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Report: Agencies set to loosen Volcker rule in new proposal

Federal banking regulators are set to loosen the Volcker rule, a Dodd-Frank regulation that generally bans banks from conducting proprietary trading except when it is done for market-making purposes, Bloomberg News reported, citing four people familiar with the effort.

The updated proposal will assume banks are complying with the rules unless proven otherwise, according to the sources. Three of the people said the agencies have chosen to implement the changes without re-proposing them and seeking public comment. A source said the agencies are proposing a phase-in period to gradually adapt the changes, while another source told the news service there will be some regulatory relief for banks investing money in private equity, hedge funds and other investment funds.

The agencies are set to approve the changes as soon as the week of Aug. 19.

The regulators in May 2018 released the first version of their proposed Volcker rule changes, which generally proposed to loosen regulatory requirements for all banks except those with trading assets and liabilities of above $10 billion. An S&P Global Market Intelligence analysis showed 97.1% of banks and thrifts, or 5,315 banks and thrifts, would be exempted from complying with the rule as these entities have less than $10 billion in assets.

The new proposal could also remove a standard that labeled financial positions held for fewer than 60 days as proprietary trading. That standard would have used an accounting test requiring companies with fluctuations of above $25 billion in terms of net gains and net losses over a 90-day period to show they are complying.

However, both banks and left-leaning groups criticized the accounting test. The agencies agreed to scrap the accounting test and will instead rely on "easier-to-digest models" in the new proposal, according to the Bloomberg report.

The Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Commodity Futures Trading Commission declined to comment when contacted by Bloomberg, while the Securities and Exchange Commission did not respond to a request for comment.