Their implementation and interpretation by five different agencies have caused much concern in financial circles thus the current review.
With U.S. financial regulators discussing the Volcker rule concerning speculative trading by banks, Wall Street’s biggest concern appears to have gained some traction with the Trump administration’s impending reforms on the financial sector.
The Financial Stability Oversight Council (FSOC), chaired by Steven Mnuchin, Trump’s Treasury Secretary, held a closed-door meeting and later posted a brief statement saying it had “discussed efforts to assess the efficacy of the Volcker Rule.”
The rule, forming part of the 2010 Dodd-Frank Wall Street Act, sets limits on a financial company which wants to use its own money to invest in privately held companies, hedge funds and similar other vehicles, with the hope of curbing banks’ risk-taking.
Banks have however taken an issue with how the rule has been carried out in practice and have called regulators for a more concerted effort on the part of regulators so as to simplify execution. Any further reforms will necessarily require Congress to change the law.
“It’s a good sign that the administration is taking a fresh look at something that has had negative impacts on our industry,” said Rich Foster, senior vice president at the Financial Services Roundtable trade group. “Everyone thinks it needs a fix.”
Although the rule by itself is simple enough in theory, in practice it is interpreted and implemented differently by 5 different agencies which run their own compliance exams.
“There’s no reason that the agencies could not agree among themselves that one agency is going to lead the examination,” said Carter McDowell, managing director at the Securities and Financial Markets Association.
Proponents of the rule say, it keeps banks from gambling in the market and has pushed them into areas of market making rather than risk-trading.
The FSOC’s primary focus is large financial institutions that are designated as “systemically important,” and which as “too big to fail,” has led to a more strict oversight and has called for higher capital holdings requirement.
At Trump’s direction, the Treasury is reviewing the rules and is reorienting the council’s work to simplifying financial regulation.