Law and Regulations

US regulators look at Volcker Rule, a sign they hear Wall Street

Key Points
  • Regulators on Monday discussed the Volcker rule governing banks' speculative trading.
  • The Financial Stability Oversight Council posted a brief statement saying in part it had "discussed efforts to assess the efficacy of the Volcker Rule."
U.S. Treasury Secretary Steven Mnuchin arrives at 2017 Institute of International Finance (IIF) policy summit in Washington, U.S., April 20, 2017.
Yuri Gripas | Reuters

U.S. financial regulators on Monday discussed the Volcker rule governing banks' speculative trading, tackling one of Wall Street's biggest concerns and a sign President Donald Trump's administration is listening to banks' wishes about reforms resulting from the financial crisis.

The Financial Stability Oversight Council, chaired by Trump's Treasury Secretary Steven Mnuchin, held a closed-door meeting and then posted a brief statement saying in part it had "discussed efforts to assess the efficacy of the Volcker Rule."

The rule, included in the 2010 Dodd-Frank Wall Street reform law, sets limits on proprietary trading, in which a financial firm uses its own money to invest in privately held companies, hedge funds and similar vehicles, with the hope of curbing banks' risk-taking.

Banks, though, have taken issue with how it has been carried out and called for regulators to coordinate more and make its execution simpler. Any further reforms would likely require Congress to change the law.

"It's a good sign that the administration is taking a fresh look at something that has had negative impacts on our industry," said Rich Foster, senior vice president at the Financial Services Roundtable trade group. "Everyone thinks it needs a fix."

The rule is simple, but it is interpreted and implemented by five different agencies. Each agency also conducts its own compliance exams.

"There's no reason that the agencies could not agree among themselves that one agency is going to lead the examination," said Carter McDowell, managing director of the Securities and Financial Markets Association.

Supporters say the rule has kept banks from gambling in the markets and pushed them to profit more from market-making instead of risky trading.

The FSOC was also created as part of the Dodd-Frank law intended to prevent a repeat of the 2007-09 financial crisis and recession. The council has primarily focused on designating firms as "systemically important," otherwise known as "too big to fail," which leads to stricter oversight and requirements to hold more capital.

Now, bank lobbyists say Mnuchin is reorienting the council's work toward simplifying financial regulation.

Treasury is reviewing Dodd-Frank and the designations, all at Trump's direction. At Monday's meeting, the council, which includes newly confirmed Securities and Exchange Commission chair Jay Clayton, discussed the designation of a non-banking firm.

Since Trump took office, Treasury, "has probably conducted more outreach to the financial industry, at least the asset management industry, than the Obama administration did in eight years," said Paul Stevens, president of the Investment Company Institute, representing mutual, exchange-traded and other funds.