The Federal Reserve, along with four other regulatory agencies announced Tuesday they gave final approval to changes in the Volcker rule.
Back in 2018, the Federal Reserve unveiled its plan to soften regulations within the Volcker rule, which imposes limits on large banks in proprietary investment activities.
In 2013, as part of the Dodd-Frank Act, regulators including the Federal Reserve and the Federal Deposit Insurance Corp. approved of the final rule after years of deliberation.
But now, the Federal Reserve explained it is seeking to reduce banks’ compliance costs while maintaining the rule’s effectiveness and consistency. The Fed, along with the Federal Deposit Insurance Corp., the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and the Securities and Exchange Commission all announced the approval and adoption of the rule’s changes.
An article by Martin Crutsinger for Associated Press explained, “The changes were supported by the banking industry, which felt that the original rule seeking to prevent banks from speculative trading with government-insured deposits was too restrictive. But they were opposed by Wall Street watchdog groups and the rule’s namesake, former Fed Chairman Paul Volcker.”
“The new rule amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis,” Volcker wrote in a letter to Federal Reserve Chairman Jerome Powell.
The rule makes several changes including tailoring regulation to the size of a bank’s trading activities. Banks with trading assets and liabilities of more than $10 billion will still be required to follow the rule’s most extensive requirement set.
However, banks with less than $10 billion and more than $1 billion in trading assets and liabilities will still be subject to regulation, but the compliance obligations would be lessened. Finally, banks with less than $1 billion in trading assets and liabilities would be subject to the lowest level of regulatory compliance.
The new changes to the rule will take effect on January 1, 2020 in order to give banks time to comply with the changes.