Can financial institutions do both good and well?  A pilot program in bipartisan House legislation (H.R. 6421) goes beyond social-impact finance – in which companies do good, but do not necessarily profit thereby – to deploy a carefully-designed, limited federal guarantee to alter market incentives in a social-welfare critical sector:  treating and curing disease and disability.  At a politically-parlous time in which financial companies – especially way-big ones – are not exactly beloved, this legislation offers a chance not only to do both good and well, but also to advocate for a reputational-risk winner.

Why do I care so much about H.R. 6421?  Simply put, my husband and I have put five years of pro bono time into working with biomedical, fiscal-policy, and market experts to design the legislation.  Thanks to several of you reading this who have provided advice and counsel over these years.  I’ve a personal stake in the bill – its pilot project creates a guarantee for up to $1 billion of loans or other financial instruments for clinical trials to end blindness and severe vision impairment due to age-related macular degeneration, childhood sight loss, eye injuries (the leading injury-type for American military personnel in Iraq and Afghanistan), glaucoma, sickle-cell anemia retinopathy, and much else. 

Even if you’re not blind or don’t know anyone with severe vision impairment, this legislation also has a major upside for you and your families:  if the financial instruments piloted in this legislation works for blindness, then they will also work for many other diseases and disabilities.  If our preliminary budget scoring is right, then cures and treatments for everyone suffering now or to come will be radically accelerated – saving, extending, and enhancement all of our lives.

How does H.R. 6421 work and what’s in it for the green eye-shades at a financial-services company?

The bill’s short title is the “Faster Cures and Treatments for Eye Diseases Act.”  A good synopsis can be found in an op-ed by two of the bill’s cosponsors, House Rules Committee Chairman Sessions (R-TX) and senior Appropriations Committee Member Sanford Bishop (D-GA).  The two other original cosponsors are Reps. Fred Upton (R-MI) and Gus Bilirakis (R-FL), with cosponsors now being added every day following introduction on July 18.  I also discussed the concept in a 2014 MIT speech and a lecture earlier this year at the Federal Reserve Bank of New York.

In short, the bill authorizes a pilot program for up to five years of $1 billion in guarantees backing financial instruments we call “Eye Bonds.”  Early-stage, patient-focused biomedical research is usually called “translational” research because it bridges the gap between the basic research funded by the National Institutes of Health (NIH), private foundations, and other philanthropists and the later-state research funded by venture capital and large biopharma firms.  Translational research has a “valley of death” because of the huge funding gap between the bench and the bedside.

Eye Bonds would leap the translational valley of death. They bring in long-term, low-risk institutional investors who now eschew translational biomed. The legislation works for these institutional investors for two reasons:  first, NIH picks the projects most likely to deliver on the promise of treatment and cure.  With NIH involvement, investors conquer the complexities of translational biomed that keep all but the most experienced VCs and biopharma companies out of this arena.  Secondly, a federal guarantee of up to fifty percent of principal obviously erases a lot of financial risk, making these investments also compatible with fiduciary duty.

Profit comes because Eye Bonds are issued to the private market by underwriters who, while operating under tough rules to prevent conflicts of interest, know that even the best-intentioned institutional investor in the world cannot hold an Eye Bond if it does not also provide a reasonable rate of return.  Eye Bonds will be structured to enhance return yet fund research, perhaps through structures such as long-term, zero-coupon bonds.  Taxpayers are protected due to a set of safeguards in the bill, notably that their guarantee has to be extinguished before private investors can profit.

There are two profit incentives built into Eye Bonds: first, fees earned by underwriters for successful floats and, then, market rates of return for like-kind instruments already snapped up by the institutional market. 

But, there’s yet another reason to advance Eye Bonds.  Eye Bonds are pilot instruments akin in many ways to early-stage “green bonds” promoting environment sustainability.  Started with one bond backed by the World Bank, green bonds are now a global market of at least $221 billion.  Many global financial-services firms have put in long, hard hours to craft this market not only to promote a shared social-welfare objective, but also to rebut claims that they only support environmental exploitation and pollution. 

The market is the size it is now because this goal comports with profit objectives.  Environmental sustainability is of course essential, but so are treatments and cures for the diseases and disabilities that endanger many of us and impoverish so many millions more.  By urging Congress quickly to enact H.R. 6421, the financial services industry can open up a huge new market with far-reaching rewards not just for all of us, but also for their bottom line.