efficiency along a number of dimensions, and do so without increasing risks to investors.

Capital Formation — General Enhancements; Addressing Geographic Imbalance

Several of the proposed amendments could enhance capital formation.  Take, for example, the newly proposed exclusion for qualifying venture capital funds.  I believe permitting banking entities to extend financing to start-ups and small and medium-sized businesses through qualifying venture capital funds could benefit the broader financial system by improving the flow of financing to these businesses, while allowing banking entities to compete more effectively with non-bank sources of financing.  Particularly important to me, the proposal could allow banking entities with a presence in and knowledge of the areas where venture capital and other types of financing are less readily available—i.e., “between the coasts”—to provide critical financing to businesses in those areas, as they have traditionally done.[3]  I believe the proposed exclusion for credit funds and certain other proposed amendments could have similar effects—each allowing a larger volume of lending and investing activities to occur in the regulated banking system, which is both geographically diverse and local market-oriented, resulting potentially in significant benefits to local businesses and economies.

Our newly formed Office of the Advocate for Small Business Capital Formation—whose mission is to advocate for small businesses and their investors to foster better access to capital markets, strengthening the voice of small business within the Commission and the broader regulatory landscape—recently published its first annual report for fiscal year 2019.[4]  I encourage market participants to read the report, which provides an overview of the state of small business capital formation, including how these companies are raising capital and where the capital raising is taking place across the United States.  The report highlights the importance of the availability of venture capital financing to small businesses[5] and illustrates a correlation in the increase in availability of venture capital funding in a metro area with job growth:  an increase in venture capital funding of 10% is associated with a 2.6% increase in the number of small employers, a 2.9% increase in employment by small employers, and a 3.9% increase in total payroll.[6]  The report also illustrates challenges small businesses throughout the country face as a result in the reduction of bank financing for small businesses, limited access to early-stage debt, and a decline in startup activity in rural areas in recent decades—from 20% of the total start-up activity in 1977 to only 12% in 2017.[7] All of these trends illustrate to me the need for attention to the geographic imbalance in venture capital funding and the availability of capital more generally for small businesses throughout the United States.  I believe the proposed amendments could be a helpful foundation for addressing this need.[8]

Market Efficiency; Additional Areas of Clarity

Other proposed amendments not only address areas of uncertainty in the existing regulations, but also should enhance competition in the financial services industry and improve the customer experience, including for customers of asset management and brokerage services provided by bank-affiliated firms.  The resulting clarity the proposed amendments would provide—allowing banking entities to offer financial services to customers and engage in other permissible activities in a manner that is consistent with the requirements of the Volcker Rule—will bring efficiencies that benefit investors and our markets. 

For example, the proposal would expressly exclude customer facilitation vehicles and family wealth management vehicles, providing certainty to banking entities that they may offer banking, brokerage and asset management services to these customers.  These were not the types of entities and services that were intended to be restricted by the Volcker Rule, and the proposal includes a number of conditions to help ensure that these vehicles cannot serve as a means of evasion.  As a result, families saving and investing for their children and grandchildren, and small business owners managing business assets and expenses, could benefit from a more efficient relationship with a banking entity providing a variety of financial services.

Request for Comment; Opportunity Zones and Rural Business Funds

The proposal includes a robust, detailed request for comment on all aspects of the proposed revisions. I look forward to commenter input about implementing the covered funds provisions of the Volcker Rule in a more clear and efficient manner, particularly any suggestions for modifications to our proposals or further amendments and their associated economic effects.  In addition to input on our proposed amendments, the proposing release asks questions about Qualified Opportunity Zone Funds and Rural Business Investment Companies—and whether express exclusions for these important vehicles would be appropriate to provide certainty regarding their covered fund status.[9]  I am particularly interested in commenters views on Qualified Opportunity Zone Funds; as I’ve indicated before, I am interested in paths to facilitate the ability for Main Street investors and, in particular those who live in the Opportunity Zone itself, to invest in these projects while maintaining appropriate investor protections.[10]

* * *

Again, I would like to acknowledge and thank all of our colleagues at the Federal Reserve, OCC, FDIC, and CFTC who have participated in this project over the last several years, always bringing their own perspective, experience and expertise to bear.  The commitment of the Agencies’ career staff to the integrity and performance of our highly complex, multi-faceted and ever changing financial system is remarkable.  I also would like to thank my fellow Commissioners for their engagement and the SEC staff for their truly exceptional work on this proposal.  I know that their significant experience with investment funds and asset management services more generally has contributed greatly to the interagency effort.


[1] The Commission, together with the Office of the Comptroller of the Currency (“OCC”), Board of Governors of the Federal Reserve System (“Federal Reserve”), Federal Deposit Insurance Corporation (“FDIC”) and Commodity Futures Trading Commission (“CFTC” and collectively, the “Agencies”) are jointly responsible for implementing regulations under Section 13 of the Bank Holding Company Act.

[2] Last Fall, the Commission joined the other Agencies in adopting certain revisions to the Volcker Rule implementing regulations that were intended to simplify, clarify and better tailor the application of the rule based on the Agencies’ collective experience, particularly with regard to the proprietary trading and compliance provisions.  See Press Release, Agencies Finalize Changes to Simplify Volcker Rule (Oct. 8, 2019), available at:

[3]  It is widely noted that the availability of venture and other financing from funds is not uniform throughout the United States.  In particular, it is noted that such funding is generally available on a competitive basis for companies with a significant presence in certain geographic regions (e.g., the New York metropolitan area, the Boston metropolitan area and “Silicon Valley” and surrounding areas).  See, e.g., Richard Florida, Venture Capital Remains Highly Concentrated in Just a Few Cities, CityLab (Oct. 3, 2017), available at:; PricewaterhouseCoopers & CB Insights, MoneyTree Report (Q3 2019), available at: 

[4] Office of the Advocate for Small Business Capital Formation, Annual Report for Fiscal Year 2019 (“OASB Annual Report”), available at

[5] Although venture capital funds currently provide capital to only a small portion of the overall number of small businesses (approximately 0.5%), they tend to focus on companies with outsized growth trajectories that may become the next generation of reporting companies. See OASB Annual Report at 21.

[6] See OASB Annual Report at 21.

[7] See OASB Annual Report at 17, 36-37.

[8] Next week the SEC’s Small Business Capital Formation Advisory Committee will be analyzing the challenges faced by smaller, regional funds and entrepreneurs that impede growth opportunities, and I appreciate the committee’s consideration of this important topic.  See Press Release, SEC Issues Agenda for February 4 Meeting of Small Business Capital Formation Advisory Committee (Jan. 28, 2020), available at

[9] The Tax Cuts and Jobs Act in December 2017 established the “opportunity zone” program to provide tax incentives for long-term investing in designated economically distressed communities. The program allows taxpayers to defer and reduce taxes on capital gains by reinvesting gains in “qualified opportunity funds” that are required to have at least 90 percent of their assets in designated low-income zones.  The RBIC Advisers Relief Act of 2018 provided that advisers to solely RBICs and advisers to solely SBICs are exempt from investment adviser registration pursuant to Advisers Act Section 203(b)(8) and 203(b)(7), respectively. 

[10]          See Chairman Jay Clayton, Statement on Opportunity Zones (July 15, 2019), available at:

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