Federal banking regulators adopt final rule to exclude community banks from Volcker Rule

Five federal financial regulatory agencies announced on Tuesday (July 9) that they adopted a final rule to exclude community banks from the so-called Volcker Rule, which restricts banking institutions from engaging in certain proprietary trading and having certain relationships with hedge funds or private equity ventures.

The final rule — issued by the board of governors for the Federal Reserve, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission – is part of the Economic Growth, Regulatory Relief, and Consumer Protection Act signed by President Donald Trump into law more than a year ago.

That legislation eases many of the post-recession regulations imposed by the far-reaching Dodd-Frank Reform and Consumer Protection Act following the financial crisis of 2007 and 2008. The Volcker Rule, named after the former Federal Reserve Chairman of the same name, generally. Following the Tuesday’s rule change, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5%t or less of total consolidated assets are excluded rule that prevents larger regional and national bank from making speculative bets that hurt customers.

The final rule also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment advisor as long as the advisor is not an insured depository institution, a company that controls an insured depository institution, or a bank holding company.

Rep. French Hill, R-Little Rock, a former banking executive, was the original sponsor of the legislation backed by the American Bankers Association to amend the Volcker rule, giving the Federal Reserve sole rulemaking authority over making such changes. His bill, House Resolution 4790, was approved by the House in April 2018 by a bipartisan vote of 300 to 104. It was later referred to the Senate Committee on Banking, Housing and Urban Affairs, but never came up from a vote.

To review the 64-page final, click here.