Five US financial regulators announced on Thursday that they are finalizing their proposal to ease the ‘Volcker Rule’, one of the financial industry’s most-hated restrictions. The rule imposes a prohibition on risky proprietary trading by Wall Street banks.
The five are the Fed Board, CFTC, SEC, FDIC and the Office of the Comptroller of the Currency. These all approved the legislation in 2013.
The final rule will take effect in October and it particularly modifies three areas to streamline the covered funds rules, as well as addressing “the extraterritorial treatment” of certain foreign funds and permit banks to offer financial services.
Since taking the office in 2017, President Trump proposed reducing the overly complex requirements that entirely ban proprietary trading by banks with a more streamlined set of rules.
The proposal reflects the widespread agreement that material changes to the controversial regulation would be inevitable, in a bid to streamline bans on specific types of bank trading put in place after the 2007-2009 financial crisis.
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Named for former Fed Chairman Paul Volcker, the rule is meant to stop some of the risky banking practices that contributed to the economic meltdown. The regulation makes it illegal for big banks to use their customer’s deposits, through government-insured loans, to make speculative, risky bets.
However, the industry has long argued that Volcker rule is too complex that it blocks needed market liquidity vehicles and prompting lenders to go too far in retreating from the market.
Trump is translating campaign rhetoric into reality
The Fed is taking the lead in revising the restrictive rule and making it more friendly to banks. The draft proposes changes that cancel the so-called ’60-day rebuttable presumption’, which would soften constraints on the ability of firms to hold positions for 60 days or less. The Volcker rule is intended to discourage such short-term holdings so as to prevent banks from triggering another financial meltdown.
Trump is once again translating his campaign rhetoric into reality. The president made repealing the Dodd-Frank act one of his campaign’s focal points.
However, the timing of an actual replacement for Dodd-Frank remains unclear as only Congress can rewrite the legislation. But between now and the possible passage of overhauling legislation, Trump has been able to make many changes without involving lawmakers by appointing new regulators and ordering them to ignore most of the Dodd-Frank rules.