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Fed Announces Proposed Changes to Volcker Rule

On May 30, 2018, the Board of Governors of the Federal Reserve System (the “Fed”) announced proposed sweeping revisions to the regulations implementing section 13 of the Bank Holding Company Act (the “Volcker Rule”) which would ease rules restricting proprietary trading by insured banks.  The proposal was developed in conjunction with the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the Securities and Exchange Commission (“SEC”), and the Commodity Futures Trading Commission (“CFTC”).

The Volcker Rule (named after former Fed Chair Paul Volcker), enacted as part of the 2010 Dodd-Frank Act and finalized in 2013, sought to reduce the risk associated with the use of FDIC–insured deposits by banks in proprietary trading of stocks, bonds, commodities and other risky assets.  The goal of the Volcker Rule was to avoid large trading losses requiring a bail out, but the financial industry and current leadership of the key regulatory agencies have expressed concern of the costs and complexity of compliance.  The proposal would, amongst other things, group banks into three categories based on the dollar threshold of their trading activity, with comprehensive compliance requirements for banks trading more than $10 billion in assets and liabilities, reduced compliance requirements for banks between $1 billion and $10 billion, and a presumption of compliance for banks trading below $1 billion.    The proposal would also remove restrictions on short-term trading and require banks to enact global internal controls and compliance programs instead of requiring proof of compliance for each specific trade.

The public comment period for the proposed rule changes is 60 days from issuance, with comments to be submitted through the OCC.

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