U.S. Sens. Mike Rounds (R-SD), Steve Daines (R-MT), and Thom Tillis (R-NC) recently proposed legislation that would expand the holding period for merchant banking investments from 10 years to 15 years in an effort to bolster access to capital for entrepreneurs.
Sen. Rounds on Aug. 1 sponsored the Merchant Banking Modernization Act, S. 2663, alongside seven original cosponsors, including Sens. Daines and Tillis.
“The Merchant Banking Modernization Act seeks to bridge the financial gap between small, often rurally-based, businesses that are not privy to the type of investments larger, more established, companies are able to access,” said Sen. Rounds on Sept. 9.
In 1956, the Bank Holding Company Act set forth requirements for bank holding companies and in doing so, authorized the Board of Governors of the Federal Reserve System and the U.S. Treasury Secretary to issue regulations governing merchant banking activities.
In January 2001, the Fed Board of Governors and the U.S. Department of the Treasury approved a joint final rule doing just that, while implementing provisions of the Gramm-Leach-Bliley Act, according to information provided by the senators.
As a result, bank holding companies were allowed to declare themselves a financial holding company (FHC) to engage in securities underwriting and dealing, insurance agency and underwriting activities, and merchant banking activities.
Generally, under the Merchant Banking Rule, FHCs must divest from their investment in 10 years, a timeframe that the senators say has discouraged holding companies from devoting capital to smaller, less-established businesses because certain investments are not financially viable within a 10-year horizon, the information says.
“By extending the merchant banking investment window, this legislation will help attract investment in businesses that are vital to our state,” Sen. Tillis said. “I’m proud to support this effort to strengthen North Carolina’s economy and expand opportunities for entrepreneurs.”
Sen. Daines noted that as the son of a contractor, he’s seen firsthand how difficult it can be to keep a company flourishing.
“We need to do everything we can to help small businesses grow and remove unnecessary barriers to accessing capital,” he said. “I’m proud to join my colleagues to introduce this bill, which will support investment in small and rural businesses and unleash our economy.”
S. 2663 is supported by the U.S. Chamber of Commerce, Independent Community Bankers of America, and the South Dakota Bankers Association.