Category: Volcker Rule

Volcker Rule Changes Finalized, Easing Banking Restrictions

Posted on by Trey Jackson

Federal Reserve Building DC

Reforms to the Volcker Rule, which aimed to restrict proprietary trading practices at banks, received final approval Oct. 8 by the Federal Reserve and four other regulatory agencies. (AP, Oct. 8)

  • The final Rule – expected to enhance liquidity to commercial mortgage-backed securities (CMBS) markets – takes effect on January 1, 2020 with a compliance date of January 1, 2021.  (Federal Reserve, Oct. 8)
  • Under the revised Rule, firms that do not have significant trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have more stringent compliance requirements. Community banks generally are exempt from the Volcker rule by statute. The revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law.
  • The final Rule represents the most significant revision to date of the original 2013 Volcker Rule regulations.  The Roundtable has long advocated revisions to the Volcker rule, raising concerns about how it could “negatively impact liquidity and capital formation in commercial real estate.”
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the Volker Rule changes. “This positive action will benefit liquidity and the commercial mortgage backed securities market, potentially increasing investment in job-creating construction activities,” DeBoer said. (Roundtable Weekly, June 1, 2018)
  • The revisions are expected to make it easier for ‘banking entities’ to hold and trade CMBS and could enhance market liquidity.  Commercial banks and CMBS are two of the top sources of private debt for commercial and multifamily real estate.  

The changes were jointly developed by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.

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Five Regulatory Agencies Clear Path for Volcker Rule Changes

Posted on by Trey Jackson

The Securities and Exchange Commission (SEC) this week became the fifth and final regulatory agency to advance possible reforms to the Volcker Rule, which aims to restrict proprietary trading practices at banks. The Federal Reserve became the first agency to move a proposal to simplify and ease the Volcker Rule forward last week, followed by the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission.  If adopted, this proposed revision is expected to enhance liquidity to commercial mortgage-backed securities (CMBS) markets.  (Roundtable Weekly, June 1)

SEC Chairman Jay Clayton

  • SEC Chairman Jay Clayton said, “The proposal seeks to simplify and tailor the 2013 final rule. I strongly encourage all interested parties to comment on the many questions proposed in the release and I look forward to commentator input about implementing the Volcker Rule in a more effective way.”
  • In a memorandum to the Fed’s Board of Governors, Fed Vice Chairman for Supervision Randall Quarles details the changes in the proposal.
  • U.S. Treasury Secretary Steven Mnuchin on June 5 commended the efforts of the Agencies.  Mnuchin stated, “The Treasury Department strongly supports changes aimed at better tailoring the application of the rule, preserving liquidity during periods of stress, decreasing unintended compliance burdens, and encouraging capital formation.  The five agencies responsible for regulation of the Volcker Rule coming together on this notice is an important first step. These efforts are building on the relief for Main Street borrowers and lenders included in the Economic Growth, Regulatory Relief, and Consumer Protection Act recently signed into law by President Trump.”
  • In a January 2012 comment letter to the Federal Reserve and other financial regulatory agencies, The Roundtable raised concerns about the unintended consequences of the Volcker Rule that could “negatively impact liquidity and capital formation in commercial real estate.”

The Volcker rule reform proposal will be a topic of discussion at next week’s Real Estate Capital Policy Advisory Committee (RECPAC) held in conjunction with The Roundtable’s Annual Meeting in Washington. The Roundtable plans to submit comments to the Agencies before a final rule is expected to be in effect by January 1, 2019.

The Fed and FCIC Vote to Simplify and Ease Volcker Rule

Posted on by Trey Jackson

A proposal to simplify and ease the Volcker Rule, which restricts proprietary trading practices at banks and is enforced by five separate federal agencies, was unanimously approved this week by both the Federal Reserve and Federal Deposit Insurance Corp. (FDIC). (Roundtable Weekly, May 25)

The Fed’s proposal is part of a broader regulatory rollback.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ” – GlobeSt, May 31)

  • The nearly 400-page proposal, known as Volcker 2.0, would seek to simplify regulatory requirements by giving banks new quantitative “bright-line rules” to provide more clarity on what activities are prohibited and permitted. The Fed proposal is part of a broader regulatory rollback, which includes the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) that included Roundtable-supported revisions to the Basel III High Volatility Commerical Real Estate (HVCRE) Rule. 
  • For CRE, the Volcker Rule has put a damper on secondary market trading of commercial mortgage backed securities (CMBS) by limiting the ability of banks to hold inventories of secondary market securities, thereby diminishing market liquidity.  In addition to restricting banks from buying certain securities for their own accounts (so-called proprietary trading), it also has prohibited them from investing in hedge or private-equity funds – including real estate.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ”  – GlobeSt , May 31)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the Volker Rule proposal. “This positive action will benefit liquidity and the commercial mortgage backed securities market, potentially increasing investment in job-creating construction activities,” DeBoer said.
  • One of the most significant changes in the Volcker 2.0 proposal would give banks more latitude by making it easier for them to show they are trading to help clients — a permitted activity known as market making  — rather than proprietary trading .
  • In a memorandum to the Fed’s Board of Governors, Fed Vice Chairman for Supervision Randall Quarles details the changes in the proposal .
  • In a January 2012 comment letter  to the Federal Reserve and other financial regulatory agencies, the Roundtable raised concerns about the unintended consequences of the Volcker Rule that could “negatively impact liquidity and capital formation in commercial real estate.”

The Fed and its regulatory partners are seeking public comment on its Volcker rule reform proposals. The Roundtable plans to work with its Real Estate Capital Policy Advisory Committee (RECPAC) to submit comments before a final rule is expected to be in effect by January 1, 2019.

Fed to Consider Changes to Volcker Rule

Posted on by Trey Jackson

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.  As a provision of the 2010 Dodd-Frank Act that puts restrictions on proprietary trading practices at banks, enforcement of the Volcker Rule is currently shared by five separate federal agencies – The Fed, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).  (Fed Statement, May 23)

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.

  • “The Fed is the first regulator to set a date for discussing the proposal known as ‘Volcker 2.0.’ Four other agencies are also expected to adopt modifications to the rule. The changes will give large Wall Street banks more trading freedom, as regulators tweak restrictions on market making, hedging and other activities..” (The Wall Street Journal, May 25)
  • Fed Vice Chairman for Supervision Randal Quarles in a March speech said, “It should be clearer and more transparent what is subject to the Volcker Rule’s implementing regulation and what is not. The definition of key terms like ‘proprietary trading’ and ‘covered fund’ should be as simple and clear as possible.”  (American Banker, May 23)
  • House policymakers are considering adding to  must-pass budget legislation a measure that would put the Fed in charge of regulating the Volcker Rule.  The measure, sponsored by Rep. French Hill (R-AR), passed the House in April but has faces an uncertain fate in the Senate.  (U.S. House Considers Adding Volcker Rule Shift to Budget Bill, Bloomberg, May 21)

The Dodd-Frank reform bill signed into law yesterday by President Trump exempts banks with less than $10 billion in assets from the Volcker Rule (named for former Fed Chairman Paul Volcker).