Agencies to propose 'covered funds' revamp in Volcker Rule

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WASHINGTON — The Federal Reserve Board and Federal Deposit Insurance Corp. will meet next week to consider a proposal to simplify the “covered funds” portion of the Volcker Rule.

Regulators in August finalized a rollback of the proprietary trading ban section of the rule, which was mandated by the 2010 Dodd-Frank Act and first proposed by former Fed Chairman Paul Volcker.

But banks have long complained that the rule’s other key provision — restricting their stakes in private equity and hedge funds in order to curb risk from short-term bets — is too broad. The industry argues the original 2013 regulation covers some investment activities that lawmakers did not mean to prohibit.

The financial regulatory agencies, including the Fed and FDIC, signaled over the summer that they would address the covered funds portion in a subsequent rule.

The Fed and FDIC boards will both meet in public on Jan. 30 to discuss the proposal. The other agencies charged with implementing the Volcker Rule are the Office of the Comptroller of the Currency, Commodity Futures Trading Commission, and Securities and Exchange Commission.

Fed Vice Chair of Supervision Randal Quarles said in a 2018 speech that the covered funds definition should be “as simple and clear as possible.”

“It should not be a guessing game or require hours of legal analysis of complex banking and securities regulations to determine if a particular entity is a covered fund,” he said.

Volcker, who chaired the Fed board from 1979 to 1987 and later advised the Obama administration on its economic recovery efforts, died in December at 92.

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Volcker Rule Regulatory relief Regulatory reform Dodd-Frank Private equity Hedge funds Federal Reserve FDIC