The Federal Reserve announced Wednesday that it will release a proposal that would modify a Dodd-Frank-mandated bar on proprietary trading or the ownership of hedge funds by banks, among the most contentious aspects of the 2010 law.

The central bank is scheduled to hold an open session to review a proposal May 30 to “modify” the existing regulation, which was written jointly by the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Commodity Futures Trading Commission and Securities and Exchange Commission in 2013.

The FDIC's board of directors announced Friday that it will meet on May 31 to consider the proposal.

Federal Reserve building.
The Federal Reserve Board said it will consider a proposal next week to "modify" the Volcker rule, its 2013 regulation barring proprietary trading by banks. Bloomberg News

That regulation, known as the Volcker Rule, was mandated by Dodd-Frank after being proposed by former Fed Chairman Paul Volcker in an opinion article. The rule created exceptions for market making and certain funds, but banks have been bedeviled by compliance problems related to what activities and products qualify for those exceptions.

Reducing that compliance burden on banks — particularly small banks — has been a regulatory goal of the Trump administration from its earliest days. The Treasury outlined potential changes to the regulation in its 2017 blueprint, including revising the definition of “covered funds” subject to the ban; the definition of “proprietary trading” activities barred by the law; and greater information sharing and compliance activities across agencies.

Fed Vice Chairman for Supervision Randal Quarles reiterated those priorities in a speech in March, saying the definitional issues were particularly notable priorities for reform.

“It should be clearer and more transparent what is subject to the Volcker Rule’s implementing regulation and what is not,” Quarles said. “The definition of key terms like 'proprietary trading' and 'covered fund' 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.”

Another administration priority — exempting community banks from the rule — appears to have been achieved independently by Congress earlier this week when it passed a bill exempting small banks from Volcker compliance.