FDIC issues its revised Volcker Rule proposal; Gruenberg says it preserves ‘core principles’ of original

The federal bank deposit insurer issued its own proposal Thursday on revising the “Volcker Rule,” with its outgoing board chairman giving his support after asserting the proposal preserves the core principles of the rule first adopted five years ago.

In a statement (which he read at a Thursday meeting of the Federal Deposit Insurance Corp. [FDIC] Board), agency Chairman Martin Gruenberg said that from his standpoint, the central goal in proposing changes to the existing Volcker Rule (which places limits on proprietary trading and hedge fund and private equity investments) is to preserve the core principles of the rule “as the agencies seek to provide greater clarity and simplicity to facilitate compliance.”

Based on that, he said, “I am prepared to support publication of the proposed rule in the Federal Register for public notice and comment.” He joined the two other members of the board attending the meeting – Bureau of Consumer Financial Protection (BCFP) Acting Director Mick Mulvaney, and Comptroller of the Currency Joseph Otting (participating via phone) – in voting to issue the proposal for a 60-day comment period.

The only other member of the board, newly confirmed FDIC Chairman Jelena McWilliams, did not attend or participate in the meeting or vote. She was confirmed by the Senate, 69-24, May 24; she was confirmed to a seat on the FDIC Board by a voice vote.

Gruenberg – a holdover as chairman since his term in that role ended in November – prefaced his remarks by noting in 2013 that the FDIC, and other agencies, agreed to revisit and revise the Volcker Rule from time to time to ensure it faithfully implemented “the requirements and purposes of the statute in a manner that allows for effective supervision and enforcement.”

To that end, Gruenberg said, the FDIC worked five years ago with the other agencies participating in rulemaking to “explore modifications to the regulation intended to provide clarity to the requirements of the rule, to simplify compliance, and to improve supervision and implementation, but only within certain parameters under which the core principles of the Volcker Rule would be preserved.”

Gruenberg listed those parameters in the proposal as including:

  • the fundamental definition of proprietary trading is unchanged;
  • the definition of “covered funds” remains robust;
  • the prohibition on high-risk trading strategies and high-risk assets remains intact;
  • the supervisory framework remains robust;
  • robust metrics of reporting requirements remain in place;
  • meaningful CEO attestation requirements are retained.

The Bank Holding Company Act (BHC), FDIC noted, requires the FDIC to issue the rule jointly with the OCC and the Federal Reserve. The law also states that those three agencies, and the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission — must consult and coordinate with each other in adopting implementing rules.

Statement of Martin J. Gruenberg Chairman, Federal Deposit Insurance Corporation Notice of Proposed Rulemaking: Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Pr