WASHINGTON — Days after it was leaked to the public, banking regulators released the official version Tuesday of a proposal implementing severe restrictions on banks' trading activities.
The Federal Deposit Insurance Corp. and Federal Reserve Board issued the proposal Tuesday morning, and other agencies implementing the provisions — required under the Dodd-Frank Act — were expected to follow suit. The public will have 90 days to comment on the proposal.
Meanwhile, the FDIC also announced a slight easing in projected costs from upcoming bank failures. During the agency's board meeting, where regulators also discussed the proprietary trading ban, the agency said failures over the five-year period from 2011 to 2015 are projected to cost $19 billion, a $2 billion drop from what the FDIC projected over that period in April. Yet the board did not signal any lowering of deposit insurance premiums as a result.
The restrictions on banks' trading are commonly known as the Volcker Rule, named for former Fed Chairman Paul Volcker, who first suggested the idea. Under Dodd-Frank, banks are generally banned from proprietary trading, although certain activities are permitted. The law also sharply curtailed banks' ability to sponsor or own interests in hedge funds and private-equity funds.
The agencies' nearly 300-page proposal would broadly define "proprietary trading" as well as what constitutes the types of sponsorship and investments in hedge fund and private-equity funds that would be prohibited. Certain investments would receive exemptions, including that done on behalf of a customer through advisory and asset-management services, and "de minimis" investments not exceeding 3% of a bank's tier 1 capital.