The board of directors of the Federal Deposit Insurance Corp. voted 3-1 on Tuesday to give big banks more leeway to make risky short-term bets on the financial markets by relaxing a historic but highly controversial regulation known as the Volcker Rule.
The FDIC and four other independent agencies have abandoned their proposal to tie the rule to a strict accounting standard – a decision that banks say would have made it more cumbersome by making additional transactions subject to increased scrutiny. According to the text of the final rule, regulators will give banks the benefit of the doubt over a much wider range of transactions.
History continues below
The Democrats immediately criticized the Trump government for easing the rule, which had been mandated by the 2010 Dodd-Frank Act to protect depositors' money from using banks to generate quick profits on variations. short-term prices of stocks, bonds and securities. other financial assets.
The rewrite "will not only put the US economy at risk of another devastating financial crisis, but could also expose taxpayers to the risk of having to pay the bill again for unnecessary and expensive bank bailouts," Maxine Waters said. (D -Calif.) Says in an email.
"The final rule published today would limit the bans in a way that Congress would never have intended to do and would allow Wall Street megabanks to play with the same types of securitization of risky loans that became toxic in 2008, at a time when these risk products are on the rise again, Added Waters.
The Volcker Rule – a 2013 regulation named in honor of former US Federal Reserve Board Chairman Paul Volcker – proposed the concept – prohibits banks from performing risky transactions for their own account and prevents them from holding hedge funds or private equity funds. It has long been criticized for its complexity and has been a source of dissatisfaction for the regulators themselves.
Rewriting is an attempt to clarify what types of activities would be exempt from the proprietary trading ban, for market-making, hedging or underwriting purposes. The regulators intend to introduce a separate overhaul of the provision of the rule on funds covered this autumn.
The controller of the currency, Joseph Otting, signed on Tuesday the revised regulation. It still needs to be approved by three other agencies – the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The new rule – the latest measure taken by the regulators of President Donald Trump to cancel the rules after the financial crisis – would come into effect on January 1. Banks will have until January 1, 2021 to comply, but they will be able to join sooner.
Among the other provisions, the recast would create a presumption of conformity for transactions made for more than 60 days, the opposite of the current version of the rule, which assumes that any investment held for less than 60 days is prohibited, the burden on the banks. argue that a given trade is exempt.
The accounting standard proposed by regulators last year was intended to remove the ambiguity surrounding the intent standard in the 60-day disposition, which links the legitimacy of a bank's position to its intention to carry out the exchange in the short term.
Under the final rule, the "short-term intention" component will apply only to banks that are not subject to the market risk capital rule or that do not choose to apply the capital standard of market risk.
The inclusion of the accounting provision in the initial proposal of Volcker 2.0 had been essential to gain the support of Martin Gruenberg, then chairman of the FDIC and now a member of the board of directors of the agency.
Gruenberg, nominated by Obama, voted against the revised rule on Tuesday morning, saying that it would "effectively cancel" the ban on the Volcker rule on own-account transactions.
In its amended version, "the Volcker rule will no longer impose significant constraints on the speculative and exclusive operations of banks and bank holding companies benefiting from the public safety net" insured deposits, said Gruenberg.
Banks, meanwhile, applauded the new rule.
"The changes made to the new rule will help reduce the accidental damage that the rule of origin has caused to responsible and legitimate banking activities, as well as the massive and unnecessary compliance costs it has imposed." said Greg Baer, president and chief executive officer of banking policy. Institute.
The Bureau of Financial Research released a report this month that appeared to corroborate industry complaints about the current rule, concluding that this rule resulted in "significant adverse liquidity effects on bond trading. companies covered.
Victoria Guida contributed to this report.