WASHINGTON (Reuters) – US regulators proposed on Wednesday to simplify a scheme introduced after the 2007-2009 financial crisis that prohibits banks from trading on their own account to facilitate compliance for many companies.
The recast of the Sun Volcker Rule Takes note of another step by regulators under US President Donald Trump to loosen the rules of the Dodd-Frank Financial Reform Law of 2010 to boost lending and economic growth.
Banks have long complained about the rule that lenders should not accept the deposits of proprietary trading insured by US taxpayers is too vague and complex. The purpose of the recast is to clarify which businesses qualify for safe havens, such as when banks facilitate customer transactions and hedge risks, and extend these exceptions.
The proposal facilitates one of the more controversial aspects of the rule that only allows market-making and underwriting transactions by making it easier for companies to show that such deals are in demand from customers in the short term.
The changes would also create a tiered framework that would reserve the most rigorous supervision to the most active trading institutions, while leaving more room for smaller, less complex banks.
The country's 18 banks with trading assets of more than $ 10 billion (£ 7.5 billion), which together make up 95 percent of all trading activity, are subject to the strictest rules.
Banks with trading assets between $ 10 and $ 1 billion will enjoy a simpler set of rules, while banks with trading assets below $ 1 billion are considered compliant.
The proposal would also reject a subjective standard that assumes that banks' short-term trading is profit-oriented, unless they can prove otherwise and replace it with an accounting test.
This rule is overseen by the Federal Reserve and other US regulators who will formally submit this proposal in the coming days.
The proposal was unanimously approved by the three-headed Federal Reserve Board, including Lael Brainard, who had been nominated for post by former President Barack Obama.
Randal Quarle's deputy chairman said in a statement Wednesday that the goal is to simplify and adapt the rule, but further reforms across the board are possible.
"I see this proposal as an important milestone in Volcker's sweeping rule reform, but not as completion of our work," said Quarles, a Trump candidate.
The Volcker Rule, which lasted four years and covered around 1,000 pages, has forced many Wall Street banks to revise their trading operations and hedge funds and private equity funds worth billions Dig out dollars.
U.S. Congress wrote the broad lines of the Volcker rule in the law, but five regulators oversee the rule and wrote down their finer details.
The industry is trying to persuade Congress to overhaul the Volcker rule, but has failed so far, but regulators said on Wednesday that it can be revised without compromising the security and soundness of the financial system.
They added that the revisions would also make it easier for on-site bank auditors to enforce the rule. The proposal is subject to a 60-day comment period.
In a statement on Wednesday, former Fed Chairman Paul Volcker, who had conceived the rule, welcomed the proposal to simplify it.
"Crucially, simplification does not undermine the underlying core principle – that banks of any size supported by the taxpayer do not engage in proprietary trading that conflicts with the interests of the public and customers," said Volcker.
While the regulators considered the rewriting as moderate, consumer advocates warned that this would endanger taxpayers and depositors.
"Even when banks make record profits, their former bankers are being done to the regulators by turning back a rule that protects taxpayers from another bailout," Democratic US Senator Elizabeth Warren said in a statement.
Reporting by Michelle Price and Pete Schroeder; additional coverage by Patrick Rucker and David Henry in New York; Arrangement by Meredith Mazzilli