Fed’s Volcker Rule proposal lightens compliance burden for banks based on trading

Wednesday’s proposal allows banks to have stakes in those funds in order to hedge risks for customers that aren’t banks. The financial firms would also be able to trade for themselves on a limited basis, under the proposal.

To determine the level of necessary compliance, the proposal divides banks into three categories. Those with trading assets and liabilities of at least $10 billion would need to comply with the strictest rules. Banking entities with trading assets and liabilities of between $1 billion and $10 billion would be subject to “reduced compliance requirements and a more tailored approach.”

Firms with less than $1 billion in worldwide trading assets and liabilities would be presumed compliant with parts of the rule and not have to demonstrate compliance.

The proposal also said trading desks reporting an absolute daily net gain and loss for the past 90 days not exceeding $25 million would be presumed compliant with the prohibition on proprietary trading. “The banking entity would have no obligation to demonstrate that such trading desk’s activity complies with the rule on an ongoing basis.”

“All of that is to say, I view this proposal as an important milestone in comprehensive Volcker rule reform, but not the completion of our work,” the Fed’s vice chairman for supervision, Randal K. Quarles, said in a statement.

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