The ‘Volcker Rule’ was created in the wake of the 2007-2009 financial crisis and barred banks from making profit-seeking trades with customer funds.
In a significant development, the Federal Reserve stated, it has approved a final rule which simplifies the ‘Volcker Rule’ ban on proprietary trading, which cements a significant win for banks under the Trump administration.
With the Federal Reserve taking this stance, it the fifth and final financial regulator to sign off on the changes, which are aimed at simplifying compliance related regulations on banks with the rule which was established after the 2007-2009 financial crisis which barred them from making profit-seeking trades with customer funds.
The simplified rules will take effect from January 1, 2020. Banks have been given one additional year for compliance.
The simplified version of the rule rewrite is very bank friendly and has done away with an accounting test aimed at ensuring banks were not engaging in speculative trades. Banks were against this test and had warned it would hinder proper trading in several financial products.
Incidentally, Fed Governor Lael Brainard, who voted in favor of the original proposed rewrite, voted against the final simpler rule.
In a statement, she said the final rule “weakens the core protections against speculative trading within the banking federal safety net.”