WASHINGTON (CN) – U.S. financial regulators have extended the public comment period on the so-called ‘Volcker Rule’ – a proposal to limit the ability of commercial banks to trade on their own behalf using their depositor’s money – until Feb.
In November, regulators including the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation proposed a joint rule to implement the restrictions, as mandated by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, with public comments due by January 13, 2012.
Almost immediately, industry groups, including the U.S. Chamber of Commerce and the American Bankers Association, asked for an extension, saying they needed more time to analyze the proposed rule because of its complexity.
The rule, named after former Fed Chairman Paul Volcker, who advocated for it, restricts the ability of banking entities to make speculative investments on their own behalf using their depositor’s money or from owning an interest in, or sponsoring, a hedge fund or private equity fund.
The rule is intended to limit the exposure of banks, and by extension, protections afforded to banks by federal agencies, to credit-default swaps and other types of high risk investments that helped to bring on the 2007 collapse of the financial services sector.
Separately, the rule also prohibits a banking entity that advises, manages or sponsors a hedge fund or private equity fund from entering into any transaction with the fund. The agencies hope this will remove the financial incentive for banking entities to place outside bets on positions held by funds they advise.
Under Dodd-Frank, section 619 must be implemented no later than July 21, 2012.