Merchant Banking Modernization Act
Click any stage to learn more about the legislative process.
Would require regulators to allow financial holding companies to hold merchant banking investments — equity stakes in private commercial companies acquired through financial services — for a minimum of 15 years, extending the current 10-year baseline.
The change would give financial holding companies more time to realize returns on private equity-style holdings before being forced to divest, potentially affecting how these institutions structure deals with private commercial clients.
What this bill would do
What it would do
The bill would amend the Bank Holding Company Act of 1956 to set a minimum 15-year holding period for merchant banking investments held by financial holding companies. Merchant banking investments are equity stakes — ownership interests — that financial holding companies can acquire in private, nonfinancial companies as a byproduct of providing those companies with financial services. Under the bill, the Federal Reserve Board's regulations could not set the general permitted holding period at less than 15 years, up from the current 10-year baseline (which is subject to extension by the Fed).
For investments already held on the date the bill is enacted, the 15-year minimum would run from the original date the investment was first made — not from enactment — ensuring that existing holdings receive the full benefit of the extended window.
Key provisions
- 1Would require that Federal Reserve Board regulations set the generally permitted holding period for merchant banking investments at no less than 15 years.
- 2Would apply the 15-year minimum retroactively to investments already held on the enactment date, measured from the original investment date rather than enactment.
Who would be affected
Financial holding companies — large bank-affiliated financial institutions that have elected holding-company status — that currently hold or plan to acquire equity stakes in private nonfinancial companies through merchant banking activity. The Federal Reserve Board, which sets and reviews the regulations governing these holding periods, would also be directly constrained by the new floor.
Why it matters
Under the current 10-year limit, financial holding companies can be forced to divest merchant banking holdings before they have fully matured, potentially at a loss or on unfavorable terms. A mandatory 15-year floor would give these firms more runway to manage and exit private equity positions on a longer investment timeline, reducing pressure to sell at inopportune moments.
What would change
Changes to existing law
Amends Bank Holding Company Act of 1956 (Sec. 2)
Inserts language into Section 4(k)(7)(A) requiring that regulations permit merchant banking investment holdings for at least 15 years, replacing the current 10-year baseline.
Amends 12 U.S.C. 1843(k)(7)(A) (Sec. 2)
Adds a minimum 15-year holding period floor for merchant banking investments, including a retroactive rule for investments held at enactment.
Agencies directed to act
Effective dates
- Retroactive 15-year minimum for investments held on enactment date, measured from original investment date
How implementation would work
The bill is largely self-executing: it inserts new minimum-period language directly into the Bank Holding Company Act. The Federal Reserve Board would need to conform its existing merchant banking regulations to the new 15-year floor. No new rulemaking process is specified beyond that conforming obligation. For pre-enactment investments, the clock runs from the original investment date, which institutions would need to document and certify to regulators when seeking to maintain holdings.
Legislative status & sources
Latest action
Placed on the Union Calendar, Calendar No. 320.
Official CRS summary
Show the CRS summaryHide the CRS summary
This bill requires financial holding companies to be allowed to hold merchant banking investments for a minimum of 15 years.
Currently, financial holding companies are generally prohibited from holding interests in nonfinancial companies, however, there are statutory exemptions for merchant banking activities—financial services for private commercial entities. As a result of these financial services, the financial holding company may gain equity in these private commercial entities through portfolio holdings. Under current regulations, these holdings are subject to certain limitations, including a holding limit of 10 years, with the option of extending the period subject to review by the Federal Reserve Board.
Legislative subjects
Bank accounts, deposits, capital; Banking and financial institutions regulation; Business investment and capital; Finance and Financial Sector
Committee report
H. Rept. 119-368