Fifth Third Bancorp Inc. has established a small venture-capital fund to invest in emerging companies that typically do not qualify for bank loans.
The Cincinnati Enquirer
Commercial banks are permitted to invest in early-stage companies through venture-capital or merchant-banking arms, though it is not common practice. A provision in Gramm-Leach-Bliley Act of 1999 prohibits banks from having direct managerial control over companies in which they invest and requires them to divest their stakes within 10 years.
A provision in the Dodd-Frank Act passed in 2010 restricts banks' investments in hedge funds and private-equity funds, though it is unclear to what extent that could affect direct venture-capital investments, if at all. The provision, known as the Volcker Rule because its champion is former Federal Reserve Chairman Paul Volcker,
Fifth Third is working with a Cincinnati-area consulting firm, West Capital Advisors, to help it identify potential investments in its markets. The bank has operations in 12 states throughout the Midwest and Southeast.