Entry into US Credit Markets by Sovereign Wealth Funds and Enterprises Controlled by Sovereign Wealth Funds
by Sean P. Mahoney, Eric S. Yoon
Recent developments have brought the structure of commercial lending platforms into sharp focus. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposes new restrictions and requirements on foreign banking organizations that are bank holding companies or are treated as bank holding companies under US law.
Meanwhile, collateralized loan obligation funds, as well as mutual funds that invest in commercial loans and loan participations, signal an active commercial credit market, with intense investor interest in exposures to quality commercial loans. At once a US commercial lending platform is highly desirable yet carries significant barriers to entry, particularly for non-US lenders.
The difference in regulation of commercial finance companies operated by foreign banking organizations versus branches, agencies and US banks operated by foreign banking organizations highlights the paradox of regulation: too much regulation can lead to a less regulated environment as industries move from heavily regulated activities to less regulated substitutes.
Sovereign wealth funds and foreign banks that do not operate branch or agency offices in the US could engage in lending activities through the operation of a commercial finance firm and avoid becoming subject to the BHC Act.