Banks Get Easier Volcker Rule and $40 Billion Reprieve on Swaps

Wall Street banks will soon be able to boost investments in venture capital funds and pocket billions of dollars they’ve had to set aside to backstop derivatives trades as U.S. regulators continue their push to roll back post-crisis constraints.

The Office of the Comptroller of the Currency approved changes to the Volcker Rule Thursday that let banks increase their dealings with certain funds by providing more clarity on what’s allowed, according to an agency spokesman. The OCC also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates.

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The Federal Deposit Insurance Corp. is set to join the OCC when its board meets later Thursday to vote on the rule changes. The overhaul will also need sign-off from the Federal Reserve.

The revisions will complete what watchdogs appointed by President Donald Trump have referred to as Volcker 2.0 — a softening of one of the most controversial regulations included in the 2010 Dodd-Frank Act. The separate reversal of the interaffiliate margin requirement for swaps trades could free up an estimated $40 billion for Wall Street banks, though regulators added a new speed bump that limits the scale of margin that can be forgiven.

Key Details

  • Volcker 2.0 allows banks to take stakes in venture-capital funds that were previously banned in an effort to provide “greater flexibility in sponsoring funds that provide loans to companies.” The change is mostly similar to what regulators proposed last year.
  • The Volcker Rule changes need the approval of the Commodity Futures Trading Commission, which has scheduled its own Thursday vote. The Securities and Exchange Commission must also vote on the revamp.
  • The agencies are reversing a requirement that banks post margin for trades between their affiliates but only in cases where the margin that would have been collected on those non-cleared swaps is less than 15% of the firm’s key “Tier 1” capital measure. That change is meant to boost the “safety and soundness” of the new approach.
  • Though the industry and regulators argue that the current rule is too tough, critics say the extra cushion against losses that banks have had to maintain helps protect subsidiaries that are backed by the federal government, including through deposit insurance.

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