![]() Wells Fargo declined to comment for this story, noting that the regulations are not yet final. “Is that really what you want institutions that have safety net support doing? Is that an appropriate use for a government backstop?” she told Reuters. ![]() Sheila Bair, the former chairman of the Federal Deposit Insurance Corp, which guarantees the deposits of banks like Wells Fargo, said private equity and merchant banking are too far removed from regular banking. Some argue that banks should be blocked from any form of private equity investing. Some critics warn that the Volcker Rule is banning the safer of the two activities, and allowing the one that could lead to bigger losses for a bank. The merchant banking that Wells Fargo is embracing is riskier than investing in private equity funds with outside investors, where a bank shares any losses with others. Their decisions may run counter to rulemakers’ efforts to make the financial system safer. Wells Fargo’s private equity investments show how even button-down, staid banks are looking for loopholes in financial regulations as they seek to boost their profits. By avoiding equity from outside investors, the bank is considered to be engaging in “merchant banking,” an activity that is likely to be exempt under the Volcker Rule, lawyers and people familiar with the matter said. The bank invests in buyouts and venture capital deals largely on its own, with capital only from Wells Fargo itself and some employees. Major banks such as Bank of America Corp BAC.N and Citigroup Inc C.N are already pulling back from private equity investments ahead of the rules.īut Wells Fargo is taking a different path. The fine print of the Volcker Rule - named for former Federal Reserve Chairman Paul Volcker - is expected to be finalized as soon as this year. In a section of the law known as the “Volcker Rule,” they blocked banks from making big bets with their capital, including sizable investments in private equity funds, fearing taxpayers would be left on the hook when wagers soured. lawmakers shared Kovacevich’s skepticism about private equity when they crafted the Dodd-Frank financial reform bill in 2010. “I was skeptical, met with the people and became convinced that they absolutely knew what they were doing and that this was a business we could manage and do well,” said Kovacevich, who became CEO of Wells Fargo when it merged with Norwest in 1998, and retired as chairman of the fourth-largest U.S. ![]() Wells Fargo CEO Dick Kovacevich at San Francisco headquarters. ![]()
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