The Strategist

US largest banks win in the fight for Volcker Rule concessions

08/22/2019 - 11:14

U.S. watchdog eased trading rules for Wall Street banks, which brought them one of the biggest victories in the Trump administration, but sparked criticism from consumer advocates who warned of potential taxpayer risks.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have approved an updated version of the so-called Volcker Rule, which aims to prohibit lenders accepting US tax-insured deposits from trading using their own funds.

The changes, first proposed in May 2018, was preceded by years of lobbying by banks, including the Goldman Sachs Group, JPMorgan Chase & Co and Morgan Stanley, who had long complained that the rule was too vague and complicated.

The new rule gives banks more freedom from the point of view of trading activities and demonstrates a clearer picture of what kind of operations are prohibited.

Although many regulatory experts agreed that the previous rule was too cumbersome, the innovations have sparked a wave of criticism from consumer protection groups and Democratic lawmakers, who argue that the changes could put taxpayers at risk.

The purpose of amending the rules is to clarify which transactions are exempted from the ban, for example, when banks facilitate transactions with customers and hedge risks, as well as expand these exceptions. The final version cancels the identification procedure to identify their own trading operations, which, as banks complained, would make the rule even more complicated.

At the same time, innovations simplify certain parts of the rule, making it easier for banks to invest in hedge funds or private equity funds. Regulators said they plan to offer further mitigation of these aspects, including for foreign firms.