May 31 (UPI) — The Federal Reserve on Wednesday proposed easing provisions of the Volcker rule, which prevents banks from engaging in risky trades with depositor’s money.
The proposed changes would seek to apply the rule to banks with varying degrees of severity based on their trading activity and change rules surrounding what constitutes a proprietary trade, in which banks trade for their own profits.
“This proposed rule will tailor the Volcker rule’s requirements by focusing the most comprehensive compliance regime on the firms that do the most trading. Firms that do more modest amounts of trading will face fewer requirements,” Federal Reserve Chair Jerome Powell said.
The Volcker rule was proposed during the financial crisis and went into effect in 2013 in order to prevent banks from speculating in markets by barring them from making proprietary trades as well as owning or controlling hedge funds or private equity funds.
Banks possessing trading assets and liabilities in excess of $10 billion would be subject to the strictest rules, while those with assets and liabilities between $1 billion and $10 billion and would face “reduced compliance requirements and a more tailored approach.”
Any bank with less than $1 billion in assets and liabilities would be presumed compliant under the proposal.
The proposal would eliminate an assumption that positions held by lenders for fewer than 60 days are proprietary trades.
It also would replace a portion of a test to determine whether a trade is proprietary by replacing it with criteria based on how the bank accounts for trades.
“By focusing the application of the rule on those firms with the highest levels of activity covered by the statue, and by clarifying and simplifying the compliance regime, we can promote safety and soundness while reducing unnecessary burdens,” said the Federal Reserve Board’s vice chairman for Supervision Randal K. Quarles.
The proposal is part of a larger effort to roll back provisions of the 2010 Dodd-Frank Act. On May 22, the U.S. House of Representatives passed a billto raise the threshold for banks that are subject to stricter federal oversight from $50 million in assets to $250 million, releasing dozens of U.S. banks from regulations by the Federal Reserve.