The Fed proposed to ease the Volcker Rule, which bars banks from high-risk activity for their own profit with depositors’ money

This article is more than 2 years old

This article is more than 2 years old

The Federal Reserve is proposing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that helped trigger the 2008 financial meltdown.

The Fed under new leadership on Wednesday unveiled proposed changes to the Volcker Rule, which bars banks’ risky trading bets for their own profit with depositors’ money. The high-risk activity is known as proprietary trading.

The proposed changes would match the strictest applications of the rule to banks that do the most trading – 18 banks with at least $10bn in trading assets and liabilities. They account for 95% of all US bank trading and include some foreign banks with US operations, Fed officials said.

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Less stringent requirements would apply to banks that do less trading. The idea is to make it easier for banks to comply with the Volcker Rule without sacrificing the banks’ safety and soundness, the officials said.

“The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Fed chair Jerome Powell said at a meeting of the Fed governors. “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

The move comes amid other government efforts to loosen financial regulations, as Donald Trump has promised.

Fed officials said they received helpful input from other US financial regulatory agencies. The agencies, including the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, will discuss and possibly approve the proposal in their own meetings in coming weeks.

The proposal will be opened to public comment for 60 days.

It also would assume generally that a bank is in compliance with the rule if it records $25m or less in daily profits or losses from each trading desk over 90 days.

The Volcker Rule, crafted by regulators four and a half years ago, is a key plank of the landmark Dodd-Frank law intended to reduce the likelihood of another financial crisis and taxpayer-funded bank bailout. Trump has blamed Dodd-Frank for constraining economic growth.

The rule is named for Paul Volcker, a Fed chairman in the 1980s who was an adviser to former president Barack Obama during the financial crisis. Volcker urged a ban on deposit-funded, high-risk trading by big banks, believing that it would be effective in averting future economic crises.

There has already been a volley of modifications that unwind the stricter regulations put into place during the Great Recession.

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Last week, Congress approved legislation rolling back the Dodd-Frank law, giving Trump a key win on a campaign promise as he quickly signed it into law. The Republican-led legislation, passed with help from some opposition votes, was aimed at especially helping small and medium-sized banks, including community banks and credit unions. It eases oversight and capital requirements (and Volcker Rule compliance) for about two dozen banks falling below new capital thresholds, including BB&T, SunTrust Banks, Fifth Third Bank and American Express.

After the president installed him in November as acting director of the Consumer Financial Protection Bureau, Mick Mulvaney has shaped the watchdog agency established by the Dodd-Frank law and urged a curb on its powers. He has dropped a lawsuit against a payday lender, targeted agency enforcement powers in anti-discrimination cases and threatened a consumer complaint database. No banks or other financial institutions have been fined or sued since he took over.