WASHINGTON traders at major banks would be given more freedom to buy and sell without worrying about the Volcker rule under proposed changes unanimously approved by the Federal Reserve on Wednesday.
The proposal known as Volcker 2.0 would meet the compliance requirements for all banks, although it would give more relief to companies with small commercial desks. Four other US authorities are expected to follow the Fed to propose the changes next week. You will make public comments before completing the rule.
"This proposal represents our best first attempt to simplify and tailor the Volcker Rule," said the vice president of the Fed
said at the Fed's board meeting.
The Fed said regulators make the changes because the existing Volcker rule is too costly and unclear. The Rule, named after the former Federal Reserve Chairman
was adopted after the financial crisis, banning banks hedge fund-like speculative activity. Banks are allowed to act in line with client demand
In practice, it was difficult for regulators and bankers to judge traders' intentions. Many observers say the financial markets are not working so well because the big banks are nervous that certain positions might violate the Volcker rule. At the same time, many large banks have cut deals in search of more stable sources of revenue. Wednesday's proposal would eliminate the presumption that positions held for less than 60 days violate the rule, unless bankers prove otherwise could give traders more freedom. Instead, supervisors would examine how trading positions are defined under accounting rules. They would also examine whether trading departments are operating within the specified risk limits, with no profit or loss exceeding $ 25 million over a 90-day period.
The proposal also revises the definition of permissible hedging and market-making activities with the aim of clarifying them, and seeks to reduce the impact of the regime on the foreign activities of foreign banks.
The regulators also suggest creating three new banking groups. Those with trading assets and liabilities of more than $ 1
Companies under the $ 1 billion mark would probably follow the rule and would no longer need to be confirmed by their chief executive Volcker's compliance.
Write to Ryan Tracy at [email protected]