Magazine article American Banker

Small-Business Venture Firms Owned by Banks May Get Break

Magazine article American Banker

Small-Business Venture Firms Owned by Banks May Get Break

Article excerpt

By the end of January, the government is expected to pare the regulations faced by banks that own small-business investment companies.

These companies, known as SBICs, are privately organized venture capital firms that are licensed and regulated by the Small Business Administration.

Generally, bank-owned investment companies may acquire, without Federal Reserve approval, up to 49% of the voting stock of small businesses.

"SBICs will certainly become much more attractive to banks under this proposal," said small-business consultant Charles R. Hertzberg, a former SBA official. "The regulations that banks are required to follow now are burdensome, and many are really not applicable."

There are two general types of small-business investment companies: those that leverage SBA-guaranteed funds, and those that rely on private capital. Banks generally own the latter.

However, banks are subject to the same requirements as those companies that put SBA funds at risk through their investment company subsidiaries.

But the SBA is proposing to exempt banks "from those regulations that relate to financial risk since the SBA is not providing any capital guarantees for them, and is, therefore, not at risk," said Patricia R. Forbes, the agency's acting associate deputy administrator for economic development. Final action on the rule is expected by Jan. 31.

Sixty-six banks, including Citibank and Chase Manhattan, own these companies, and hardly any rely on SBA funds, Ms. …

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