Fed seeks to allow banks more flexibility in investments

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The Federal Reserve plans to release a fresh revamp of the Volcker Rule by this year’s fourth quarter after Wall Street assailed an earlier proposal as not going far enough to ease burdens on banks and simplify the post-crisis trading limits.

“I expect early in the fall we will have a proposal out that responds to a lot of the comments we’ve received,” Fed Vice Chairman for Supervision Randal Quarles said during a Thursday panel discussion at the Bipartisan Policy Center in Washington. Quarles said the coming proposal — which must be approved by several agencies — will better address how regulators handle the restrictions on trading at banks.

Quarles said the effort will also have proposals for overhauling the Volcker Rule’s limits on banks investing in certain funds, which the much-criticized previous version didn’t include.

The Volcker Rule was part of the 2010 Dodd-Frank Act to remake banking industry oversight after the financial crisis. It was put in place in 2013 by the Fed, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency. Since then, it’s been among the most maligned of the post-crisis constraints, and regulators appointed by President Donald Trump moved to re-write it last year.

That initial effort was greeted with derision on Wall Street, with banks arguing that the changes could make compliance with the rule more difficult. Bloomberg News reported in April the final version intended to scrap the controversial “accounting prong” centerpiece and fall back on an existing definition of proprietary trading known as the market-risk capital prong. While Quarles and the Fed have been leading the Volcker Rule effort, they’ll need sign-off from the other four agencies.

Quarles added that other major Fed initiatives may be done around the same time, including a wide-ranging set of rules — so-called tailoring proposals — that would re-calibrate bank capital, liquidity and leverage requirements based on the size and complexity of each individual bank. And Quarles said the Fed has also been discussing adjustments to the way another capital rule known as the countercyclical capital buffer operates.

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