Banks

Regulators and the Fed reportedly looking to roll back Volcker Rule, giving banks leeway on investments

Key Points
  • Regulators are trying to make it easier for banks to invest their own money by changing the Volcker Rule, a centerpiece of the legislation in the post-financial crisis bank crackdown, Bloomberg reported Monday.
  • The overhaul, led by a group of agencies and the Federal Reserve, could happen as soon as next week, reports said.
  • Most of the major Wall Street banks narrowly beat on earnings this quarter, but uncertainty on trade and economic growth has pushed interest rates down, pressuring net interest margins, the difference between what banks pay on deposits and earn on loans.
People pass a sign for JPMorgan Chase at it's headquarters in Manhattan, New York City.
Spencer Platt | Getty Images

Wall Street banks may be catching a break as regulators rework a rule that restricts their ability to invest their own money, Bloomberg reported Tuesday.

Regulators are trying to make it easier for banks to trade securities using their own funds by reworking the so-called Volcker Rule, a centerpiece of legislation from the post-financial crisis bank crackdown, people familiar with the matter told Bloomberg.

The Volcker Rule, named after former Fed Chairman Paul Volcker, who originally proposed the regulation and enacted under the Dodd-Frank Wall Street Reform and Protection Act, prevented banks from investing their own money in hedge funds and private equity funds.

The overhaul, led by a group of agencies and the Federal Reserve, could happen as soon as next week, the report said.

The regulators are changing the definition of proprietary trading, which is when financial firms make direct investments for direct market gain instead of investing on behalf of clients.

The original proposal to remove the rule was bought up in May 2018, but the group is now withdrawing the "accounting prong," that decided which type of trading was allowed by banks. The accounting prong received backlash from bank lobbyist, the report said.

Banks are being hit hard by an escalating U.S.-China trade war and low interest rates at home and around the globe. Most of the major Wall Street banks narrowly beat on earnings this quarter, but uncertainty on trade and economic growth has pushed interest rates down, pressuring net interest margins, the difference between what banks pay on deposits and earn on loans.

The final edits to the proposal need to be approved by the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Securities and Exchange Commission and Commodity Futures Trading Commission.

— Read the full Bloomberg article here.