Banks to get more Volcker Rule relief
Banks have long complained that steep compliance burdens make it almost impossible to use an important break they got in the Volcker Rule to hedge against losses.
In their coming overhaul, the Federal Reserve and other regulators are expected to address Wall Street’s grievance, another way the landmark postcrisis rule is shifting in the industry’s favor under President Donald Trump.
At issue is what’s known as the hedging exemption included in Volcker, which stipulated that banks aren’t violating the rule’s restrictions on speculative trading as long as they can show transactions offset market risk.
Chosen by Trump
To make it much easier to take advantage of the exemption, Trump-appointed regulators intend to eliminate some requirements that firms document their hedges and the market positions they’re tied to, said three people familiar with the proposal. Instead, regulators would allow more general assurances from banks that they’re keeping track of risks, said two of the people who asked not to be named because the proposal isn’t public.
The revamp, known within agencies as Volcker 2.0, is the latest effort by financial regulators to soften rules that the Trump administration blames for holding back economic growth. Volcker, one of the most sweeping demands that followed the 2008 financial crisis, banned banks from trading purely for their own benefit.
In another key change reported by Bloomberg News last week, regulators plan to scrap a presumption in Volcker that all short-term trading violates the rule. That revision would give banks more leeway to conclude that their buying and selling complies with Volcker, putting the onus on regulators to challenge such judgments. Federal agencies are also likely to make it easier for lenders to stockpile assets that their customers might want to buy in the near term.
After the crisis
Taken together, the tweaks could blunt the edges of Volcker, which named after former Fed Chairman Paul Volcker. Its advocates say the rule was necessary to make the industry safer after the crisis. But critics say the regulation is overly complex and difficult to comply with.
The five agencies that oversee this core section of the 2010 Dodd-Frank Act — the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., SEC and Commodity Futures Trading Commission — are expected to propose their overhaul as early as next week.
The unveiling of the regulators’ plan will be the first step in a lengthy process that will include votes at the agencies on whether to seek public comment on the proposal followed by what could be months of rewriting before a final round of votes on making the changes official.