Banking regulator seeks input on changing controversial Volcker Rule

A top banking regulator on Wednesday asked for feedback on how to amend a controversial provision of the Dodd-Frank Act intended to stop risky trading at banks and investment firms.

Acting Comptroller of the Currency Keith Noreika opened the public comment process for his agency’s efforts to change the “Volcker Rule,” a regulation banning banks from investing on behalf of themselves, not their clients.

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The rule, named after former Federal Reserve Board Chairman Paul Volcker, was intended to crack down on risky “proprietary” trades, in which banks invest their own capital to boost revenue. But banks of all sizes have complained that the rule isn’t specific enough about which investments are banned and puts a compliance burden on banks that pose little risk to the financial system.

The Office of the Comptroller of the Currency (OCC) said it “invites input on ways to tailor the rule’s requirements and clarify key provisions that define prohibited and permissible activities.”

The OCC also asked for ways for federal regulatory agencies to implement the existing rule more effectively without revising the regulation.

President Trump has promised to “dismantle” Dodd-Frank, and much of that work is expected to be done through regulators rather than Congress. Despite the partisan divide over the 2010 banking law, regulators across multiple agencies widely agree that the Volcker Rule needs to be fixed.

The Financial Stability Oversight Council, an interagency financial regulatory board, met last Friday to discuss potential changes to the rule.

“A bipartisan consensus has emerged that the Volcker Rule needs clarification and recalibration to eliminate burden on banks that do not engage in covered activities and do not present systemic risks,” Noreika said. “Regulators do not have a monopoly on good ideas. Public input will help inform our path forward with the views, concerns, and data of those affected by this rule and provides for a more inclusive and transparent process.”

Though regulators are eager to amend the Volcker Rule, few have called for its total repeal. Treasury Secretary Steven Mnuchin said he supports the rule “in principle,” but not without substantial changes.

“Insured banks that engage in proprietary trading enjoy a government-conferred advantage that invites moral hazard,” Mnuchin wrote. “In its design and implementation, however, the Volcker Rule has far overshot the mark.”

The House passed a sweeping Dodd-Frank replacement bill in June that would eliminate the Volcker Rule, but that bill is unlikely to see Senate action.