Tags: Fed | Volcker | rule | banks

FT: Fed Might Further Delay Volcker Rule Implementation

Monday, 18 Nov 2013 12:31 PM

By Michelle Smith

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The Federal Reserve may push back implementation of the already-delayed and highly anticipated Volcker rule, people familiar with the matter tell the Financial Times.

Banks are currently required to comply with the Volcker rule by July 2014. The problem is that the regulation is not even completed yet.

Difficulty in finalizing the Volcker rule stems in large part from the law's intention compared with risk of unintended effects.

Editor’s Note:
Opinion: Retirees to Be Hit With Social Security Cuts

The regulation is designed to prohibit proprietary trading, which puts a bank's own capital at risk. But it's not meant to restrict so-called normal banking activities, which include hedging and buying and selling financial assets for clients, also called market making.

Regulators are struggling to define what proprietary trading is without choking off the other activities and without leaving loopholes that could allow banks to make risky bets under the guise of hedging and market making.

Even if the rule is finalized and released in December, that would give banks less than a year to comply, the Financial Times notes.

The Fed has the authority to delay the compliance date in one-year increments. And people with knowledge of the matter reportedly telll the Financial Times that the Fed is considering pushing the implementation date out to July 2015.

But if that happens, it is not going to be a full delay that gives banks a pass to brazenly continue proprietary trading. It would be more of an extended phase-in period with conditions that require banks to take steps toward compliance.

Proprietary trading desks would still need to be to be shut down by next July. And banks would have to comply without other measures, such as those involving data collection and making disclosures, says the Financial Times.

The Federal Reserve is the driver of the rule-writing process, The New York Times
reports, but there are also four other federal agencies involved.

"Regulators like to be perceived as a monolith, but they each look at markets differently," says Donald Lamson, who helped write part of Dodd-Frank and is now a partner at the law firm Shearman & Sterling.

"This is not an easy task, but we are heartened by the progress of the five rule-writing agencies," a spokeswoman for Treasury Secretary Jack Lew tells The New York Times.

"Secretary Lew has clearly stated his desire to see a final rule by the end of the year, and we are optimistic that we will reach that goal," she adds.

Editor’s Note: Opinion: Retirees to Be Hit With Social Security Cuts

Related Stories:

Volcker: Fed Will 'Fall Short' by Being Asked to Do Too Much

Volcker: Regulatory Tangle, Lobbying Delay Proprietary Trading Ban

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