Large banks get a large postponement of a post-crisis rule to stem risky behavior on Wall Street.
Federal Bank regulators on Wednesday unveiled a comprehensive proposal to mitigate the Volcker Rule, a cornerstone of the 2010 law after the financial crisis, to curb risky trades. The change would give Wall Street banks more freedom to complete their own complex bets – activities that can be highly profitable but also make them more vulnerable to losses.
The rule, part of the wider Dodd-Frank law, was introduced Prevent banks from making insecure bets with deposits. Five agencies took three years to write it, and Wall Street criticized it as too burdensome and damaging for the smooth functioning of financial markets. On Wednesday, the Federal Reserve suggested that several parts of the rule be eased, and four more regulators are likely to follow suit soon and launch a public statement, which is expected to take 60 days.
The easing of the Volcker Rule is part of a coordinated effort in Washington to ease the rules introduced in the wake of the 2008 financial crisis. Large banks, encouraged by President Trump's deregulation agenda and a more favorable political climate in Washington, have begun to push for changes to several post-crisis rules, including the Volcker Rule.
Last week, Mr. Trump signed a bipartisan bill that provides for this to free thousands of small and medium-sized banks from the Dodd-Frank Act, and on May 21, he signed a law to lift a consumer protection rule to prevent discrimination lender. The Fed and the Office of the Comptroller of the Currency have recently proposed easing the limits on the largest banks, and the Fed has also proposed changes to the stress tests that banks will have to carry out each year to determine whether they are facing an economic downturn can withstand. 19659002] Mr. Trump's deputy director of finance, Mick Mulvaney, has also been involved since November in a number of fast-paced regulatory changes, including the cessation of new investigations, the freezing of new employees and the Agency's prevention of certain data from banks.
on Wednesday said Volcker Rule's primary intent would remain intact and that banks would not be able to return to the wild days of proprietary trading when traders made big bets with the bank's money and sometimes lost huge sums of money. But they said the rule had to be simplified to make it easier for the banks to comply, and Washington could enforce it properly.
"The proposal will address some of the uncertainties and complexity that make it difficult for companies to know how to best meet them, and for regulators to know that they are in compliance," said the chairman the Fed, Jerome H. Powell, at a meeting of governors. "Our goal is to replace excessively complex and inefficient requirements with leaner requirements."
Although the Volcker rule is not the most important post-crisis rule, it is the most recognizable one. It was taken at the behest of Paul Volcker, a former Fed chairman who warned that Wall Street was ruthlessly playing with house money. On Wednesday, Mr Volcker, now chairman of the Volcker Alliance think-tank, welcomed efforts to simplify compliance with the rule, but said in a statement: "What is important is that simplification does not undermine the underlying core principle of taxpayers. supported banking groups, of whatever size, do not participate in proprietary trading that conflicts with the fundamental public and client interests. "
He added," I trust that the final rule will maintain this position its practical Application. "
All three seated Fed governors voted to publish the proposal, which will be publicly available and could change before it is finalized. At a brief Fed meeting to discuss the rule, officials emphasized that the changes were merely improvements that resulted from their experience in monitoring the implementation of the rule, including what worked and not.
Bank attorneys said the Fed was it He clearly sought to isolate himself from criticism by giving the banks too much leeway, explaining that the changes were based on experience monitoring the rule.
"For people who say, 'You go too easily to the bank' Response is 'we have data saying that's not true,' said Douglas Landy, a partner at Milbank, Tweed, Hadley & McCloy, helping some of the largest banks to stick to the Volcker rule. "It's the kind of language you would not see in a Fed report before the financial crisis or Dodd Frank if they were unaware of the policy implications."  The six largest US banks all have either direct or enforced trading groups for rule changes, and representatives of JP Morgan Chase, Goldman Sachs, Morgan Stanley and Wells Fargo did not comment on the proposal, while Bank of America and Citigroup representatives
But the changes would change how much time the banks would have to spend to follow the Volcker rule and give them more leeway to determine what types of trades ent It would also shift the burden of proof to determine whether Volcker trades from bank to regulator.
Now banks must prove that every trade fulfills a clear purpose that goes beyond a speculative bet by showing regulators how each trade meets either customer requirements or serves to hedge specific risks. This had limited trade in a variety of assets such as derivatives, corporate bonds and other complex products.
According to the changes outlined on Wednesday, banks no longer have to provide evidence for any specific trade and instead must conduct strict internal controls on compliance programs to ensure that they meet Volcker's rule requirements. The change would allow banks to engage more freely in hedging, where they do business to counteract risks in other parts of their business.
Regulators would also give banks more leeway to determine what levels of trade they are meeting to meet customer requirements at each of their trading desks. That would be a departure from the current rule, which sets rigid standards that do not distinguish between trading departments that serve various assets, such as corporate bonds and derivatives.
In a briefing for journalists on Wednesday, an agency official said that banks should set aside their own risk and activity limits to help alleviate the difficulties that large banks face with their various market activities can differ greatly from each other, meet rigid standards.
Regulators will continue to trade information from the largest banks, which are subject to strict supervision and supervision as part of the post-crisis better post-crisis supervision process.
Lael Brainard, a governor of the Fed appointed by President Barack Obama, said Wednesday she supported the proposal as long as the bank executives were willing to personally confirm future claims that their institutions were stuck with the restriction.
"The requirement of C.E.O. attestation is, in my opinion, crucial to achieving this," said Mrs. Brainard in prepared remarks.
Other changes would categorize banks depending on how much trading they do on Wall Street. Banks that trade the least would have the simplest conditions to comply with this rule, an amendment that is consistent with the recent move by Congress to discourage even the smallest banks from complying with the Volcker rule. […] Outrage among consumer advocates and other financial guardians warning against returning to Wall Street
This proposal is not a small technical revision of the Volcker Rule, but an attempt to unravel basic elements of the response to the 2008 financial crisis as banks funded their gambling with taxpayer money, "said Marcus Stanley, Policy Director at Americans for Financial Reform Statement.
Senator Elizabeth Warren, Massachusetts Democrat, who was among the most vocal critics of changes to Dodd-Frank, called the proposal the latest example of corruption in Mr. Trump's Washington.
"Even as a bank They make record profits, their former bankers become regulators who do them a favor by reversing a rule that protects taxpayers from another bailout," Warren said.
But business groups applauded Wednesday's adoption of the Volcker Rule as a step in the right direction – one that would allow banks to operate more efficiently.
The Securities Industry and Financial Markets Association said the Fed's vote showed that regulators are finally recognizing the "unintended negative impact" of the complex rules of the financial system. And the American Bankers Association praised policymakers for "taking sensible steps to make regulations more risk-adequate."
David Hirschmann, president of the Center for Capital Markets Competitiveness of the United States Chamber, said it was time for a more efficient Volcker Rule
"We are pleased that regulators understand that the Volcker Rule is currently key financing hindered for American companies, "said Hirschmann.