I propose creation of a venture bank, able to multiply the capital of a venture capital firm by up to 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  . 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 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 derivatives which 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.
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up to
at least
A
. I further propose a new feature for insurance type derivatives which is a clawback lien, here 77\%, to be paid back to the underwriter to prevent perverse incentive