House Clears Bill That Makes It Easier to Soften Volcker Rule

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(Bloomberg) -- The U.S. House passed legislation Friday that would make the Federal Reserve the sole regulator in charge of the Volcker Rule, a change that Wall Street banks have sought for years because they believe it will make complying with the controversial provision less burdensome.

The Fed now shares oversight of the Volcker Rule with four other agencies, including the Securities and Exchange Commission and the Office of the Comptroller of the Currency. Banks argue the situation leads to duplicative oversight, and makes it challenging to lobby for tweaks because five different regulators have to agree on any revisions.

Named after for former Fed Chairman Paul Volcker, the regulation has been controversial ever since its inclusion in the 2010 Dodd-Frank Act. Advocates say it reduces excessive risk-taking by restricting banks from trading with their own money and investing in hedge funds. But opponents argue it has made lenders too conservative, triggering a retrenchment from certain markets that has dried up liquidity.

The House bill, sponsored by Republican French Hill from Arkansas, was approved with bipartisan support, meaning it stands a decent chance of eventually being signed into law should the Senate pass a similar measure. House lawmakers could try to add it to broader legislation overhauling bank regulations that the Senate cleared earlier this year. Lawmakers might also seek to slip the Volcker Rule measure into a spending bill or other must-pass legislation later this year.

Trump Target

The Volcker Rule has been a top target of Trump administration plans to dial back financial regulations as a way to spur economic growth. Financial regulators appointed by President Donald Trump have already begun working on ways to revise the rule.

By making just the Fed responsible for the Volcker Rule, easing it could happen more quickly. While Fed Vice Chairman Randal Quarles, the central bank official in charge of overseeing Wall Street, has said that "material changes" are already underway, there isn’t yet consensus among all five agencies on how to proceed.

The Treasury Department has also proposed changes, include exempting small banks completely and recommending that all lenders have more flexibility to buy and sell assets without violating the rule’s ban of proprietary trading, the practice of investing for themselves rather than for clients.

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