Federal bank regulators are eyeing changes to soften the Volcker Rule, part of the broader Dodd-Frank law aimed at curbing risky behavior on Wall Street in the wake of the 2008 financial crisis. Since its implementation, Wall Street has criticized the rule as too onerous and harmful to the proper functioning of financial markets. Now, the Federal Reserve is proposing easing several parts of the rule.
The Volcker Rule was effective at limiting the amount of trading big banks did in derivatives, corporate bonds and other complex products. The rule was included at the behest of Paul Volcker, a former Fed chairman who was alarmed about banks gambling with consumer’s deposits. Five agencies undertook the writing of the rule, which took three years to finalize.
Now, regulators are proposing changes to the rule that would make it easier for banks to comply and for Washington to enforce. Fed chairman, Jerome H. Powell, said of the matter, “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.” Regulators said that the primary intent of the Volcker Rule would remain intact.
Under the changes, banks would have to enact strict internal controls and compliance programs to ensure they are meeting the requirements of the Volcker Rule. Regulators would also give banks more leeway to determine what levels of trading activity are appropriate for meeting customer demands. Other changes would group banks into categories according to how much Wall Street trading they do. Banks engaging in the least amount of trading would have the easiest set of requirements to comply with.
All three sitting Fed governors voted to release the proposal, which will be open to public comment period that is expected to last 60 days. The proposal could change before being finalized. The six largest United States banks have all previously lobbied either directly or through trade groups for changes to the rule. It will be interesting to see what public comments they make about the proposed changes.