The SEC has granted the final regulatory approval needed to advance a series of proposed changes to the Volcker rule.
With the agency's 3-2 vote, the proposed tweaks to the Volcker rule will soon enter a 60-day comment period. The proposal, designed to ease regulatory requirements for banks, has already been approved by four other federal financial regulators including the Federal Reserve Board of Governors, the Federal Deposit Insurance Corp., the Comptroller of the Currency and the Commodity Futures Trading Commission.
"We recognize that to effectively implement the Volcker rule, one size does not fit all, and its terms should reflect our collective experience," SEC Chairman Jay Clayton, who voted in favor of the rule changes, said during an SEC open meeting held June 5.
The Volcker rule, which was finalized in 2013 as part of the Dodd-Frank Act, was rolled out as a signature part of post-financial-crisis reform. The rule bans proprietary trading at U.S. banks and restricts their investments in private equity firms and hedge funds.
Federal regulators first outlined the rule's proposed changes just a week prior to the SEC's vote. The proposal would establish three categories of banks, all of which would operate under compliance requirements based on the size of their trading businesses. The smallest group of banks, which currently is set to have less than $1 billion in trading assets and liabilities, would broadly be assumed to be in compliance with the rule's prohibitions, under the changes.
But the proposed Volcker rule changes were also met with critiques from the SEC's two Democratic commissioners, Kara Stein and Robert Jackson Jr., who provided the agency's dissenting votes.
Stein, who has served as an SEC commissioner since 2013 and is set to leave the agency in 2018, said the proposal will "undo the framework that has helped avoid another financial crisis," during the meeting. "Overall, this proposal cleverly and clearly euthanizes the Volcker rule," Stein said. Jackson, one of the regulator's newest commissioners, said weakening the Volcker rule's protections "gives banks more leeway to do the kind of risky trading for which we should be ever more watchful."
A day before the SEC's vote, CFTC Commissioner Rostin Behnam, who previously worked as a Democratic aide in the Senate, aired similar concerns about the proposed Volcker rule changes.
SEC Commissioner Hester Peirce, who joined the agency earlier in 2018 along with Jackson, said the proposal does not fully resolve many of the "fundamental concerns" she has about the Volcker rule. "The Volcker rule is an unwieldy tool," said Peirce, who added that the proposed changes could have an adverse impact where banks are required to report additional metrics, thus increasing their overall reporting burdens.
