Big Banks to Get a Break from Limits on Risky Trading

(The New York Times) -- Big banks are getting a big reprieve from a postcrisis rule aimed at curbing risky behavior on Wall Street.

Federal bank regulators on Wednesday unveiled a sweeping proposal to soften the Volcker Rule, a cornerstone of the 2010 law that was enacted after the financial crisis to rein in risky trading. The change would give Wall Street banks more freedom to make their own complex bets — activities that can be highly profitable but also leave them more vulnerable to losses.

The rule, part of the broader Dodd-Frank law, was put in place to prevent banks from making unsafe bets with depositors’ money. It took five agencies three years to write it and has been criticized by Wall Street as too onerous and harmful to the proper functioning of financial markets. On Wednesday, the Federal Reserve proposed easing several parts of the rule, and four other regulators are expected to soon follow suit, kicking off a public comment period that is expected to last 60 days.

The loosening of the Volcker Rule is part of a coordinated effort underway in Washington to relax rules put into place in the wake of the 2008 financial crisis. Big banks, emboldened by President Trump’s deregulatory agenda and a more favorable political climate in Washington, have begun pressing for changes to several postcrisis rules, including the Volcker Rule.

Last week, Mr. Trump signed into law a bipartisan bill that will free thousands of small and medium-size banks from the Dodd-Frank law, and on May 21, he signed a law rescinding a consumer rule aimed at preventing discrimination by auto lenders. The Fed and the Office of the Comptroller of the Currency recently proposed easing limits on how much the largest banks can borrow and the Fed also proposed changes to the stress tests that banks must undergo each year to determine whether they can withstand an economic downturn.

Mr. Trump’s acting director of the Consumer Financial Protection Bureau, Mick Mulvaney, has also engaged in a rapid series of regulatory changes since November, including halting new investigations, freezing new hires and preventing the agency from collecting certain data from banks.

Regulators said on Wednesday that the primary intent of the Volcker Rule would remain intact and that banks would not be allowed to return to the wild days of proprietary trading, when traders made big bets with the bank’s money and sometimes lost huge sums. But they said the rule needed to be simplified so that banks could more easily comply with it and Washington could adequately enforce it.

“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,” the Fed chairman, Jerome H. Powell, said at a board of governors meeting. “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

The Volcker Rule, while not the most significant postcrisis regulation, is arguably the most recognizable. It was included at the behest of Paul Volcker, a former Fed chairman who warned that Wall Street was recklessly gambling with house money. On Wednesday, Mr. Volcker, now the chairman of a nonpartisan think tank called the Volcker Alliance, welcomed efforts to simplify compliance with the rule but said in a statement, “What is critical is that simplification not undermine the core principle at stake — that taxpayer-supported banking groups, of any size, not participate in proprietary trading at odds with the basic public and customers’ interests.”


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