The five federal banking and trading market regulators as of this week are all signed on to issuing a proposed rule that would greatly relieve regulatory requirements for many banks under the Volcker Rule, created in 2013 to prohibit proprietary trading by banking organizations.
The notice of proposed rulemaking, 494 pages long in draft format, is being issued jointly for comment by the Federal Reserve Board, the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC). SEC was among the last to sign on; like the CFTC, the commission was not unanimous in issuing this proposal. Comments will be accepted for 60 days after publication in the Federal Register.
The proposal tailors Volcker Rule requirements for three tiers of firms based on trading activity level. In brief, firms with less than $1 billion of consolidated gross trading assets and liabilities would have a rebuttable presumption of compliance with the rule. This group reportedly represents about 98 percent of total U.S. trading activity by banking entities.
A later proposal will address the Volcker Rule exemption provided by the recently enacted Economic Growth, Regulatory Reform, and Consumer Protection Act. Signed into law May 24, the statute exempts from the Volcker Rule banks having less than $10 billion in consolidated assets and total trading assets and liabilities equaling no more than 5% of consolidated assets; it also revises naming provisions for covered funds.
While this proposal doesn’t address the new exemption, regulators do not plan to enforce Volcker Rule restrictions “in a manner inconsistent” with the new law. They add that the proposed rule itself is not inconsistent with the statutory Volcker Rule changes.