WASHINGTON — Federal regulators are weighing all options for retooling their plan to revamp the Volcker Rule, including finalizing only the least controversial portions of their 2018 proposal, two agency heads said Monday.
In separate speeches, Comptroller of the Currency Joseph Otting and Federal Deposit Insurance Corp. Chairman Jelena McWilliams acknowledged industry concerns with the proposal, which was meant to improve the process of complying with the proprietary trading ban but which bankers say would have unintended consequences.
Otting said regulators were meeting with Senate Banking Committee Chairman Mike Crapo, R-Idaho, and other Republican members later on Monday where the Volcker Rule changes were expected to be a subject of discussion.
"I can tell you that’s high on [lawmakers'] list to bring resolution to,” Otting said during the Institute of International Bankers' annual conference.
The two regulators were responding to questions about a recent Bloomberg report that the agencies planned to scrap the so-called Volcker 2.0 proposal. The plan is intended to simplify compliance with the crisis-era rule — first proposed by former Federal Reserve Board Chairman Paul Volcker and inserted in the Dodd-Frank Act — but banks say the introduction of a new accounting standard to designate certain trades as proprietary would be even more burdensome.
When regulators proposed Volcker 2.0 last year, “we rightfully so thought that we had proposed something that would be easy from an accounting perspective, but the market told us that we were encapsulating other trades that really weren’t proprietary in nature,” Otting said. “So I think we’re having dialogue about what to do.”
In a speech after Otting's, McWilliams said it is possible the regulators could implement less controversial reforms to Volcker. One relatively easy step, she said, is to extend certain exemptions from the trading ban for banks with foreign funds that were not considered a covered fund. Those exemptions are now set to expire in July. The regulators could then get to work on a broader reproposal of the more substantive changes, which would come later.
“I will be, frankly, fighting hard on giving you clarity either by working hard on some aspect of finalizing what we can or by extending the [July] deadline,” McWilliams said in response to audience concerns at the conference. “It’s something that we will address and I just don’t know in which way.”
Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, told the IIB conference earlier in the day that the volume and nature of comments on the Volcker Rule 2.0 proposal had led regulators to the conclusion that issuing a new proposal might be necessary to resolve problems raised in the comments.
“I suspect the rule might have to be resubmitted with all this comment, but we continue to look forward to refining and maintaining the protection the Volcker Rule provided, but also better calibrate … many factors that foreign banking organizations grapple with daily,” Phillips said.
As to whether the regulators could carry out Volcker reforms in piecemeal, Otting said, “the rule process is pretty complicated.”
“You just can’t always pick and choose small pieces of things that you think work and then leave everything else behind,” he said.
