Volcker Rule Overhaul Approved by OCC Ahead of FDIC Board's Vote
Wall Street Poised to Get Long-Sought Changes to Volcker Limits
(Bloomberg) -- Wall Street regulators are set to roll out a Volcker Rule overhaul that’s meant to respond to banker complaints about the trading ban’s complexity and compliance demands.
In a Tuesday statement, the Office of the Comptroller of the Currency announced it had signed off on the five-agency rewrite of the post-crisis measure ahead of a Federal Deposit Insurance Corp. board vote later in the day. Other regulators responsible for Volcker, including the Federal Reserve and the Securities and Exchange Commission, are expected to approve the rule in the coming weeks. The OCC statement didn’t make public the Volcker overhaul that it approved.
The revamp, known as Volcker 2.0, is an attempt to simplify the “proprietary trading” ban that forbids banks from making short-term investments with their own capital. It also aims to clarify some limits on banks’ investing in private equity and hedge funds.
Agencies are expected to propose further modifications of the rule’s investment-funds limits to make them easier to understand and narrow them to the types of investing the law was supposed to target.
Key Details
- The final rule will remove an “accounting prong” that was floated last year as a new way for determining which types of trading would be permitted, according to people familiar with the effort. Regulators will instead lean on easier-to-digest models already within the original rule, the people said.
- The scope of banned trading isn’t expected to change substantially from the original 2013 rule, but the banks’ ability to make markets for customers will be made clearer.
- Goldman Sachs Group Inc. has been in the vanguard of industry players lobbying for an overhaul of the rule. The bank had long been a trading powerhouse, and it retained stakes in certain investment funds for years as it awaited changes.
- The final rule is also expected to make changes to the fund-investing side that could allow some increase in that type of investing, people familiar with it have said. Among the changes will be clarifying that banks can build stakes in funds on behalf of their clients without having to count them against their banks’ own limits, the people said.
- Regulators expect to issue further proposals on treatment of fund investments, the people said. The agencies also will try to further focus the limits on private equity and hedge funds without expanding to other types of covered funds.
- “The battle on covered funds is plain and simple about whether the covered funds restrictions will cover securitizations -- which they plainly did in the statute,” said Marcus Stanley, policy director of Americans for Financial Reform. “The regulators gave a bunch of exemptions to securitizations in the original rule and now industry wants securitizations exempted entirely.”
- Stanley’s group and others, including Better Markets, have said that this new version sounds so different than last year’s proposed rule that it may be vulnerable to legal challenge.
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To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott
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