Bank of New York Mellon Corp. and State Street Corp., the two largest independent custody banks, said they are satisfied with last-minute changes by U.S. lawmakers to a financial-regulatory overhaul that protect their investment-management businesses.
The so-called Volcker Rule was softened early today after an all-night session on Capitol Hill to merge House and Senate versions of the legislation. The provision, which is intended to curb risk-taking by financial companies, limits rather than prohibits federally insured banks’ ability to invest in private- equity or hedge funds.
“The Volcker Rule as adopted by the conferees achieves the important goal of reining in risky behavior while preserving the ability of asset managers to continue to develop and offer appropriate investment opportunities for their clients,” Ron Gruendl, a BNY Mellon spokesman, said in an e-mailed statement.
The Volcker Rule, named for former U.S. Federal Reserve Chairman Paul Volcker, was proposed in the wake of the 2008 financial crisis. New York-based BNY Mellon and Boston’s State Street lobbied against a private-equity and hedge-fund ban, saying it would put them at a competitive disadvantage to other asset managers.
State Street and BNY Mellon said institutional clients they advise, such as pension funds, expect their money manager to invest alongside them so that their interests are aligned. The companies also often put “seed money” into new funds to help get them started.
“Although we’re still assessing the bill, it appears to strike a good balance between reducing systemic risk while still allowing banks to provide solutions for customers,” Carolyn Cichon, a State Street spokeswoman, said in an e-mailed statement.
The legislation still needs to be approved by the full House and Senate. Lawmakers hope to send the bill to President Barack Obama for his signature by July 4.
Custody banks earn fees from keeping records, tracking performance and lending securities to institutional investors including mutual funds, pensions and hedge funds. Their asset- management units invest money for retail and institutional customers.
BNY Mellon oversaw $22.4 trillion in assets under custody as of March 31, and managed $1.1 trillion in client investments. State Street held $14.1 trillion in custody assets and $1.93 trillion in investment assets.