Volcker loophole drives new loan partnerships

Author: Zoe Thomas | Published: 18 Aug 2014

The uptick in small business administration (SBA) licenses signals that banks are increasingly taking advantage of the exception to the Volcker rule’s ban on proprietary trading, which allows them to make investments through Small Business Investment Companies (SBIC).

The exemption allows banks to have SBIC subsidiaries through which they can hold more than five percent of a non-bank company. SBICs can also grant loans and debt securities to small businesses.

Banks will be able to partner with their own SBICs to grant more leveraged loans, while avoiding limits on leverage ratios. While it is unclear how regulators will react to this change, the limitations on SBIC loans will likely keep a check on the market, and their growth could boost the small and mid-size companies in the US.

"There is a possibility that banks could make loans...



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