Fed eases Volcker Rule for banks

11 months ago 45
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June 25 (UPI) -- The Federal Reserve and other financial agencies Thursday approved changes to the Volcker Rule, allowing banks to increase their investments in venture capital funds.

The Fed, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. made the changes providing more clarity to what will be allowed. Banks will be able to increase investments in venture capital funds and gain money they held onto to back derivatives trades.

It marked a continued relaxation of restriction under President Donald Trump. Last year, the Fed, OCC and FDIC eased Volcker restrictions to allow lenders to engage in proprietary trading. That allows institutions to make market bets for themselves instead of on behalf of clients.

The new rule modifies "the Volcker rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, known as covered funds," the Fed said in a statement. "The final rule is broadly similar to the proposed rule from January."

The previous rule, established as part of the 2010 Dodd-Frank Act aimed at preventing another financial crisis, generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

The Fed said the new rule would streamline the covered funds portion of the rule, address the extraterritorial treatment of certain foreign funds and permit banking entities to offer financial services and "engage in other activities that do not raise concerns that the Volcker rule was intended to address."

The FDIC board voted 3-1 to pass the new rule, with Democratic board member Martin Gruenberg opposing it for "weakening" protections established by the Volker Rule.

The change eliminates a requirement that banks hold margin for derivative trades between affiliates, which could free up roughly $40 billion for Wall Street banks. That change includes a limit, requiring margin to be set aside if it would have surpassed 15 percent of so-called "Tier 1" capital under the previous rule.

The move sent bank stocks higher Thursday.

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