WASHINGTON–The FDIC has voted to reduce the number of banks and bank holding companies subject to the Volcker Rule, with reaction to the decision strongly divided. Bankers’ groups praised the decision, while one member of the FDIC board along with consumer groups were outspoken in criticizing the decision.
The Volcker Rule, named after former Fed Chairman Paul Volcker and part of the Dodd-Frank Act, was originally proposed in 2014 in response to big bank failures or near-failures during the Great Recession. The rule generally prohibits banks of more than $10 billion in consolidated assets from using their own accounts for short-term proprietary trading of securities, derivatives and commodities futures.
In a 3-1 vote, the FDIC board agreed to loosen rules around the kinds of activities that are to be exempt from the proprietary trading ban. The new rule is to go into effect on Jan. 1 once also approved by the Federal Reserve, Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
All three members of the FDIC Board who are Trump appointees– Chairman Jelena McWilliams, Comptroller of the Currency Joseph Otting and Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger), voted in favor of the change.
No Longer a 'Meaningful Restraint'
Board member and former FDIC Chairman Martin Gruenberg, an Obama appointee, voted against the final rule, saying in a statement the final rule means the “Volcker Rule will no longer impose a meaningful constraint on speculative proprietary trading by banks and bank holding companies benefiting from the public safety-net.”
However, in her own statement, McWilliams said the final rule “will provide more clarity, certainty, and objectivity around the Volcker Rule, while tailoring the requirements to focus on those banks that conduct the overwhelming majority of trades.”
House Financial Services Committee Chairwoman Maxine Waters (D-CA) called the FDIC vote “senseless” and called on other regulators to reconsider following the FDIC’s lead./
Weakening the rule, said Waters, “will not only put the U.S. economy at risk of another devastating financial crisis, but it could potentially leave taxpayers at risk of having to once again foot the bill for unnecessary and burdensome bank bailouts.”