Volcker Rule to undergo ‘material changes,’ Fed official says

Federal Reserve Vice Chairman Randal Quarles says U.S. financial regulators are working quickly to make “material changes” to the Volcker Rule, one of Wall Street’s most hated post-crisis restrictions.

“The Volcker Rule is an example of a complex regulation that is not working well,” Quarles said Monday at an Institute of International Bankers conference in Washington, bringing into greater focus the overhaul effort involving the Fed and four other agencies.

The measure named for former Fed Chairman Paul Volcker was included in the Dodd-Frank Act as a way to reduce risk-taking by banning banks from trading with their own money. It has been a top target of Trump administration plans to dial back financial regulations as a way to drive economic growth.

The Treasury Department called for Volcker Rule changes when it released a series of reports last year on ways to revise financial industry rules. The five agencies responsible for the rule have been meeting since then to formulate a plan, Quarles said.

Describing the rule as overly confusing and difficult to follow, Quarles said the Fed is devoting special attention to simplifying its definition of market making — a permitted activity in which banks help their clients buy and sell assets. The Fed is considering giving banks more leeway to stockpile securities that they think their customers might want to trade, he said.

The rule’s existing definition of market making “rests on a number of complex requirements that are difficult or impossible to verify in real time,” Quarles said. “As a result, banks spend far too much time and energy contemplating whether particular transactions or positions are consistent with the Volcker Rule.”