WASHINGTON — Regulators are in the home stretch of crafting rules banning banks' proprietary trading and requiring lenders to keep pieces of securitized loans, Comptroller of the Currency Thomas Curry said Friday.
"I hope that in relatively short order we'll have several more major rules required by" the Dodd-Frank Act "in place," Curry said in prepared remarks to a California Bankers Association conference in Santa Barbara.
The still-unfinished work to implement Dodd-Frank includes strict restrictions on a commercial bank's ability to divert funds for its own trading book or an affiliated hedge fund. The proprietary trading ban known as the Volcker Rule — for former Federal Reserve Board Chairman Paul Volcker, who first proposed it — would include some exemptions for market-making or hedging activities, but is intended to lower significantly banks' riskier activities. Other regulators have suggested a final rule on the plan is near completion.
In his outlook for 2013, Curry signaled progress on finishing both the Volcker Rule and the risk retention rule required under Dodd-Frank. The law mandated that mortgage lenders must retain at least 5% of the credit risk of loans they securitize. Regulators must define a new category of safe loan — known as the "qualified residential mortgage" — to be exempt from the required risk retention.
Many had predicted the risk retention rule would have to wait for the Consumer Financial Protection Bureau to finish its similar regulation on mortgage underwriting. The final CFPB rule was released just this week.
"We really are nearing the finish line on Volcker and risk retention, and that's because of the very substantial work that was done over the past year," Curry said.
Yet he added that lawmakers, while not affecting the regulators' work on the two rules, will likely look at other areas of Dodd-Frank for possible alterations this year.
"As we look out over the legislative landscape, I think it is likely that Congress will consider a number of technical corrections to Dodd-Frank — and perhaps some corrections that are a bit more substantive than technical — but I doubt that the basic legislative framework will undergo significant change," Curry said. "So the rules we are finishing work on now are not likely to change much as a result of anything Congress might do."
Curry also reiterated concerns he raised in the fall about banks' supply of loss reserves in a still-fragile environment, and warned institutions not to slide back toward weak credit standards.
"Right now, we see slippage in underwriting standards, especially with respect to leveraged lending and commercial and industrial loans," he said. "We also see signs that too many institutions are allowing their loan loss reserves to run down, which is particularly troubling in light of the uncertain macro economic environment as well as the direction underwriting of some commercial credit is taking. This is an issue I've discussed before; it's a trend that OCC examiners are monitoring closely."