The Trump administration’s revision of the Volcker Rule, a centerpiece of the new post-crisis banking rules, is underway and will pick up Friday, Treasury Secretary Steven Mnuchin said Thursday.
The rule, named for former Federal Reserve Chairman Paul Volcker, is meant to prevent banks from making speculative bets with insured deposits. Instead, it limits banks to taking positions only to address clients’ needs, such as hedging against a particular risk or creating a market.
Mnuchin said at a House Financial Services Committee hearing Thursday that the rule needed to be revised to simplify it and to address the overlap among the five agencies tasked with enforcing it.
“We need to make sure that banks understand how the regulation works,” he said.
The administration has done preliminary work on changing the rule, he said, and he has support from the regulatory agencies involved. It is scheduled to be a topic of conversation Friday at a meeting of the Financial Stability Oversight Council, the super-group of regulators headed by Mnuchin.
Mnuchin said that, by limiting banks’ ability to take specific positions, the rule “has eliminated liquidity that, in the times of crisis, we need market-makers to provide … and that’s something we’re very focused on fixing.”
Daniel Tarullo, the point man for financial regulation at the Federal Reserve during the drafting and implementation of the Volcker Rule, said on leaving office in the spring that the rule is too complicated and should be lifted for small banks.
In a June report, the Trump Treasury Department recommended following that advice and also going further and simplifying the rule for bigger banks to give them more latitude to carry out trades without facing scrutiny from regulators as to whether the banks were speculating.
Democrats are likely to oppose a more significant scaling back of the regulation.
