Federal banking agencies ease Volcker Rule restrictions
Associated Press
WASHINGTON – The Federal Reserve and four other regulatory agencies have announced they have finalized a rule that will ease restrictions curtailing the ability of banks to make investments in such areas as hedge funds.
The announcement of the easing of regulations known as the “Volcker Rule” gave an immediate boost to bank stocks because the rule change could free up billions of dollars in capital in the banking industry.
The Volcker Rule was part of the overhaul of banking regulation approved in the Dodd-Frank Act passed by Congress in 2010 in an effort to curtail excesses that had led to the 2008 financial crisis, the country’s worst banking crisis since the 1930s.
However, President Donald Trump had campaigned in 2016 on rolling back what he saw as over-regulation of the banks that he said had weighed on the economy by preventing the banks from making loans to qualified borrowers.
The Fed said the final rule, which will take effect on Oct. 1, is broadly similar to a proposal the agencies had put forward in January.
The rule rollback, which was opposed by Democratic appointees at both the Fed and the Federal Deposit Insurance Corp., represents one of the biggest victories for the Trump administration’s deregulation drive.
The Volcker rule, named for its chief proponent, the late Fed Chairman Paul Volcker, generally prohibited banks from engaging in proprietary trading and from acquiring ownership interests in hedge funds and private equity funds.
The looser restrictions approved Thursday will allow banks to more easily make investments in various areas of venture capital.wwBefore he died in December at age 92, Volcker criticized the rule change, saying it “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.”
In addition to the Federal Reserve and the FDIC, the changes were approved by the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission.