I propose creation of a venture bank, able to multiply the capital of a venture capital firm by at least 47 times, without requiring access to the Federal Reserve or other central bank apart from settlement. This concept rests on insuring loans in order to create the capital required, and expand Tier 1 and 2 base capital. Profitability depends on overall portfolio performance, availability of default insurance notes , cost of default insurance , and the multiple of original capital (MOC) adopted by the venture bank. I propose a new derivative financial instrument, the Default Insurance Note (DIN ), to insure loans to venture investments. A DIN is similar to a credit default swap (CDS) but with a host of unique features. The features and operation of these new derivative instruments are outlined along with audit requirements. This instrument would be traded on open-outcry exchanges with special rules to ensure orderly operation of the market. It is the creation of public markets for DINs that makes possible the use of public market pricing to indirectly establish a market capitalization for the underlying venture-bank investment , which is the key to achieving regulatory acceptance of the fully-insured version of this proposal. That fully-insured version insulates the venture-bank from losses in most situations, and multiplies profitability quite dramatically in all scenarios. Ten year returns above 10X are attainable. I further propose a new feature for insurance type derivativeswhich is a clawback lien, here 77\%,  to be paid back to the underwriter  to prevent perverse incentive . This proposal solves an old problem in banking, because it matches the term of the loan with the term of the investment. I show that both the venture investment and the DIN underwriting business are profitable.
I propose creation of a venture bank, able to multiply the capital of a venture capital firm by at least 47 times, without requiring access to the Federal Reserve or other central bank apart from settlement. This concept rests on obtaining default swap instruments on loans in order to create the capital required, and expand Tier 1 and 2 base capital. Profitability depends on overall portfolio performance, availability of equity default swaps , cost of default swap , and the multiple of original capital (MOC) adopted by the venture bank. A new derivative financial instrument, the equity default swap (EDS ), to cover loans made as venture investments. An EDS is similar to a credit default swap (CDS) but with some unique features. The features and operation of these new derivative instruments are outlined along with audit requirements. This instrument would be traded on open-outcry exchanges with special features to ensure orderly operation of the market. It is the creation of public markets for EDSs that makes possible the use of public market pricing to indirectly provide a potential market capitalization for the underlying venture-bank investment . Full coverage insulates the venture-bank from losses in most situations, and multiplies profitability quite dramatically in all scenarios. Ten year returns above 20X are attainable. Further, a new feature for EDS derivatives, a clawback lien, closes out the equity default swap. Here it is optimized at 77\%, and is to be paid back to the underwriter at a future date to prevent perverse incentive to deliberately fail. This new feature creates an Equity Default Clawback Swap (EDCS) which can be used safely. This proposal also solves an old problem in banking, because it matches the term of the loan with the term of the investment. I show that the venture-bank investment and the EDCS underwriting business are profitable.
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insuring
obtaining default swap instruments on
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default insurance notes
equity default swaps
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insurance
swap
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I propose a
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Default Insurance Note (DIN
equity default swap (EDS
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insure loans to
cover loans made as
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A DIN
An EDS
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a host of
some
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rules
features
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DINs
EDSs
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establish a
provide a potential
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, which is the key to achieving regulatory acceptance of the fully-insured version of this proposal. That fully-insured version
. Full coverage
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10X
20X
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I further propose
Further,
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insurance type derivativeswhich is
EDS derivatives,
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here
closes out the equity default swap. Here it is optimized at
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and is
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at a future date
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. This proposal
to deliberately fail. This new feature creates an Equity Default Clawback Swap (EDCS) which can be used safely. This proposal also
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both the venture
the venture-bank
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DIN
EDCS