Volcker Rule exclusion for community banks set to take effect Monday

A final rule that excludes community banks from Volcker Rule prohibitions and restrictions on proprietary trading and certain relationships in hedge funds and private equity funds is set to take effect Monday, when it is scheduled to be published in the Federal Register.

The final rule – adopted by federal banking regulators and others July 9 – excludes community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5% or less of total consolidated assets from the Volcker Rule. The final rule also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser as long as the adviser is not an insured depository institution, a company that controls an insured depository institution, or a bank holding company.

The rule, written to implement provisions of last year’s Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155), was issued jointly by the Federal Reserve Board, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).

In other developments, the Fed Board’s top supervision official, Randal Quarles (vice chairman for supervision), has noted that additional Volcker Rule proposals are expected to be released this fall. These would follow from a proposal last summer to tailor Volcker Rule requirements for three tiers of firms based on trading activity level.

Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

RR: New Volcker Rule proposals out this fall, Quarles says (July 11, 2019)