Banks

Fed moves to ease some restrictions under the Volcker rule

Key Points
  • The Federal Reserve moves to get rid of the 3% limit previously set under the Bank Holding Company Act, more widely known as the Volcker rule.
  • It took its name from former Fed Chairman Paul Volcker, who helped draft part of the sweeping reforms that took place following the crisis that erupted in 2008.
  • Current Fed Chairman Jerome Powell said the move was part of an ongoing review to keep the parts of the provision that restrict banks from reckless speculation.

WASHINGTON — In a move aimed at loosening some of the reins put on Wall Street after the financial crisis, the Federal Reserve on Thursday eliminated a restriction on bank ownership of venture capital funds, as well as two other changes.

The intent is to get rid of the 3% limit previously set under the Bank Holding Company Act, more widely known as the Volcker rule. It took its name from former Fed Chairman Paul Volcker, who helped draft part of the sweeping reforms that took place after the crisis that erupted in 2008.

Current Fed Chairman Jerome Powell said the move was part of an ongoing review to keep the parts of the provision that restrict banks from reckless speculation but reform some rules that either were difficult to enforce or unclear to the industry.

"We now have considerable supervisory experience putting that common sense prohibition into practice, and we have learned that a simpler, clearer approach to implementing the rule makes it easier for both banks and regulators to carry out the intent of the rule," Powell said in a statement. "We have already taken several steps in that direction and the proposal before us continues that work."

Other moves include clarification on how foreign funds are treated and simplifying operation and compliance. The change allows banks to provide limited services to so-called covered funds, such as hedge and private equity funds.

Randal Quarles, Fed vice chairman for supervision, emphasized that the changes do not fundamentally alter the main intention of the Volcker rule — specifically the prohibition against "prop trading," or the use of bank funds in risky investing strategies like arbitrage.

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