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Volcker Rule Change Backed in House Panel's Dodd-Frank Remedy

  • Bill would leave Fed as sole arbiter of trading restrictions
  • Fans say ban would be easier to follow, foes say easier to gut

U.S. House lawmakers have advanced legislation that could either expand or upend Congress’s best hope of rolling back banking-industry regulations since the financial crisis.

The proposals approved by the Financial Services Committee on Wednesday include a Volcker Rule tweak that would put the Federal Reserve solely in charge of enforcing the Dodd-Frank Act ban on proprietary trading instead of the five agencies now assigned to the task. Supporters say the change would make it easier for Goldman Sachs Group Inc., JPMorgan Chase & Co. and their peers to abide by the rule, while critics complain that it would make it easier to weaken restraints on excessive risk-taking.

House Republicans, led by Financial Services Committee Chairman Jeb Hensarling, are pushing to add more changes to a broader rollback of financial-industry rules that passed the Senate in a 67-31 bipartisan vote. The House and Senate have to agree on a single piece of legislation to be sent to President Donald Trump to be signed into law.

The potential stumbling block is that Democrats who backed the Senate bill sponsored by Banking Committee Chairman Mike Crapo may not be willing to go along with what House lawmakers are seeking. Senators Heidi Heitkamp of North Dakota and Jon Tester of Montana, who played key roles in getting Crapo’s bill passed, have said they won’t entertain additions by the House.

Potential Additions

Hensarling, who is retiring from Congress this year, has said the House won’t simply rubber stamp the Senate bill. He has outlined about 30 potential additions that have advanced in the House with bipartisan support, which could be extended to include the Volcker change.

Getting the revision included in the final bill would be a win for Goldman Sachs and other Wall Street giants, which have continued to lobby lawmakers for it .

“Empowering the Federal Reserve to write the new Volcker Rule will produce a regulation much sooner that would benefit big banks by giving them more discretion to make markets for fixed-income trading without fear of engaging in proprietary trading,” Jaret Seiberg, a senior policy analyst at Cowen & Co., said in a research note. “This is one of those measures that could have a chance if the Senate agrees to a small package of House provisions.”

Trump’s Plans

Plans are already underway to change the rule named for former Fed Chairman Paul Volcker, who championed the ban as an adviser to then-President Barack Obama. It has been a top target of Trump administration plans to dial back financial regulations as a way to spur economic growth.

The Treasury Department called for Volcker Rule changes when it released a series of reports last year on ways to revise financial industry rules. The five agencies responsible for the rule -- the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Securities and Exchange Commission and Commodity Futures Trading Commission -- have been meeting since then to formulate a plan.

If it became law, the House legislation could accelerate regulators’ efforts to change the Volcker Rule by granting authority to just the Federal Reserve Board. Already, Governor Randal Quarles, who oversees Wall Street regulation as the Fed’s vice chairman for supervision, has identified changes he would like to make.

The House’s Volcker change, sponsored by Arkansas Republican French Hill, has Democratic support as well.

The Financial Services Committee also advanced a measure that would soften post-crisis capital requirements that Wall Street firms say place onerous costs on trading. The bill would change how banks assess their exposure to derivatives, which could wind up lowering the amount of capital they need to meet restrictions on leverage. Wall Street banks as well as clearinghouses such as CME Group Inc. and their trade associations, have argued for such a change.

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