Banks would be freer to trade for profit under Fed proposal

WASHINGTON » The largest U.S. banks would have leeway to take riskier trading bets for their own profit under proposed changes the Federal Reserve unveiled Wednesday.

The changes would loosen rules that since the 2008 financial meltdown have barred big banks from using depositors’ money to make sizable bets on stocks and bonds. The Fed now wants to relax these regulations, thereby giving Wall Street greater ability to engage in profit-making trades.

The action the Fed proposed Wednesday would make it easier for all banks to comply with the Volcker Rule, while giving the greatest relief to banks that do less trading. The rule, established under the 2010 Dodd-Frank financial regulation law, was designed to limit the high-risk trading that big banks could do. Those financial institutions needed taxpayer-funded bailouts after the 2008 crisis — a was ignited by risk-taking.

The changes would be applied according to how much trading banks do. At the upper level would be banks with at least $10 billion in trading assets and liabilities. Fed officials said 18 banks fall into that category, accounting for 95 percent of U.S. bank trading and include some foreign banks with U.S. operations.

Less stringent requirements would apply to banks that do less meltdown that their excessive trading. The idea is to give the banks greater clarity on their permissible trading activity without sacrificing their financial soundness, the officials said.

In addition, banks with less than $1 billion in trading assets would be exempt from the requirement that the CEO vouch each year for the bank’s compliance.

“Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements,” Fed Chair Jerome Powell said at a meeting of the central bank’s governors.

The move coincides with other government efforts to ease financial regulations and protections that were tightened after the 2008 crisis. President Donald Trump has pushed for such changes, arguing that the stricter financial regulations have constrained economic growth.

Congress has, for example, loosened requirements on how much capital smaller banks must keep as a base to cushion against unexpected big losses.