Magazine article American Banker

Bill Would Let Banks Invest in Small-Business Borrowers

Magazine article American Banker

Bill Would Let Banks Invest in Small-Business Borrowers

Article excerpt


Banking companies could become major small-business investors - not just lenders - under a bill introduced this week by Rep. Richard Baker.

Rep. Baker, chairman of the House Banking Committee's capital markets and securities subcommittee, wants to allow bank holding companies with less than $1 billion of assets to invest in firms that borrow from their affiliate banks.

The goal of his proposed Entrepreneurial Investment Act is to generate capital for small businesses.

"Community banks have a working knowledge of their clients," the Louisiana Republican said in an interview Thursday. "This bill will help small businesses gain an alternative way to grow."

The bill would allow the eligible holding companies to acquire up to one-quarter of the voting shares of their banks' borrowers. According to the Federal Reserve Board, 4,994 banking companies with $451 billion in total assets would be eligible.

A holding company would have to be well-capitalized, and could only invest 50% of its excess capital. Banking companies also would be prohibited from participating in active management of the companies they buy into.

Rep. Baker's proposal - which House Banking Committee Chairman Jim Leach's staff said Thursday he may support - drew mixed reviews from industry trade groups.

American Bankers Association chief lobbyist Edward L. Yingling said the bill has "real possibilities," though his organization has taken no official stand yet.

"There is a need in rural communities to get long-term financing to small businesses," he said. "Congressman Baker has put forth an innovative proposal designed to increase capital availability to small businesses, while providing strong safeguards to ensure that safety and soundness protections are not weakened. …

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