Daily Management Review

Donald Trump’s government to relax the Volcker rule


06/01/2018


The new head of the Fed, Jerome Powell, proposed to soften the so-called Volcker rule for the banks. The rule was introduced after the financial crisis and imposed trade restrictions on financial institutions. Now, critics fear that the administration of Donald Trump wants to allow financial corporations to perform exactly those operations that once led to the global financial crisis.



Public Domain Pictures
Public Domain Pictures
According to Jerome Powell's proposals published yesterday in the United States, the Volcker rule can be relaxed. The rule prohibits banks from making high-risk transactions on their own funds (proprietary trading), and also own or control hedge funds that deal with such transactions.

The new head of the Federal Reserve suggests, in particular, "adapting the requirements depending on the trading assets of financial firms." In this regard, it is proposed to divide the banks into three conditional groups. Financial companies with trading assets and liabilities of not less than $ 10 billion must obey the strictest rules. Banks with trading assets of up to $ 10 billion are encouraged to follow "more flexible adapted requirements."

It is also proposed to introduce a provision according to which "abank will not be considered a violator of claims if it incurs daily losses from trading transactions of not more than $ 25 million for a period of 90 working days. In addition, it is proposed to "specify" the concept of companies that trade within reasonable internal risks and participate in allowable operations to maintain certain quotes (the so-called market-making), and also to limit requirements of the Volcker rule to activities of foreign banks. Now, the Fed will be accepting comments on its proposals from market participants and members of the public within the next 60 days.

This is not some minor technical change, Democratic Senator Jeff Merkley, who was one of the authors of the Volcker rule, said in an interview with CNN."This rewriting of the requirements makes it easier for Wall Street banks to do the same high-risk transactions, which in 2008 brought down our economy. "

The talks about the partial refusal of the restrictions of high-risk trades adopted under Barack Obama intensified after Donald Trump’s victory in the election. He repeatedly said that the restrictions are an unnecessary burden for the financial sector and restrain lending to the economy. A year ago, the former head of the Federal Reserve, Janet Yellen, spoke of the possibility of mitigating the Volcker rule. According to her, the norms can be simplified to reduce "excessive confusion" in the regulations governing the activities of smaller financial companies.

source: cnn.com






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