BREAKING NEWS Minnesota will continue to ease restrictions at restaurants, gyms starting Wednesday Full Story

Regulators soften trading rule for banks

Big banks are poised for a long-sought win.Regulators on Wednesday unveiled their first rewrite of a post-fina...

Posted: May 31, 2018 6:27 AM
Updated: May 31, 2018 6:27 AM

Big banks are poised for a long-sought win.

Regulators on Wednesday unveiled their first rewrite of a post-financial crisis rule that bars banks from making risky trades with their own money, including customer deposits.

The proposed changes would make it easier for banks to gain exemptions and resume some of the profitable trading they did before the crisis. Banks would also get more freedom to determine for themselves which trades are acceptable under the rules.

The provision, known as the Volcker rule, was a landmark piece of Dodd-Frank, the financial reform law enacted in 2010. It bans what's known as proprietary trading, and blocks banks from taking big stakes in hedge funds or private-equity firms.

The rule was named for Paul Volcker, a former Federal Reserve chair. Banks have said for years that it's too complex and difficult to comply with.

Fed Chairman Jerome Powell said in a statement that the proposal would strike at "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."

Supporters of the regulatory safeguard called the proposed changes a giveaway big banks.

"These are not small, technical changes," said Democratic Senator Jeff Merkley of Oregon, one of the co-authors of the Volcker rule. "These are massive rewrites to make it easier for Wall Street banks to engage in the same types of risky bets that brought down our economy in 2008."

Related: House clears path to roll back post-crisis banking rules

Five federal agencies - the Fed, the SEC, the FDIC, the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission - have been working on the rewrite.

Under the proposed changes, banks would be freed from having to prove that they are making a trade for reasons other than speculative betting. Instead, that burden will shift to regulators.

Banks would be asked to set internal limits on various trading positions, working with regulators, according to agency officials who briefed reporters on Wednesday. Banks with smaller trading desks would be subject to even fewer requirements.

The proposal would also clarify how banks should distinguish between proprietary trading and what's known as market making.

Trading desks often hold an inventory of securities that they anticipate will meet demand from customers. If those inventories are too great, it raises the question of whether the banks are holding them to make money on proprietary trading.

Banks say it's too difficult now to determine what's proper trading, the buying and selling of securities that helps financial markets function smoothly, and what's not.

"We want banks to be able to engage in market making and provide liquidity to financial markets with less fasting and prayer about their compliance with the Volcker rule," Randal Quarles, the Fed's vice chairman for supervision, said in a speech to bankers in March.

Quarles said Wednesday's proposal was a "important milestone" but should be considered the first step at simplifying the rule. He said it is "not the completion of our work."

Wall Street analysts had been expecting the rewrite to be modest.

"This is not a radical change, and the results for the biggest banks may be less than the headlines would suggest," Jaret Seiberg, an analyst at Cowen Washington Research Group, wrote in a note to clients on Tuesday.

Related: Changes at CFPB's student loan division worry advocates

Still, for regulators, it's yet another tilt toward the industry since President Trump took office.

Thousands of community and regional banks won a reprieve last week from some of the toughest post-crisis rules under Dodd-Frank. Among the changes signed into law by Trump, banks with less than $10 billion in assets will no longer have to comply with the proprietary-trading rule.

"The Volcker rule is hated by big banks because it forces them to engage in less risky behavior," said Karl Frisch, executive director of the consumer advocacy organization Allied Progress. "They couldn't care less that their previous actions led to millions of Americans losing their jobs, retirement savings, and homes."

The initial plan by regulators eliminates certain requirements to make it easier for banks to hedge against losses.

Bankers have long lamented that steep compliance costs made it harder to reap the benefits of exemptions tucked into the rule, which came into effect in 2015. It took years for regulators to finalize a plan that would prevent banks from making speculative market bets with their own money.

To simplify the rules, regulators agreed to create three buckets for financial firms based on their trading activity. Roughly 18 firms, which have "significant trading assets and liabilities" of at least $10 billion or more, would face the strictest oversight.

Related: Italy crisis rocks markets. Here's why investors are worried

The Fed, which unanimously approved the proposal on Wednesday, is the first of the agencies to consider it. It will be months before the changes take effect.

"A final rule in 2018 is no sure thing," Ian Katz, an analyst at Capital Alpha Partners wrote in a report this week.

The FDIC, which meets on Thursday, is the next agency scheduled to consider the plan. The CFTC has scheduled its meeting for June 4. Each agency must sign off on changes and vote on whether to seek public comment.

Isaac Boltansky, director of policy research at Compass Point Research & Trading, said in an analyst note that changing the rule will be a "lengthy process," with five agencies in charge.

House lawmakers are hoping to streamline that process by proposing the Fed be in charge of overseeing how banks adhere to the Volcker rule. But the effect could be limited, Boltansky said.

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 26980

Reported Deaths: 1159
CountyConfirmedDeaths
Hennepin9099657
Ramsey3351149
Stearns205614
Nobles15775
Anoka152779
Dakota144664
Washington70035
Olmsted68911
Rice5243
Kandiyohi5141
Scott4712
Clay44930
Mower4462
Wright3492
Todd3441
Sherburne2492
Carver2402
Benton1853
Steele1700
Freeborn1590
Blue Earth1490
Martin1355
St. Louis11914
Lyon1012
Unassigned9611
Pine930
Nicollet8811
Cottonwood820
Winona8115
Crow Wing815
Watonwan790
Carlton750
Goodhue736
Otter Tail731
Chisago691
Polk632
Itasca5610
Dodge540
Chippewa521
Morrison480
Le Sueur471
Douglas460
Meeker460
Becker440
Jackson420
Murray410
McLeod410
Isanti360
Pennington300
Waseca290
Mille Lacs241
Rock230
Faribault220
Wabasha200
Swift191
Beltrami180
Sibley170
Brown172
Fillmore171
Norman150
Pipestone130
Kanabec121
Aitkin120
Marshall120
Cass112
Big Stone110
Wilkin113
Wadena100
Pope100
Koochiching90
Redwood70
Yellow Medicine70
Renville70
Mahnomen61
Lincoln60
Red Lake40
Traverse40
Grant40
Clearwater30
Houston30
Hubbard30
Lac qui Parle30
Roseau30
Stevens10
Lake10
Kittson10

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 21114

Reported Deaths: 593
CountyConfirmedDeaths
Polk4614140
Woodbury286137
Black Hawk178849
Buena Vista10672
Linn97879
Dallas95226
Marshall91418
Wapello63615
Johnson6198
Muscatine56741
Crawford5512
Tama41129
Scott38510
Dubuque35921
Louisa35011
Pottawattamie31910
Sioux3060
Jasper26917
Wright2210
Washington1968
Warren1671
Plymouth1522
Story1311
Allamakee1204
Mahaska9913
Poweshiek928
Hamilton760
Webster741
Henry732
Boone720
Bremer716
Clarke690
Des Moines681
Taylor660
Clinton651
Guthrie553
Cedar501
Benton431
Cherokee410
Monroe415
Jones370
Shelby370
Osceola360
Jefferson360
Marion350
Dickinson350
Buchanan341
Iowa340
Clayton343
Cerro Gordo331
Madison292
Lee290
Sac280
Davis280
Emmet270
Fayette270
Clay270
Monona260
Harrison260
Hardin240
Lyon240
Winneshiek240
Lucas222
Mills200
Grundy200
Franklin200
Humboldt201
Pocahontas200
Delaware191
Floyd191
Hancock180
Appanoose173
Butler161
Kossuth160
Carroll151
Ida150
Greene150
Keokuk140
Jackson140
Page140
Audubon131
Cass130
Chickasaw130
Howard120
Winnebago110
Calhoun100
Union100
Van Buren90
Adair90
Montgomery92
Adams70
Palo Alto70
Ringgold40
Fremont40
Mitchell40
Worth30
Unassigned20
Wayne10
Decatur10
Rochester
Overcast
62° wxIcon
Hi: 79° Lo: 61°
Feels Like: 62°
Mason City
Broken Clouds
64° wxIcon
Hi: 82° Lo: 65°
Feels Like: 64°
Albert Lea
Broken Clouds
66° wxIcon
Hi: 80° Lo: 65°
Feels Like: 66°
Austin
Overcast
64° wxIcon
Hi: 83° Lo: 65°
Feels Like: 64°
Charles City
Broken Clouds
64° wxIcon
Hi: 82° Lo: 62°
Feels Like: 64°
Weekend looks nice
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Chris' PM Weather Forecast 6/5

Image

Gyms, fitness centers set to reopen

Image

Easing restrictions for MN restaurants and gyms

Image

Charles City vigil for George Floyd

Image

Hawkeye Harvest Foodbank partnership

Image

Next phase of Minnesota reopening

Image

Rental Assistance program for Rochester

Image

IA Care Homes Could Reopen to Visitors

Image

'Color Me Mine' Location Closes for Good

Image

Getting Your Fair Food Fix During the Pandemic

Community Events