US ban approved for high-risk bank trades that led to fiscal crisis
In this 1980 file photo, Federal Reserve Board Chairman Paul Volcker listens to a question as he appears before the Senate Banking Committee in Washington, D.C. The Federal Reserve and the Federal Deposit Insurance Corp. each unanimously voted to adopt the so-called Volcker Rule, taking a major step toward preventing extreme risk-taking on Wall Street that helped trigger the 2008 financial crisis. AP file photo
WASHINGTON — U.S. regulators have taken a major step toward reining in high-risk trading on Wall Street, banning the largest banks from trading for their own profit in most cases.
It took three years to write and adopt the Volcker Rule, one of the most critical changes to financial laws in the wake of the 2008 banking crisis.
The Federal Reserve and the Federal Deposit Insurance Corp., the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency each voted Tuesday to adopt it.
The rule’s goal is to reduce the kind of trades that nearly toppled the financial system five years ago and required taxpayer-funded bailouts.
At its heart, the rule seeks to ban banks from almost all proprietary trading. The practice of trading for their own profit has been very lucrative for big banks like JPMorgan Chase, Bank of America and Citigroup. The rule also limits banks’ investments in hedge funds. Congress instructed regulators to draft the Volcker Rule under the 2010 financial overhaul law. It was named after Paul Volcker, a former Fed chairman who was also an adviser to Obama.
“This is definitely a step forward,” said Bartlett Naylor, financial policy advocate at the liberal group Public Citizen. “It’s really up to (federal) supervisors to enforce it, and that’s a matter of choice.”
The largest U.S. banks — those with $50 billion or more in assets — will be required to fully comply with the terms of the rule by July 2015. Other banks will have until 2016 to comply.