S-2663-119
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by Mike Rounds (R-SD)
What it does
This bill would amend the Bank Holding Company Act of 1956 to require that regulations generally permit bank holding companies to hold merchant banking investments for at least 15 years. It would also apply the 15-year minimum to any merchant banking investments already held on the date of enactment, measured from the original investment date — meaning existing investments would receive the full 15-year window from when they were first made, not from when the bill passes.
Who benefits
Bank holding companies and financial holding companies that make merchant banking investments in nonfinancial companies, as they would have more time to exit positions profitably. Private equity and venture-style investment arms of large banks would gain greater flexibility. Portfolio companies receiving bank-affiliated capital would benefit from longer, more patient investment horizons. Institutional investors in bank holding companies may benefit if longer hold periods improve investment returns. Startup and growth-stage companies that receive merchant banking capital could benefit from reduced pressure for early exits.
Who is hurt
Competitors in the private equity and venture capital industries that do not have bank affiliations may face a more competitive landscape if bank-affiliated investors can hold positions longer. Regulators at the Federal Reserve, who currently set holding period rules, would lose discretion to impose shorter timelines. Consumers and taxpayers who bear systemic risk from large bank holding companies taking on longer-duration, illiquid equity positions in nonfinancial firms. Smaller banks without financial holding company status cannot engage in merchant banking at all and would not benefit.
Supporters argue
Supporters argue that the current regulatory framework — which allows the Federal Reserve to set holding periods that have historically been shorter — forces bank-affiliated investors to exit positions prematurely, often at a loss or below fair market value. They contend that a 15-year minimum aligns merchant banking hold periods with the long-term nature of private equity investments and would allow bank holding companies to deploy capital more efficiently into growing businesses, potentially increasing returns and strengthening bank balance sheets. They further argue that the Gramm-Leach-Bliley Act of 1999, which authorized merchant banking for financial holding companies, intended robust participation in private markets that short hold periods have undermined.
Opponents argue
Opponents argue that longer hold periods increase the duration and concentration of illiquid, high-risk equity positions on bank holding company balance sheets, potentially amplifying systemic risk — a concern underscored by the 2008 financial crisis, which was partly driven by complex, hard-to-unwind bank exposures. They contend that stripping the Federal Reserve of discretion to set shorter hold periods removes a key prudential tool, and that locking in a 15-year floor — including retroactively for existing investments — limits regulators' ability to respond to changing market conditions or emerging financial stability threats. They also argue that applying the new period retroactively to existing investments is an unusual statutory intervention into ongoing regulatory arrangements.
Constitutional context
Congress has broad authority to regulate bank holding companies under the Commerce Clause (Art. I, §8, cl. 3), as banking and financial markets are quintessentially interstate commercial activity under Wickard v. Filburn (1942). No significant constitutional tension is apparent; this bill modifies an existing statutory framework rather than creating a sweeping new regulatory regime that would trigger major questions doctrine concerns under West Virginia v. EPA (2022).
Checks and balances
Congress gains authority by setting a statutory floor on holding periods, reducing the Federal Reserve's discretionary rulemaking power; the Federal Reserve retains authority to set rules above the 15-year floor, and courts could review any implementing regulations under the post-Chevron independent judgment standard established in Loper Bright v. Raimondo (2024).
Historical precedent
The Gramm-Leach-Bliley Act of 1999 originally authorized merchant banking activities for financial holding companies under the Bank Holding Company Act, establishing the framework this bill would modify.