Federal Bank Regulators
Federal bank regulators released 298 pages of regulations in October to implement a “Volcker rule” that is supposed to bar banks from engaging in proprietary trading and taking equity positions in private equity and hedge funds.
The regulations are not expected to prevent banks from investing as tax equity participants in renewable energy projects, according to Adam Gale, a bank regulatory lawyer in the Chadbourne New York office.
Gale said the key for a bank participating in a partnership flip transaction is it must have an ownership interest in the operating company itself or in a parent holding company whose only assets are majority interests in operating companies. It is important that the bank’s investment be in an operating company as opposed to a “covered fund.” If the bank were to invest in an intermediate entity that is not the operating company (or is not a parent holding company whose sole asset is a majority interest in an operating company), then “the intermediate entity would probably fall within the definition of a ‘covered fund,’ and the Volcker rule general prohibition against bank investments in covered funds would apply,” Gale said.
Proprietary trading, which is also banned, is defined in the new regulations as short-term trading, meaning investing in positions held fewer than 60 days. If a bank makes a tax equity investment with the intention of selling all or part of the investment within 60 days, then it is possible that the investment could be considered proprietary trading.