Washington, DC, United States (4E) – U.S. banking regulators approved Tuesday a rule banning banks from trading their own funds or federally-insured deposits and from taking ownership stakes in hedge funds and private equity funds.
The Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission (SEC) approved the so-called Volcker Rule via 3-2 vote while the Commodities Futures Trading Commission voted 3-1 to pass the measure, which was among the main provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank act overhauled the U.S. financial regulatory system in response to the 2007-2010 global financial crisis triggered by the collapse of large financial institutions and downturns in stock markets around the world. With the limits on risk-taking under the rule named after former Fed chairman Paul Volcker, taxpayers won’t be forced to bail troubled banks out in the future.
Regulators said banks have until July 2015 to comply with the rule, whose implementation faced difficulties amid opposition from banks fearing the rule will hurt their profits.
The rule, however, lets banks to still engage in proprietary trading of U.S. government, state and municipal bonds, including those from housing finance firms Fannie Mae and Freddie Mac. The banks also can trade in foreign bonds under more limited circumstances.
President Barack Obama welcomed the passage of the rule saying it will make “illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system, and demand a new era of accountability from CEOs who must sign off on their firm’s practices.”