Regulators Consider Easing Volcker Trading Rules

U.S. regulators are considering changes to the Dodd-Frank law that could ease requirements on the Volcker Rule’s trading restrictions.

Scott Alvarez, the Federal Reserve’s general counsel, said the central bank is reviewing whether to extend a deadline for implementing the Volcker Rule and changing “metrics” used in the regulation. He said a rule requiring banks to separate their derivatives trading from units that benefit from federal backstops should be revisited.

“Our greatest challenge for the next year is the Volcker rule,” Alvarez said today at a American Bar Association conference in Washington. “We are already seeing some things that we probably will change,” he added.

Alvarez’s comments show a growing willingness to alter portions of Dodd-Frank, which Congress passed in 2010 to tighten bank regulation after risky lending and the sale of toxic mortgage securities crippled the global economy. The finance industry also anticipates that the incoming Republican-controlled Senate will be more receptive to changing the law than Democratic lawmakers.

Five regulators finished the Volcker Rule in December 2013. Named for advocate Paul Volcker, the former Fed chairman, it bars lenders from using their own capital to bet on markets and restricts investments in hedge funds and private-equity firms.

Seeking Delays

While banks must comply with the Volcker rule by July 21, 2015, the Fed can delay that implementation date. Some banks have applied for more time, particularly for funds that own hard-to-sell assets. Lenders have said the holdings might plunge in value if a number of firms try to sell at the same time.

“The Fed is also thinking about the very many requests we’ve gotten to extend the conformance period, particularly for covered funds,” Alvarez said. “We’ll have the answer for folks on that pretty soon.”

The Office of the Comptroller of the Currency is considering whether to give smaller financial firms a reprieve from the Volcker rule, Amy Friend, the regulator’s chief counsel, said at the same conference.

“You could exempt some of the smaller institutions from the Volcker rule and still get at what Congress had intended in terms of covering the larger institutions,” she said.

Bank lobbyists want to kill a Dodd-Frank provision that pushes swaps trades out of bank units with federal deposit insurance. Last year, 70 House Democrats joined Republicans to pass legislation that would repeal the regulation. The measure hasn’t gone anywhere in the Senate.

“You can tell that was written at 2:30 in the morning,” said Alvarez, referring to the section of Dodd-Frank that requires the push out. “That needs to be, I think revisited, just to make sense of it.”

Before it's here, it's on the Bloomberg Terminal.