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Federal Reserve Proposes Changes to Volcker Rule
The Federal Reserve has proposed revisions to the Volcker Rule that would ease restrictions on banks. The changes are intended to give additional flexibility to smaller banks, and facilitate more liquidity in secondary market-making at the bank broker-dealers.
A key change would allow banks to enforce the proprietary trading prohibition through their own policies and procedures. The strictest application of the rule would apply to 18 banks that have at least $10 billion in trading assets and liabilities, and which account for roughly 95% of all U.S. bank trading. Banks that do less trading would have less stringent requirements.
Proponents argue that the stricter rule is one of several regulations, including capital and liquidity requirements, that constrain secondary markets. The rule restricts a bank’s ability to hold requisite inventories of secondary market securities, including CMBS, which hurts market liquidity.
Opponents say the new Fed proposal would ease a rule aimed at defusing Wall Street risk-taking that helped contribute to 2008’s financial meltdown.
The Federal Deposit Insurance Corp. and the Securities and Exchange Commission are set to discuss and potentially approve the proposal in the coming weeks. There’s also a 60-day public comment period, with a final rule expected to be in effect by January 1, 2019.
For comments, questions or concerns, please contact Dennis Kaiser
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